Test bank taxation of individuals and business entities 2015 6e by brian c spilker chap015

Chapter 15
Entities Overview
True / False Questions
1. Corporations are legally formed by filing articles of organization with the state in
which the corporation will be created.
True

False

2. General partnerships are legally formed by filing a partnership agreement with the
state in which the partnership will be formed.
True

False

3. Limited partnerships are legally formed by filing a certificate of limited partnership
with the state in which the partnership will be organized.
True

False

4. Sole proprietorships are not treated as legal entities separate from their individual
owners.
True

False

5. S corporation shareholders are legally responsible for paying the S corporation's
debts because S corporations are treated as flow-through entities for tax purposes.
True

False

6. LLC members have more flexibility than corporate shareholders to alter their legal
arrangements with respect to one another, the entity, and with outsiders.
True

False

7. Corporations are legally better suited for taking a business public compared with
LLCs and general partnerships.
True

False

8. Both tax and nontax objectives should be considered when choosing an appropriate
business entity.
True

False

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9. Tax rules require that entities be classified the same way for tax purposes as they are
classified for legal purposes.
True

False

10. C corporations and S corporations are separate taxpaying entities that pay tax on
their own income.
True

False

11. All unincorporated entities are generally treated as flow-through entities for tax
purposes.
True

False

12. In certain circumstances, C corporations can elect to be treated as flow-through
entities.
True

False

13. An unincorporated entity with more than one owner is, by default, taxed as a
partnership.
True

False

14. A single-member LLC is taxed as a partnership.
True

False

15. For tax purposes, only unincorporated entities can be considered to be disregarded
entities.
True

False

16. Unincorporated entities with only one individual owner are taxed as sole
proprietorships.
True

False

17. S corporations have more restrictive ownership requirements than other entities.
True

False

18. Entities taxed as partnerships can use special allocations to reward owners based on
their responsibilities, contributions, and individual needs.
True

False

19. Sole proprietors are subject to self-employment taxes on net income from their sole
proprietorships.
True

False

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20. Shareholders of C corporations receiving property distributions must recognize
dividend income equal to the fair market value of the distributed property if the
distributing corporation has sufficient earnings and profits.
True

False

21. Losses from C corporations are never available to offset a shareholder's personal
income.
True

False

Multiple Choice Questions
22. Which of the following legal entities file documents with the state to be formally
recognized by the state?

A. Limited Liability
Company
B. General
Partnership
C. Sole
Proprietorship
D. None of
these
23. If an individual forms a sole proprietorship, which nontax factor will be of greatest

benefit to the sole proprietor?

A. Liability
protection
B. Legal flexibility in defining rights and responsibilities
of owners
C. Facilitates initial public
offerings
D. Minimal time and cost to
organize

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24. Which legal entity is correctly paired with the party that bears the ultimate
responsibility for paying the legal entity's liabilities?

A. LLC - LLC
members
B. Corporation Corporation
C. General Partnership Partnership
D. Limited Partnership - General
partner
E. Both Corporation - Corporation and Limited Partnership - General
partner.
25. Which legal entity provides the least flexible legal arrangement for owners?

A. Corporati

on
B. LLC
C. Partnershi
p
D. Sole
Proprietorship
26. Which legal entity is generally best suited for going public?

A. Corporati
on
B. LLC
C. Limited Liability
Partnership
D. General
Partnership
E. All of these entities are equally suited for going
public.
27. What document must LLCs file with the state to organize their business?

A. Articles of
incorporation
B. Certificate of
LLC
C. Articles of
organization
D. Partnership
agreement
E. None of these. LLCs do not have to file with the state to organize their
business.

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28. Which of the following entity characteristics are generally key drivers for small
business owners in deciding which entity to choose?

A. Double
taxation
B. Required accounting
period
C. Liability
protection
D. Double taxation and required accounting
period
E. Double taxation and liability
protection
29. On which form is income from a single member LLC with one corporate (C
corporation) owner reported?

A. Form 1120 used by C corporations to report their
income
B. Form 1120S used by S corporations to report their
income
C. Form 1065 used by partnerships to report their
income
D. Form 1040, Schedule C used by sole proprietorships to report
their income
E. None of

these.
30. On which tax form does a single member LLCs with one individual owner report its
income and losses?

