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 an S corporation?

S corporations are subject to double taxation on corporate earnings.

S corporations are limited to a maximum number of shareholders.

S corporations can issue multiple classes of stock.

S corporations have unlimited liability for their shareholders.

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Verified step by step guidance

Step 1: Understand the concept of an S corporation. An S corporation is a type of corporation that meets specific Internal Revenue Code requirements, allowing it to pass income directly to shareholders to avoid double taxation. This means corporate earnings are taxed only at the shareholder level, not at the corporate level.

Step 2: Review the characteristics of an S corporation. Key features include limited liability for shareholders, a restriction on the number of shareholders (currently capped at 100), and the requirement to issue only one class of stock.

Step 3: Analyze the options provided in the question. Evaluate each statement to determine whether it aligns with the characteristics of an S corporation. For example, S corporations are not subject to double taxation, so the first option is incorrect.

Step 4: Focus on the limitation regarding the number of shareholders. This is a known disadvantage of S corporations, as it restricts their ability to raise capital compared to other corporate structures like C corporations.

Step 5: Conclude that the correct answer is: 'S corporations are limited to a maximum number of shareholders,' as this is a specific disadvantage of this corporate structure.