Java Joe Is a Coffee Wholesaler

question 7

Multiple Choice

Java Joe is a coffee wholesaler.It is run by Ernesto Arabica and his brothers, Che and Hugo.Times are good.Canadians are drinking more coffee than ever before and an increasing number call on Java Joe for their daily fix of caffeine.Ernesto has therefore begun to wonder how he and his brothers can enjoy the profits, but pay as little in tax as possible.He has come to you for advice.He and his brothers specifically want to know about the tax implications of different business models.You have correctly said that

• A)corporations are solely responsible to pay tax on income earned by the business, and that shareholders are taxed only when the corporation pays them something, like a dividend.
• B)if Java Joe is incorporated, and if the company is ever unable to pay its income taxes, the shareholders will be liable for the debt.
• C)if Java Joe is incorporated, the company and its shareholders will pay roughly twice as much tax as the brothers would pay if they carried on business without incorporating.
• D)the brothers have no choice in the matter-because three people cannot operate a "sole proprietorship," they must incorporate Java Joe.
• E)Java Joe definitely should be incorporated-companies are never taxed on their income and dividends are not classified as income for shareholders.

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Definitions:

Budgeted Balance Sheet

A projection of a company's financial position at a future date, estimating assets, liabilities, and shareholders' equity based on planned activities.

Operating Plans

Detailed plans outlining a company's goals and how it will operate to achieve them, including production, marketing, and staffing strategies.

Specific Goals

Objectives that are clearly defined, precise, and often measurable, aiding in strategy development and performance assessment.

Actual Results

The real, measured outcomes or performance of an entity's operations, projects, or investments, typically assessed against budgeted or forecasted figures.