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 converting a partnership into a corporation?

Limited ability to raise capital

Double taxation of corporate earnings

Unlimited liability for owners

Lack of legal entity status

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Verified step by step guidance

Understand the context: A partnership and a corporation are two different business structures. A partnership involves shared ownership and liability among partners, while a corporation is a separate legal entity with distinct advantages and disadvantages.

Identify the key disadvantage mentioned in the problem: The question highlights 'double taxation of corporate earnings' as the correct answer. This refers to the fact that corporations are taxed on their profits, and shareholders are taxed again on dividends received, leading to double taxation.

Compare the options: Evaluate each option provided in the question. For example, 'Limited ability to raise capital' is not a disadvantage of a corporation, as corporations generally have greater access to capital markets. Similarly, 'Unlimited liability for owners' applies to partnerships, not corporations, as corporations offer limited liability protection. 'Lack of legal entity status' is incorrect because corporations are recognized as separate legal entities.

Explain why double taxation is a disadvantage: Double taxation occurs because corporate earnings are taxed at the corporate level, and any dividends distributed to shareholders are taxed again at the individual level. This can reduce the overall profitability for shareholders compared to other business structures like partnerships.

Conclude the analysis: Based on the evaluation, the correct disadvantage of converting a partnership into a corporation is 'Double taxation of corporate earnings,' as it directly impacts the financial outcomes for shareholders and is unique to the corporate structure.