A. Form
1120
B. Form
1120S
C. Form
1065
D. Form 1040,
Schedule C

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31. On which tax form do LLCs with more than one owner report their income and
losses?

A. Form
1120
B. Form
1120S
C. Form
1065
D. Form 1040,
Schedule C
32. Which tax classifications can potentially apply to LLCs?

A. S
corporation
B. Partnershi
p
C. Sole
proprietorship
D. S corporation and
Partnership
E. S corporation and Sole
proprietorship
F. Partnership and Sole
proprietorship
G. All of
these
33. Generally, which of the following flow-through entities can elect to be treated as a C
corporation?

A. Limited
partnership
B. Limited Liability
Company
C. General
partnership
D. All of
these.

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34. Which of the following legal entities are classified as C corporations for tax
purposes?

A. Limited Liability
Company
B. S
corporations
C. Limited
partnerships
D. Sole
proprietorship
E. None of
these
35. If PST Corporation is a shareholder of MNO Corporation, how many levels of tax is
MNO's pre-tax income potentially exposed to?

A. No
taxation
B. Single
taxation
C. Double
taxation
D. Triple
taxation
36. Crocker and Company, Inc. had taxable income of $550,000. At the end of the year, it
distributes all its after-tax earnings to Jimmy, the company's sole shareholder.
Jimmy's marginal ordinary tax rate is 34 percent and his marginal tax rate on
dividends is 15 percent. What is the overall tax rate on Crocker and Company's pretax income?

A. 9.9
%
B. 15.0
%
C. 35.0
%
D. 43.9
%
E. 66.7
%

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37. If C corporations retain their after-tax earnings, when will their shareholders be taxed
on the retained earnings?

A. Shareholders will be taxed when they sell their shares
at a gain
B. Shareholders will be taxed in the year they elect to be taxed on undistributed
retained earnings
C. Shareholders will be taxed on undistributed retained earnings in the year the
corporation files its tax return
D. None of
these
38. Which of the following is most effective in mitigating the double tax?

A. Shift income from high tax rate shareholders to low tax rate
corporations
B. Shift income from low tax rate shareholders to high tax rate
corporations
C. Shift income from high tax rate corporations to low tax rate
shareholders
D. Shift income from low tax rate corporations to high tax rate
shareholders
39. While a C corporation's losses cannot be used by their shareholders to offset personal
income, a C corporation may carry back and carry forward losses to help offset the
taxable income a corporation had or will have. How are these net operating losses
carried back and carried forward?

A. Carried back two years, carried forward
indefinitely
B. Carried back indefinitely, carried forward
two years
C. Carried back two years, carried forward five
years
D. Carried back two years, carried forward
twenty years
E. None of
these.

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40. Logan, a 50 percent shareholder in Military Gear Inc., is comparing the tax

consequences of losses from C corporations with losses from S corporations. Assume
Military Gear Inc has a $100,000 loss for the year, Logan's tax basis in his Military
Gear Inc. stock was $150,000 at the beginning of the year, and he received $75,000
ordinary income from other sources during the year. Assuming Logan's marginal
income tax rate is 15%, how much more tax will Logan pay currently if Military Gear
Inc. is a C corporation compared to the tax he would pay if it were an S corporation?

A. $
0
B. $3,75
0
C. $7,50
0
D. $11,25
0
41. Which of the following is not an effective strategy for mitigating double taxation in a
C corporation?

A. C corporations can shift income to shareholders via deductible
payments
B. C corporations can make an S
election
C. C corporations can pay dividends to their
shareholders
D. None of these. All of these statements are effective strategies to mitigate or avoid
double taxation.
42. Robert is seeking additional capital to expand ABC Inc. In order to qualify ABC as an S
corporation, which type of investor group should Robert obtain capital from?

A. 30 different

partnerships
B. 10 different C
corporations
C. 90 nonresident
individuals
D. 120 unrelated resident
individuals
E. None of
these.

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43. What tax year-end must unincorporated entities with only one owner adopt?

