Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 1, Problem 1.1WUE
Summary Introduction
To discuss: The advantages for incorporating the business as per the Person A’s wish and pros to remaining as
Introduction:
A particular legal entity that separate from its owners is termed as corporations. In this form of business the owners indicates certain governing rules to undertake the business in a contract knows as the articles of incorporation. This contract is submitted to the government of the state. Later, then the state issues a charter that creates the separate legal entity.
Partnership is the union of two or more persons as co-owners to run the business efficiently and effectively.
Summary Introduction
To discuss: The information required by Person X (third party) for making a better decision for Person A and Person J.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
6
Jeremy and Patricia are a married couple that want to purchase a bakery franchise. profit for the franchise last year was $1 million. They are considering purchasing the business as a partnership or through a proprietary limited company. What id s downside of incorporation in these circumstances?
Perpetual succession.
A separate legal entity for contracts.
Compliance and reporting obligations and on-going registration fees.
Limited liability for members of the company
Moustapha and Ava want to form a business to buy and sell small appliances. They will both actively work in the business.
They are concerned about personal liability. They estimate the company will not be profitable for five years and they want to
be able to deduct any losses. Which form of entity should they use to accomplish their objectives?
O limited partnership
O any of the listed entities would accomplish their objectives
O limited liability company
O general partnership
A & B approach C about forming a general partnership. A & B will each contribute $10,000 cash as start-up funds. C is to contribute no cash but instead work full-time in the business. A & B will work only part-time in the business. A, B, & C will share profits equally. C believes this is a great opportunity for him as he has no investment to risk by going into business with A & C. Is he correct?
Chapter 1 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 1.1 - What is the goal of the firm and, therefore, of...Ch. 1.1 - For what three main reasons is profit maximization...Ch. 1.1 - What is risk? Why must financial managers consider...Ch. 1.1 - Is maximizing shareholder wealth inconsistent with...Ch. 1.2 - What are the main types of decisions that...Ch. 1.2 - Prob. 1.6RQCh. 1.2 - Prob. 1.7RQCh. 1.2 - What are the major differences between accounting...Ch. 1.2 - Prob. 1.9RQCh. 1.3 - Prob. 1.10RQ
Ch. 1.3 - Prob. 1.11RQCh. 1.3 - What does it mean to say that corporations face a...Ch. 1.3 - Prob. 1.13RQCh. 1.3 - Prob. 1.14RQCh. 1.3 - Prob. 1.15RQCh. 1 - Learning Goal 4 ST1-1 Emphasis on Cash Flows...Ch. 1 - Prob. 1.1WUECh. 1 - Prob. 1.2WUECh. 1 - Learning Goal 4 E1-3 The end-of-year parties at...Ch. 1 - You have been made treasurer for a day at AIMCO,...Ch. 1 - Recently, some branches of Donut Shop, Inc., have...Ch. 1 - Ross Company, a manufacturer of pharmaceuticals,...Ch. 1 - Prob. 1.1PCh. 1 - Prob. 1.2PCh. 1 - Cash flows It is typical for Jane to plan,...Ch. 1 - Marginal cost-benefit analysis and the goal of the...Ch. 1 - Identifying agency problems, costs, and...Ch. 1 - Corporate taxes Tantor Supply, Inc., is a small...Ch. 1 - Prob. 1.7PCh. 1 - Prob. 1.8PCh. 1 - Prob. 1.9PCh. 1 - Interest versus dividend expense Michaels...Ch. 1 - Hemingway Corporation is considering expanding its...Ch. 1 - Prob. 1.12PCh. 1 - Prob. 1SE
Knowledge Booster
Similar questions
- Three friends, X Y and Z decide to form a partnership to carry on a business trading in used cars. X has experience working as a manager and salesman. Y is a skilled motor mechanic. Z is wealthy. The general idea is that Z will be a sleeping partner whose only role is to supply capital for the business. X will be responsible for sales and day to day management of the firm's business. Y will be responsible for purchases of cars and repair work. The firm has a written partnership agreement that contains the above information and further provides; the firm will carry on business using the name XYZ Motors profits and losses shall be shared equally X and Y shall give their full time and attention to the business Continuing partners shall be entitled to buy-out any partner wishing to retire at an agreed price or failing agreement on price at a figure determined by an independent valuer. After the firm has been in operation for several months Z is served with writs for three legal…arrow_forwardBrianna and Britney are two sisters opening a clothing store with no other competition within the area. Both Brianna and Britney believe they will gain great profits in the first year, providing them with the ability to sell franchises in the future. They can start the business as a partnership, however it is believed that cash flow will be an issue as they expand in the future, thus they feel as though a corporate form of the business is best. Assume the corporate is formed and it sets a par value for its shares low and issue common stock for a price above par. 1. State what is this amount above par called? 2. Determine if this amount will be considered a gain, income, or profit? State reasons for your answers.arrow_forwardQuestions 4 and 5 are based on the following: For several years, Peejay and Joshua have been operating their own retail pharmacies as sole proprietorships. They decided that several advantages could be gained if they combined their businesses into one operation. They leased a new facility and began operations as a partnership on January 2, 2020. Peejay was able to find a buyer for his prior business and sold it as a going concern. Joshua did not have an opportunity to sell his business so he transferred as many asserts as possible to the new partnership. The following assets were contributed by Peejay and Joshua to start their new business: Peejay Cash Accounts Receivable Inventory Furnishings Ace Dep-Furnishing Office Equipment Acc Dep-Office Equipment Computer System Acc Dep-Computer System Total Accounts Payable (assumed by Partnership) 4. How much is the opening capital of Joshua? A. P396,500 A. B. B. P375,000 C D. 375,000 37,500 Bonus to Joshua 27,825 Bonus from Peejay 375,000…arrow_forward
