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 an advantage of forming a corporation?

Difficulty in transferring ownership

Limited liability for shareholders

Limited ability to raise capital

Unlimited personal liability for owners

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Verified step by step guidance

Step 1: 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 it can enter into contracts, own assets, and incur liabilities independently of its shareholders.

Step 2: Review the advantages of forming a corporation. One key advantage is limited liability for shareholders, meaning that shareholders are only liable for the amount they have invested in the corporation and are not personally responsible for the corporation's debts or legal obligations.

Step 3: Compare the options provided in the question. Evaluate each option to determine which aligns with the advantages of forming a corporation. For example, 'Difficulty in transferring ownership' is not an advantage, as corporations typically have easier transferability of ownership through the sale of shares.

Step 4: Eliminate incorrect options. 'Limited ability to raise capital' and 'Unlimited personal liability for owners' are disadvantages, not advantages, of forming a corporation. Corporations generally have greater ability to raise capital through issuing shares and bonds.

Step 5: Identify the correct answer. Based on the analysis, the correct advantage of forming a corporation is 'Limited liability for shareholders,' as this protects shareholders from personal financial risk beyond their investment in the corporation.