A. The entity is free to adopt any tax
year-end
B. The entity must adopt the same year-end as its
owner
C. The entity must adopt a calendar
year-end
D. The entity may adopt any year-end except for a calendar
year-end
44. Roberto and Reagan are both 25 percent owner/managers for Bright Light Inc.
Roberto runs the retail store in Sacramento, CA, and Reagan runs the retail store in
San Francisco, CA. Bright Light Inc. generated a $125,000 profit companywide made
up of a $75,000 profit from the Sacramento store, a ($25,000) loss from the San
Francisco store, and a combined $75,000 profit from the remaining stores. If Bright

Light Inc. is an S corporation, how much income will be allocated to Roberto?

A. $31,25
0
B. $62,50
0
C. $75,00
0
D. $125,00
0
45. Roberto and Reagan are both 25 percent owner/managers for Bright Light
Enterprises. Roberto runs the retail store in Sacramento, CA, and Reagan runs the
retail store in San Francisco, CA. Bright Light generated a $125,000 profit
companywide made up of a $75,000 profit from the Sacramento store, a ($25,000)
loss from the San Francisco store, and a combined $75,000 profit from the remaining
stores. If Bright Light is taxed as a partnership and decides that Roberto and Reagan
will be allocated 70 percent of his own store's profit with the remaining profits
allocated pro rata among all the owners, how much income will be allocated to
Reagan?

A. ($25,00
0)
B. ($17,50
0)
C. $5,00
0
D. $20,00
0

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46. When an employee/shareholder receives an income allocation from an S corporation,
what taxes apply to the income allocation?

A. FICA tax
only.
B. Self-employment tax
only.
C. FICA and self-employment
tax.
D. None of these. This income will never be
taxed.
E. None of these. This income will be taxed, but another type of tax
will apply.
47. What is the tax impact to a C corporation or an S corporation when it makes a
property distribution to a shareholder?

A. Recognizes either gain or
loss
B. Does not recognize gain or
loss
C. Recognizes gain but not
loss
D. Recognizes loss
only
48. Assume you plan to start a new enterprise; you know the probability of having losses
for the first three years of operations is almost 90 percent, and you know you will

report a substantial amount of income from other sources during those same three
years. From a tax perspective, which of the following entity choices would be least
favorable?

A. C
corporation
B. LLC
C. General
partnership
D. S
corporation

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49. From a tax perspective, which entity choice is preferred when a liquidating
distribution occurs and the entity has assets that have declined in value?

A. Partnershi
p
B. S
corporation
C. LLC
D. Partnership and S
corporation
E. S corporation and
LLC
50. From a tax perspective, which entity choice is preferred when a liquidating

distribution occurs and the entity has appreciated assets?

A. Partnershi
p
B. S
corporation
C. LLC
D. Partnership and
LLC
E. S corporation and
LLC
51. If you were seeking an entity with the most favorable tax treatment regarding (1) the
number of owners allowed, (2) the flexibility to select your accounting period, and (3)
the availability of preferential capital gains rates when selling your ownership
interest, which entity should you decide to use?

A. C
corporation
B. S
corporation
C. Partnershi
p
D. Sole
proprietorship

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52. Which of the following is not an effective strategy for mitigating the double tax
associated with C corporations?

A. Paying a salary to a shareholderemployee
B. Leasing property from a
shareholder
C. Borrowing money from a
shareholder
D. Paying fringe benefits to a shareholderemployee
E. All of these are effective strategies for mitigating
double taxation
53. What is the maximum number of unrelated shareholders a C corporation can have,
the maximum number of unrelated shareholders an S corporation can have, and the
maximum number of partners a partnership may have?

A. 100; no limit; no
limit
B. no limit;
100; 2
C. no limit; 100; no
limit
D. 100; 100; no
limit

Essay Questions

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54. David would like to organize HOS as either an LLC or as a corporation generating a 12
percent annual before-tax return on a $300,000 investment. Individual and corporate
tax rates are both 30 percent and individual capital gains and dividend tax rates are
15 percent. HOS will pay out its after-tax earnings every year to either its members
or its shareholders.
a. Ignoring self-employment taxes, how much would David keep after taxes if HOS is
organized as either an LLC or a corporation?
b. Ignoring self-employment taxes, what are the overall tax rates (combined owner
and entity level) if HOS is organized as either an LLC or a corporation?

