Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Characteristics of a Corporation

Financial Accounting

12. Stockholders' Equity

Characteristics of a Corporation

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Multiple Choice

Which of the following is a disadvantage of S corporations?

S corporations have unlimited liability for their owners.

S corporations cannot issue stock to raise capital.

S corporations are taxed twice on corporate earnings.

S corporations are subject to restrictions on the number and type of shareholders.

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Verified step by step guidance

Understand the concept of an S corporation: An S corporation is a type of corporation that meets specific Internal Revenue Service (IRS) requirements. It allows income, losses, deductions, and credits to pass through to shareholders for federal tax purposes, avoiding double taxation.

Review the advantages of S corporations: These include limited liability for owners, pass-through taxation (avoiding double taxation), and the ability to raise capital through stock issuance.

Identify the disadvantages of S corporations: S corporations are subject to restrictions, such as limits on the number of shareholders (typically 100) and the requirement that shareholders must generally be U.S. citizens or residents. Additionally, they cannot have certain types of shareholders, such as partnerships or corporations.

Analyze the options provided in the question: Evaluate each statement to determine whether it accurately describes a disadvantage of S corporations. For example, S corporations do not have unlimited liability (owners have limited liability), they can issue stock to raise capital, and they are not taxed twice on corporate earnings.

Conclude that the correct answer is: 'S corporations are subject to restrictions on the number and type of shareholders,' as this is a well-known limitation of S corporations under IRS regulations.