Chapter 8 Proprietorship

Question 1

Which of the following statements is TRUE?

(1) Only sole proprietors need to report business income on their personal income tax returns.
(2) Only partners must report business income on their personal tax returns.
(3) Sole proprietorships, partnerships and corporations are identical in terms of taxation of owner’s income.
(4) None of the above three statements are true.

Answer 1

4

Question 2

Which one of the following types of organization is a separate taxable entity?

(1) a general partnership
(2) a sole proprietorship
(3) a limited partnership
(4) a corporation

Answer 2

4

Question 3

Which of the following statements is TRUE?

(1) Only sole proprietors need to report business income on their personal income tax returns.
(2) Both sole proprietors and partners must report business income on their personal tax returns.
(3) Sole proprietorships, partnerships and corporations are identical in terms of taxation of owner’s income.
(4) None of the above three statements are true.

Answer 3

2

Question 4

Which one of the following is FALSE with respect to the proprietorship form of business?

(1) A proprietorship is terminated upon the death of the owner.
(2) A proprietor must pay tax on his/her business income at personal tax rates.
(3) The proprietor is liable for all debts of his business to the extent of his/her capital investment in the business only.
(4) There is no legal separation of the assets of the business and the other assets of its owner.

Answer 4

3

Question 5

The principle of “unlimited liability” implies that:

(1) an owner of a business has a very large debt load which cannot be serviced.
(2) one should never become a general partner.
(3) an owner may lose more money than his/her initial investment.
(4) there is no difference between being a sole proprietor of a small business and a shareholder of a large corporation.

Answer 5

3