Tutoring Concerns

question 74

Multiple Choice

Tutoring Concerns.Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students.Wally proposes that they share control of the business and split profits equally and not bother with a written agreement.Sally,however,is concerned about being able to pay their debts since they will have to rent tutoring space and purchase computers and supplies.She is also concerned about parents and students who may sue if the students' test scores do not improve.She tells Wally that she just bought a new boat and car,and that she does not want her assets to be in jeopardy.She tells Wally that they should form a corporation to shield their personal assets.Wally,however,says their personal assets are not in danger with his proposal because they are a business and that,furthermore,forming a corporation would likely result in double taxation.Is Wally correct that with his proposal that because they share control of the business and split profits equally,they will not have any personal liability for debts?

• A)Yes,he is correct so long as they do not reach an agreement in writing.
• B)Yes,he is correct because they will be considered a partnership regardless of whether any agreement is in writing.
• C)Yes,because so long as they have nothing in writing,their arrangement will be considered a joint venture.
• D)No,he is incorrect because members of the corporate form chosen would be personally liable for debt.
• E)No,he is incorrect because partners have personal liability for debt.

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Definitions:

Capitalized

To be capitalized means to record an expense as an asset on the balance sheet rather than an immediate expenditure, spreading its impact over its useful life.

Lease Obligations

Financial commitments arising from lease agreements, which may include future lease payments for rented equipment or property.

Coupon Rate

The rate of interest paid yearly on a bond, represented as a percentage of its face value.

Par Value

A nominal or face value assigned to a share of stock or a bond by the issuer.