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Solution Manual for Corporate Financial Accounting, 16th Edition by Carl S. Warren, Jeff Jones
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Solution Manual for Corporate Financial Accounting, 16th Edition by Carl S. Warren, Jeff Jones
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Solution Manual forCorporate Financial Accounting, 16th Edition by Carl S. Warren, Jeff Jones
Chapter 1-9
Sure! I’ll expand on the topics related to "Taxation of Business Entities," providing a more detailed exploration. This overview will cover fundamental concepts, applications, and
implications relevant to the study of business taxation.---### Overview of Business Entities#### 1. Types of Business EntitiesBusiness entities can be categorized based on
ownership structure and tax treatment. Understanding these types is crucial for determining tax obligations and benefits.- **Sole Proprietorships**: - Owned by a single individual,
this is the simplest form of business entity. Income is reported on the owner’s personal tax return (Form 1040, Schedule C), which simplifies tax filing but also means personal
liability for debts and obligations.- **Partnerships**: - Consisting of two or more individuals, partnerships do not pay federal income taxes. Instead, they are considered pass-
through entities, meaning income is taxed at the partners' individual rates. Form 1065 is used to report partnership income, while partners receive Schedule K-1 to report their
share on their returns.- **Corporations**: - Corporations are separate legal entities that provide limited liability protection to their owners (shareholders). C-Corporations face
double taxation: once at the corporate level on profits and again at the individual level when dividends are distributed. S-Corporations, on the other hand, are pass-through entities
but have restrictions on ownership and number of shareholders.- **Limited Liability Companies (LLCs)**: - LLCs combine the flexibility of partnerships with the liability protection
of corporations. An LLC can choose to be taxed as a sole proprietorship, partnership, or corporation, allowing for strategic tax planning. ### 2. Tax Implications of Each Entity
TypeUnderstanding the tax implications of each entity type is critical for effective business planning.- **Sole Proprietorships**: - Income is taxed at the owner’s individual tax rate.
All profits and losses are reported on the owner’s tax return. This simplicity, however, can expose owners to significant personal risk.- **Partnerships**: - Each partner reports
their share of income and losses on their personal returns, allowing for loss deductions. Partners are also subject to self-employment taxes on their share of the income, which
can significantly impact tax liability.- **Corporations**: - C-Corporations are taxed at the corporate tax rate (currently 21%). Dividends are taxed again at the shareholder level. S-
Corporations avoid double taxation, but there are restrictions on the number and type of shareholders.- **Limited Liability Companies (LLCs)**: - By default, single-member LLCs
are treated as sole proprietorships for tax purposes, while multi-member LLCs are treated as partnerships. However, they can elect to be taxed as a corporation if beneficial.###
Key Tax Concepts#### 1. Income RecognitionIncome recognition is a fundamental principle in taxation, determining when income must be reported.- **Cash vs. Accrual
Accounting**: - Businesses can choose between cash and accrual methods. Cash accounting recognizes income when received and expenses when paid, making it
CHAPTER 1
INTRODUCTION TO ACCOUNTING AND BUSINESS
DISCUSSION QUESTIONS
1. Some users of accounting information include managers, employees, investors, creditors,
customers, and the government.
2. The role of accounting is to provide information for managers to use in operating the business. In
addition, accounting provides information to others to use in assessing the economic performance
and condition of the business.
3. The corporate form allows the company to obtain large amounts of resources by issuing stock. For
this reason, most companies that require large investments in property, plant, and equipment are
organized as corporations.
4. No. The business entity assumption limits the recording of economic data to transactions directly
affecting the activities of the business. The payment of the interest of $4,500 is a personal
transaction of Josh Reilly and should not be recorded by Dispatch Delivery Service.
5. The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistent
with the cost principle.
6. a. No. The offer of $2,000,000 and the increase in the assessed value should not be recognized in
the accounting records.
b. Cash would increase by $2,125,000, land would decrease by $900,000, and stockholders’
equity would increase by $1,225,000.
1-1
, 7. An account receivable is a claim against a customer for goods or services sold. An account payable
is an amount owed to a creditor for goods or services purchased. Therefore, an account receivable
in the records of the seller is an account payable in the records of the purchaser.
8. (b) The business realized net income of $91,000 ($679,000 – $588,000).
9. (a) The business incurred a net loss of $75,000 ($640,000 – $715,000).
