BUSINESS TERMS AND FORMS Flashcards
The term for the owners of an LLC
Members
How an LLC is referred as when it’s taxed as part of the owner’s individual tax return.
Disregarded Entity
Form 8832
Form 8832 is filed by an LLC to elect a tax treatment as a Corporation.
Form 2553
An LLC files Form 2553 to elect the tax treatment as an S Corporation. (The S Corp requirements must be met)
What is the Direct Charge-Off Method of Accounting?
The DIRECT CHARGE-OFF METHOD is an accounting method for uncollectible accounts that directly debits, or charges, an expense account when a bad debt is discovered.
This eliminates from the books the revenue recorded as well as the outstanding balance owed to the business.
For corporations that are NOT financial institutions, the direct charge-off method for bad debts MUST be used.
Contrasts with the ALLOWANCE METHOD, which accounts for uncollectible accounts by expensing estimates of uncollectible accounts in the period when the related sales take place.
What is the “Constant Yield Method”
The Constant Yield Method is a method of accretion (a.k.a the increase) of Bond Discounts, which translates to a gradual increase over time, given that the value of a Discount Bond increases over time until it equals the Face Value. The first step in the Constant Yield Method is determining the Yield To Maturity (YTM)
Yield To Maturity (YTM)
Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate.
Accretion
the process of growth or increase, typically by the gradual accumulation of additional layers or matter.
Coupon Rate
The Coupon Rate is the ANNUAL INTEREST that the owner of the bond will receive.
To complicate things the coupon rate may also be referred to as the YIELD from the bond.
Uniform Capitalization Rules
The Uniform Capitalization (UNICAP) Rules requires the costs of construction of real or tangible personal property, used in the course of business, to be capitalized. (Rather than being deducted).
This includes inventory, and the costs to be capitalized are the costs necessary to prepare the item for its intended use.
Manufacturers of tangible personal property, and Retailers of personal property must use these rules if the annual gross receipts for the preceding three three years exceed $26 million.
Personal Service Corporations
A personal service corporation is a type of a C CORP that is created to provide PERSONAL SERVICES to individuals or groups.
Often made up of PROFESSIONALs in a specific fields like:
- accounting,
- engineering,
- architecture,
- consulting,
- actuarial science,
- law,
- performing arts and
- health (including veterinary services)
Marginal Tax Rate
The marginal tax rate is the incremental tax paid on incremental income.
As income rises, each dollar of income above the previous level is taxed at a higher rate.
EXAMPLE:
If a household were to earn an additional $10,000 in wages on which they paid $1,530 of payroll tax and $1,500 of income tax, the household’s marginal tax rate would be 30.3 percent.
Ratable
Capable of being rated, estimated, or appraised: ratable income.
UNICAP Rules
Uniform Capitalization Rules
What fields (industries) are exempt from UNICAP Rules? (List of 4)
(F.A.O.R.)
- Farming
- Arts - Freelance writing, photography, or art
- Oil and gas wells development
- Research and experimentation
Treasury Stock
Treasury Stock is shares of Corporate Stock that a company previously sold to investors and since bought back.
- Treasury stock is formerly outstanding stock that has been repurchased and is being held by the issuing company.
- Treasury stock reduces total shareholder’s equity on a company’s balance sheet, and it is therefore a CONTRA EQUITY Account.
- There are two methods to record treasury stock: the cost method and the par value method.
What is the BOOK VALUE of a purchased bond?
The Book Value is the amount paid for it.
What is the FACE VALUE of a purchased bond?
The Face Value is the amount of money promised to the bondholder upon the bond’s maturity.
Premium Bond
A Premium Bond is a bond trading above its face value.
Closely Held C Corporation
Generally, a closely held corporation is a corporation that:
Has more than 50% of the value of its outstanding stock owned (directly or indirectly) by 5 or fewer individuals at any time during the last half of the tax year, and
Is NOT a Personal Service Corporation (PSC).
Corporation
A form of business enterprise that is set up as a legal entity.
Its existence is distinct and separate from those who own and control it.
Corporation Tax Classifications
C Corp
S Corp
Other Types of Corporations
Domestic Corporation
Foreign Corporation
Closely-held Corporation
Publicly-held Corporation
Public Corporation (Municipal Corporation)
Domestic Corporation
A Domestic Corporation is a corporation that does business in the state it is incorporated in.