55. Jaron would like to organize TMZ as either an LLC or as a C corporation generating a 6
percent annual before-tax rate of return on a $200,000 investment. Individual and
corporate tax rates are both 40 percent and individual capital gains and dividends tax
rates are 10 percent. TMZ will distribute its earnings annually to either its members
or shareholders.
a. Ignoring self-employment taxes (and the additional Medicare Tax), how much
would Jaron keep after taxes if TMZ is organized as either an LLC or a C corporation?
b. Ignoring self-employment taxes (and the additional Medicare Tax), what are the
overall tax rates (combined overall and entity level) if TMZ is organized as either an
LLC or as a C corporation?

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56. Emmy would like to organize PRK as either an LLC or as a C corporation generating a
15 percent annual before-tax rate of return on a $100,000 investment. Individual
ordinary rates are 25 percent, corporate rates are 15 percent, and individual capital

gains and dividends tax rates are 5 percent. PRK will distribute its earnings annually
to either its members or shareholders.
a. Ignoring self-employment taxes, how much would Emmy keep after taxes if PRK is
organized as either an LLC or as a C corporation?
b. Ignoring self-employment taxes, what are the overall tax rates (combined entity
and owner level) if PRK is organized as either an LLC or a corporation?

57. Jerry would like to organize FBC as either an LLC or as a C corporation generating an
8 percent annual before-tax rate of return on a $400,000 investment. Individual and
corporate tax rates are both 35 percent and individual capital gains and dividends tax
rates are 15 percent. FBC will pay out its after-tax earnings every year to either its
members or its shareholders.
a. How much would Jerry keep after taxes if FBC is organized as either an LLC or as a
C corporation (ignore self-employment taxes)?
b. Ignoring self-employment taxes, what are the overall tax rates (combined owner
and entity level) tax rates if FBC is organized as either an LLC or as a C corporation?

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58. Taylor would like to organize DRK as either an LLC or as a C corporation generating a
13 percent annual before-tax rate of return on a $250,000 investment. Individual and
corporate tax rates are both 30 percent and individual capital gains and dividends tax
rates are 5 percent. DRK will distribute its earnings annually to either its members or
shareholders.
a. Ignoring self-employment taxes, how much would Taylor keep after taxes if DRK is
organized as either an LLC or as a C corporation?
b. Ignoring self-employment taxes, what are the overall (combined owner and entity

level) tax rates if DRK is organized as either an LLC or as a C corporation?

59. Becca would like to organize BMI as either an LLC or as a C corporation generating a
4 percent annual before-tax rate of return on a $450,000 investment. Individual
ordinary rates are 28 percent, corporate rates are 15 percent, and individual capital
gains and dividends tax rates are 15 percent. BMI will distribute its earnings annually
to either its members or shareholders.
a. Ignoring self-employment taxes, how much would Becca keep after taxes if BMI is
organized as either a LLC or as a C corporation?
b. Ignoring self-employment taxes, what are the overall (combined owner and entity
level) tax rates if BMI is organized as either an LLC or as a C corporation?

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60. SNL corporation, a C corporation, reports $400,000 of taxable income in the current
year. SNL's tax rate is 35 percent. Answer the following questions, assuming Keegan,
SNL's sole shareholder, has a marginal tax rate of 39.6 percent on ordinary income
and 20 percent on dividend income.
a. Compute the first level of tax on SNL's taxable income for the year.
b. Compute the second level of tax on SNL's income assuming that SNL currently
distributes all of its after-tax earnings to Keegan. What is the overall (combined
owner and entity level) tax rate on SNL's taxable income for the year?

61. In the current year, DNS (a C corporation) had taxable income of $600,000 and
distributed all of its after-tax earnings to Daniel, its sole shareholder. DNS's tax rate is
38 percent. Assuming Daniels's marginal tax rate on ordinary income is 28 percent
and his dividend rate is 15 percent, what is the overall tax rate (combined corporate

level and shareholder level) on DNS's $600,000 of taxable income?

62. In its first year of existence, BYC Corporation (a C corporation) reported a loss for tax
purposes of ($40,000). How much tax will BYC pay in year 2 if it reports taxable
income from operations of $35,000 in year 2 before any loss carryovers?

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63. In its first year of existence Aspen Corp. (a C corporation) reported a loss for tax
purposes of $50,000. In year 2, it reports a $30,000 loss. For year 3, it reports taxable
income from operations of $120,000. How much tax will Aspen Corp. pay for year 3?
Consult the corporate tax rate table provided to calculate your answer.

