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 primary advantage of organizing a firm as a corporation?

Limited liability for shareholders

Direct management by all shareholders

Unlimited liability for owners

Simplified tax reporting compared to sole proprietorships

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Verified step by step guidance

Understand the concept of a corporation: A corporation is a legal entity that is separate from its owners (shareholders). It has its own rights and responsibilities, and its structure provides certain advantages and disadvantages.

Review the concept of limited liability: In a corporation, shareholders are only liable for the amount they have invested in the company. They are not personally responsible for the corporation's debts or legal obligations beyond their investment.

Compare the options provided: Analyze each option to determine which aligns with the characteristics of a corporation. For example, 'Limited liability for shareholders' is a key feature of corporations, while 'Direct management by all shareholders' is not typical in corporations as management is usually handled by a board of directors or executives.

Eliminate incorrect options: 'Unlimited liability for owners' applies to sole proprietorships and partnerships, not corporations. 'Simplified tax reporting compared to sole proprietorships' is incorrect because corporations often have more complex tax reporting requirements.

Select the correct answer: Based on the analysis, the primary advantage of organizing a firm as a corporation is 'Limited liability for shareholders.'