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 a corporation compared to a sole proprietorship or partnership?

Double taxation of corporate earnings

Lack of legal entity status

Limited ability to raise capital

Unlimited liability for owners

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Verified step by step guidance

Understand the key characteristics of a corporation, sole proprietorship, and partnership. A corporation is a separate legal entity, meaning it has legal entity status, limited liability for owners, and the ability to raise capital by issuing shares. Sole proprietorships and partnerships do not have these features.

Review the concept of double taxation. Corporations are subject to double taxation because corporate earnings are taxed at the corporate level, and any dividends distributed to shareholders are taxed again at the individual level. Sole proprietorships and partnerships avoid this because their earnings are taxed only once at the owner's personal income tax level.

Analyze the other options provided in the question. Lack of legal entity status is not a disadvantage of a corporation because corporations are legally recognized entities. Limited ability to raise capital is also not a disadvantage of corporations, as they can issue shares to raise funds. Unlimited liability for owners is not applicable to corporations, as shareholders have limited liability.

Compare the disadvantages of corporations with those of sole proprietorships and partnerships. Sole proprietorships and partnerships may face challenges such as unlimited liability for owners and limited ability to raise capital, but they avoid double taxation.

Conclude that the correct answer is 'Double taxation of corporate earnings,' as this is a unique disadvantage of corporations compared to sole proprietorships and partnerships.