64. For the current year, Creative Designs Inc., a C corporation, reports taxable income of
$300,000 before paying salary to Ben the sole shareholder of Creative Designs Inc.
(CD). Ben's marginal tax rate on ordinary income is 28 percent and 15 percent on
dividend income. Assume CD's tax rate is 39 percent.
a. How much total income tax will Creative Designs and Ben pay on the $300,000
taxable income for the year if CD doesn't pay any salary to Ben and instead
distributes all of its after-tax income to Ben as a dividend?
b. How much total income tax will Creative Designs and Ben pay on the $300,000 of
income if CD pays Ben a salary of $100,000 and distributes its remaining after-tax
earnings to Ben as a dividend?
c. Compare your answer in part a with your answer to part b. Explain why these
numbers are different.

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65. For the current year, Birch Corporation, a C corporation, reports taxable income of
$400,000 before paying salary to its sole shareholder Elaine. Elaine's marginal tax
rate on ordinary income is 33 percent and 15 percent on dividend income. If Birch
pays Elaine a salary of $200,000 but the IRS determines that Elaine's salary in excess
of $100,000 is unreasonable compensation, what is the overall income tax rate on
Birch's $400,000 pre-salary income? Assume Birch's tax rate is 35 percent and it
always distributes all after-tax earnings to Elaine.

66. Cali Corp. (a C corporation) projects that it will have taxable income of $250,000 for
the year before paying any fringe benefits. Stacey, Cali's sole shareholder, has a
marginal tax rate of 33 percent on ordinary income and 15 percent on dividend
income. Assume Cali's tax rate is 34 percent.
a. What is the amount of the combined corporate and shareholder level income tax
on Cali's $250,000 of pre-benefit income if Cali Corp. does not pay out any fringe
benefits and distributes all of its after-tax earnings to Stacey?
b. What is the amount of the combined corporate and shareholder level income tax
on Cali's $250,000 of pre-benefit income if Cali Corp. pays Stacey's adoption
expenses of $50,000 and the payment is considered to be a qualified fringe benefit?
Cali Corp. distributes all of its after-tax earnings to Stacey.
c. What is the amount of the combined corporate and shareholder level income tax
on Cali's $250,000 of pre-benefit income if Cali Corp. pays Stacey's adoption
expenses of $50,000 and the payment is considered to be a nonqualified fringe
benefit? Cali Corp. distributes all of its after-tax earnings to Stacey.

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67. Jamal Corporation, a C corporation, projects that it will have taxable income of
$500,000 before incurring any lease expenses. Jamal's tax rate is 34 percent. Ali,
Jamal's sole shareholder, has a marginal tax rate of 33 percent on ordinary income
and 15 percent on dividend income. Jamal always distributes all of its after-tax
earnings to Ali.
a. What is the amount of the combined corporate and shareholder level tax on Jamal
Corp.'s $500,000 pre-lease expense income if Jamal Corp. distributes all of its aftertax earnings to its sole shareholder Ali?
b. What is the amount of the combined corporate and shareholder level tax on Jamal
Corp.'s $500,000 pre-lease expense income if Jamal leases equipment from Ali at a
cost of $120,000 for the year?
c. What is the amount of the combined corporate and shareholder level tax on Jamal
Corp.'s $500,000 pre-lease expense income if Jamal Corp. leases equipment from Ali
at a cost of $120,000 for the year but the IRS determines that the fair market value
of the lease payments is $80,000?

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68. Tuttle Corporation (a C corporation) projects that it will have taxable income for the
year of $300,000 before incurring any interest expense. Assume Tuttle's tax rate is 35
percent.
a. What is the amount of the combined corporate and shareholder level tax on the
$300,000 of pre-interest expense earnings if Ruth, Tuttle's sole shareholder, lends
Tuttle Corporation $100,000 at the beginning of the year, Tuttle pays Ruth $10,000 of
interest on the loan (interest is considered to be reasonable), and Tuttle distributes all

of its after-tax earnings to Ruth? Assume her ordinary marginal rate is 33 percent and
dividend tax rate is 15 percent.
b. Assume the same facts as in part a except that the IRS determines that the fair
market value of the interest should be $8,000. What is the amount of the combined
corporate and shareholder level tax on Tuttle Corporation's pre-interest expense
earnings?

