Chapter 8: Financial Statements

Question 1

Which two types of business ownerships have unlimited liability?

Answer 1

Solo propriatorship and general partnership

Question 2

Which business ownership is a legal entity?

Answer 2

Corporation

Question 3

What are the three benefits of corporations and one downside of corporation?

Answer 3

Benefits

1. limited liability - your only risk is what you put in the capital / investment
2. Corporation taxation is lower than personal tax
3. high liquidity

Downside
1. double tax - you gotta pay corp tax, and personal income tax

Question 4

What ownerships are with limited liabilities?

Answer 4

LLP, Corporation, and trust

Question 5

Do you have to pay corp tax for trust? Which other business ownerships don’t have to pay corp tax?

Answer 5

Other than corporation, other kinds of ownerships is not required to pay corp tax, flow thru income , owners pay income tax only

Question 6

What ownrship is almost general partnership but limited to a scope , it can be between individuals and corps. Difference: they come together for a specific project or purpose. Each venture manages their own account?

Answer 6

Joint venture

Question 7

What is balance sheet?

Answer 7

At a specific date, list the assets, liability and owner(s)’ equity.

Assets = what the business owns
Liabilities = what the business owes to the creditors
Equity = what the business owes to the owners 

Asset = Liability + Equity

Question 8

How do you get the income tax expense? formula is?

Answer 8

Revenue - (Expenses) - After Tax Net Income = Income tax expense

*note that operation cost is also expenses.

Question 9

Assets = Liability + Equity

True or false:

1. Total assets of a company must be equal to its sources of capital
2. Owner’s equity cannot exceed current and non-current liabilities

Answer 9

Total assets of a company must be equal to its sources of capital - true ; because liability and equity is the two options of financing for a business

Owner’s equity cannot exceed current and non-current liabilities - False;
谁说投资人的钱不可以多于借款的钱？当然可以！
假设Assets = 10
Liability 4, Equity 6 ，都可以，无论什么ratio都可以，只要相等于asset.

Question 10

If a limited partnership is formed with general and limited partners. IF there is a judgment, what would be the liability of the limited partner?

If for LLP would the partners be liable?

Answer 10

Not more than their initial investment. So they would not be liable for the judgment.

However, for the general partners they would be liable for the judgment.

LLP would only be liable for their own negligence.