10. (a) Net income or net loss
(b) Common stock and retained earnings at the end of the period
(c) Cash at the end of the period
Sure! I’ll expand on the topics related to "Taxation of Business Entities," providing a more detailed exploration. This overview will cover fundamental concepts, applications, and implications relevant to the study of business
taxation.---### Overview of Business Entities#### 1. Types of Business EntitiesBusiness entities can be categorized based on ownership structure and tax treatment. Understanding these types is crucial for determining tax
obligations and benefits.- **Sole Proprietorships**: - Owned by a single individual, this is the simplest form of business entity. Income is reported on the owner’s personal tax return (Form 1040, Schedule C), which simplifies tax
filing but also means personal liability for debts and obligations.- **Partnerships**: - Consisting of two or more individuals, partnerships do not pay federal income taxes. Instead, they are considered pass-through entities,
meaning income is taxed at the partners' individual rates. Form 1065 is used to report partnership income, while partners receive Schedule K-1 to report their share on their returns.- **Corporations**: - Corporations are separate
legal entities that provide limited liability protection to their owners (shareholders). C-Corporations face double taxation: once at the corporate level on profits and again at the individual level when dividends are distributed. S-
Corporations, on the other hand, are pass-through entities but have restrictions on ownership and number of shareholders.- **Limited Liability Companies (LLCs)**: - LLCs combine the flexibility of partnerships with the liability
protection of corporations. An LLC can choose to be taxed as a sole proprietorship, partnership, or corporation, allowing for strategic tax planning. ### 2. Tax Implications of Each Entity TypeUnderstanding the tax implications of
each entity type is critical for effective business planning.- **Sole Proprietorships**: - Income is taxed at the owner’s individual tax rate. All profits and losses are reported on the owner’s tax return. This simplicity, however, can
expose owners to significant personal risk.- **Partnerships**: - Each partner reports their share of income and losses on their personal returns, allowing for loss deductions. Partners are also subject to self-employment taxes on
their share of the income, which can significantly impact tax liability.- **Corporations**: - C-Corporations are taxed at the corporate tax rate (currently 21%). Dividends are taxed again at the shareholder level. S-Corporations avoid
double taxation, but there are restrictions on the number and type of shareholders.- **Limited Liability Companies (LLCs)**: - By default, single-member LLCs are treated as sole proprietorships for tax purposes, while multi-
member LLCs are treated as partnerships. However, they can elect to be taxed as a corporation if beneficial.### Key Tax Concepts#### 1. Income RecognitionIncome recognition is a fundamental principle in taxation, determining
when income must be reported.- **Cash vs. Accrual Accounting**: - Businesses can choose between cash and accrual methods. Cash accounting recognizes income when received and expenses when paid, making it
BASIC EXERCISES
BE 1–1
$320,000. Under the cost principle, the land should be recorded at the cost to Tin
Roofing.
BE 1–2
a. A = L + SE
$690,000 = $375,000 + SE
SE = $315,000
b. A = L + SE
$690,000 + $80,000 = $375,000 + $51,500 + SE
$770,000 = $426,500 + SE
SE = $343,500
BE 1–3
(2) Expense (Advertising Expense) increases by
$3,500; Asset (Cash) decreases by $3,500.
(3) Asset (Supplies) increases by $2,500;
Liability (Accounts Payable) increases by $2,500.
(4) Asset (Accounts Receivable) increases by $18,750;
Revenue (Delivery Service Fees) increases by
$18,750.
(5) Asset (Cash) increases by $14,150;
Asset (Accounts Receivable) decreases by $14,150.
,BE 1–4
A-One Travel Service
Income Statement
For the Year Ended August 31, 20Y6
Fees earned $1,150,000
Expenses:
Wages expense $640,000
Office expense 150,000
Miscellaneous expense 45,000
Total expenses (835,000)
Net income $ 315,000
BE 1–5
A-One Travel Service
Statement of Stockholders’ Equity
For the Year Ended August 31, 20Y6
Common Retained
Stock Earnings Total
Balances, September 1, 20Y5 $60,000 $ 775,000 $ 835,000
Issued common stock 15,000 15,000
Net income 315,000 315,000
Dividends (50,000) (50,000)
Balances, August 31, 20Y6 $75,000 $1,040,000 $1,115,000
BE 1–6
A-One Travel Service
Balance Sheet
August 31, 20Y6
Assets
Cash $ 184,500
Accounts receivable 68,000
Supplies 17,500
Land 880,000
Total assets $1,150,000
Liabilities
Accounts payable $ 35,000
Stockholders’ Equity
Common stock $ 75,000
Retained earnings 1,040,000
Total stockholders’ equity 1,115,000
Total liabilities and stockholders’ equity $1,150,000
1-3
, BE 1–7
A-One Travel Service
Statement of Cash Flows
For the Year Ended August 31, 20Y6
Cash flows from (used for) operating activities:
Cash received from customers $1,125,000
Cash paid for operating expenses (815,000)
Net cash flows from operating activities $ 310,000
Cash flows from (used for) investing activities:
Cash paid for purchase of land (150,000)
Cash flows from (used for) financing activities:
Cash received from issuing common stock $ 15,000
Cash paid for dividends (50,000)
Net cash flows used for financing activities (35,000)
Net increase in cash $ 125,000
Cash balance, September 1, 20Y5 59,500
Cash balance, August 31, 20Y6 $ 184,500
BE 1–8
a. Dec. 31, Dec. 31,
20Y4 20Y3
Total liabilities……………………………………………… $4,085,000 $2,880,000
Total stockholders’ equity………………………………… $4,300,000 $3,600,000
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