69. Nancy purchased a building and then leased the building to ZML. Nancy is the sole
shareholder of ZML. She leased the building to ZML for $2,500 per month. However,
the IRS determined that the fair market value of the lease payment should only be
$1,500 per month. How would the lease payment be treated with respect to both
Nancy and ZML?

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70. Rodger owns 100% of the shares in Trevor Inc., a C corporation. Assume the following
for the current year:

Given these assumptions, how much cash does Rodger have from the dividend after
all taxes have been paid?

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71. Corporation A owns 10% of Corporation C. The marginal tax rate on non-dividend

income for both A and C is 34%. Corporation C earns a total of $200 million before
taxes in the current year, pays corporate tax on this income and distributes the
remainder proportionately to its shareholders as a dividend. In addition, Corporation
A owns 20% of partnership P that earns $500 million in the current year. Given this
fact pattern, answer the following questions:
a. How much cash from the Corporation C dividend remains after Corporation A pays
the tax on the dividend assuming Corporation A is eligible for the 70 percent
dividends received deduction?
b. If partnership P distributes all of its current year earnings in proportion to the
partner's ownership percentages, how much cash from Partnership P does
Corporation A have after paying taxes on its share of income from the partnership?
c. If you were to replace corporation A with individual A (her marginal tax rate on
ordinary income is 28% and on qualified dividends is 15%) in the original fact pattern
above, how much cash does individual A have from the Corporation C dividend after
all taxes assuming the dividends are qualified dividends? Consistent with the original
facts, assume that Corporation C distributes all of its after-tax income to its
shareholders.

15-23
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Chapter 15 Entities Overview Answer Key
True / False Questions
1.

Corporations are legally formed by filing articles of organization with the state in
which the corporation will be created.
FALSE

Corporations file articles of incorporation.
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 15-01 Discuss the legal and nontax characteristics of different types of legal entities.
Level of Difficulty: 2 Medium
Topic: Entity legal classification and nontax characteristics

2.

General partnerships are legally formed by filing a partnership agreement with the
state in which the partnership will be formed.
FALSE
General partnerships may be formed by written agreement among the partners,
called a partnership agreement, or may be formed informally without a written
agreement when two or more owners join together in an activity to generate
profits.
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 15-01 Discuss the legal and nontax characteristics of different types of legal entities.
Level of Difficulty: 2 Medium
Topic: Entity legal classification and nontax characteristics

3.

Limited partnerships are legally formed by filing a certificate of limited partnership
with the state in which the partnership will be organized.

TRUE
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 15-01 Discuss the legal and nontax characteristics of different types of legal entities.
Level of Difficulty: 1 Easy
Topic: Entity legal classification and nontax characteristics

15-24
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McGraw-Hill Education.


4.

Sole proprietorships are not treated as legal entities separate from their individual
owners.
TRUE
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 15-01 Discuss the legal and nontax characteristics of different types of legal entities.
Level of Difficulty: 1 Easy
Topic: Entity legal classification and nontax characteristics

5.

S corporation shareholders are legally responsible for paying the S corporation's

debts because S corporations are treated as flow-through entities for tax
purposes.
FALSE
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 15-01 Discuss the legal and nontax characteristics of different types of legal entities.
Level of Difficulty: 2 Medium
Topic: Entity legal classification and nontax characteristics

6.

LLC members have more flexibility than corporate shareholders to alter their legal
arrangements with respect to one another, the entity, and with outsiders.
TRUE
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 15-01 Discuss the legal and nontax characteristics of different types of legal entities.
Level of Difficulty: 1 Easy
Topic: Entity legal classification and nontax characteristics

7.

Corporations are legally better suited for taking a business public compared with
LLCs and general partnerships.
TRUE
AACSB: Reflective Thinking

AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 15-01 Discuss the legal and nontax characteristics of different types of legal entities.
Level of Difficulty: 1 Easy
Topic: Entity legal classification and nontax characteristics

8.

Both tax and nontax objectives should be considered when choosing an
appropriate business entity.
TRUE
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 15-01 Discuss the legal and nontax characteristics of different types of legal entities.
15-25
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.