- Required information Important Note! Before you start working on this problem, watch the Hint video. This video shows you exactly how to work this problem. [The following information applies to the questions displayed below.] ** Ramer and Knox began a partnership by investing $68,000 and $102,000, respectively. During its first year, the partnership earned $205,000. Prepare calculations showing how the $205,000 income is allocated under each separate plan for sharing Income and loss. Important Notel Before you start working on this problem, watch the Hint video. This video shows you exactly how to work this problem. 1. The partners did not agree on a plan, and therefore share Income equally Ramer Knox Show Transcribed Textarrow_forward2) Jim and Carol both work in the real estate market. One day, a great investment property came on the market, and they decided to pool their money to buy and renovate it. They plan to spend six weeks on the renovation, and they hope to make a nice profit when they turn around and sell it. Jim and Carol's partnership is an example of A) a limited partnership. B) a cooperative. C) an S corporation. D) a limited liability company. E) a joint venture.arrow_forwardQuestion 20, Warm-Up 1-1 (static) Part 1 of 3 Ann and Jack have been partners for several years. Their firm, A & J Tax Preparation, has been very successful, as the pair agree on most business-related questions. One disagreement, however, concerns the legal form of their business. For the past two years, Ann has tried to convince Jack to incorporate. She believes that there is no downside to incorporating and sees only benefits. Jack strongly disagrees; he thinks that the business should remain a partnership forever. First, take Ann's side, and explain the positive side to incorporating the business. Next, take Jack's side, and state the advantages to remaining a partnership. Lastly, what information would you want if you were asked to make the decision for Ann and Jack? Which of the following statements are the advantages of a corporation compared to a partnership? (Choose all that apply.) A. Less expensive to organize. B. Low income taxes. C. Owners have limited liability. D.…arrow_forward
- Scenario. Two graduate students started an appliance business in an area where there is no competition. Their fundamental decision is how to organize the business. They anticipate super-profits the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow and as such, they feel the corporate form of operation will be best for the long term. They seek your advice. State three (3) of the main advantage they gain by selecting a corporate form of business now. Would you recommend they initially issue preferred or common stock? Why? If the corporation when formed sets a par value for its shares low and issue common stock for a price above par, what is this amount above par called? Can this amount be treated as a gain, income, or profit for the corporation? Please give the reason for your answer.arrow_forwardBrianna and Britney are two sisters opening a clothing store with no other competition within the area. Both Brianna and Britney believe they will gain great profits in the first year, providing them with the ability to sell franchises in the future. They can start the business as a partnership, however it is believed that cash flow will be an issue as they expand in the future, thus they feel as though a corporate form of the business is best. What are five advantages of choosing the corporate form of a business. Do you suggest that they issue preferred or common stock? State reasons for your answer.arrow_forwardCase Study Louise Mathew is one of three full partners in a newly formed business. Without the permission of the other two partners, she enters into a written contract with a creditor. The transaction binds the firm in the amount of $75,000. Louise then leaves the area and cannot be located by the other two partners. Directions: Answer the following questions and include the characteristics of this business form to provide support for your answer. Are the other two partners liable for the $75,000? What legal features of the partnership apply to this case? Is what Louise has done legal?arrow_forward
- Because Natalie has been successful with Cookie Creations and Curtis has been just as successful with his coffee shop, they both conclude that they could benefit from each other's business expertise. Curtis and Natalie next evaluate the different types of business organization, and because of the advantage of limited personal liability, decide to form a new corporation. Curtis has operated his coffee shop for 2 years. He buys coffee, muffins, and cookies from a local supplier. Natalie's business consists of giving cookie-making classes and selling fine European mixers. The plan is for Natalie to use the premises Curtis currently rents as a location for her cookie-making classes and demonstrations of the mixers that she sells. Natalie will also hire, train, and supervise staff hired to bake cookies and muffins sold in the coffee shop. By offering her classes on the premises, Natalie will save on travel, and the coffee shop will provide one central location for selling the mixers.…arrow_forwardGauri has approached your law firm to assist her in taking her business to 'the next level'. She has been working in a partnership with her cousins Rohit and Shymal for several years in a business consulting firm. With the intense level of demand, they have decided to expand the firm by adding 5 new partners, but they are worried about bringing in so many people into the business. Advise Gauri about the potential perils of using partnership in this situation. Also advise her about her option to create a company including the process for creating a company, and the practical implications of companies having a separate legal personality.arrow_forwardCan you please show the solution in good accounting form (preferrably in an excel) where it also shows what happens to every partners while solving for the requirement? Thank you so much for your help. It is appreciated. PROBLEM: John and Paul are partners who share profits and losses in the ratio of 3:2 respectively. Their salaries were: John’s salary $180,000 Paul’s salary $140,000. The partners are paid interest on their average capital balances where they received interest of: John $30,000 Paul $15,000. The profit and loss allocation is determined after deduction for the salary and interest payments. If John received $280,000 from partnership income, what was the total partnership income?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,