Which of the Following Statements Regarding the Use of a Corporation

question 97

Multiple Choice

Which of the following statements regarding the use of a corporation as a tax shelter is false?

• A) In years in which the individual tax rates were significantly higher than the corporate rates, individuals could reduce the tax on business income by operating as a regular corporation rather than as a passthrough entity.
• B) The combination of deferral of individual tax and conversion of ordinary income into capital gain enhanced the attractiveness of corporations as tax shelters.
• C) Under the current tax rate structure, the opportunity for individuals to exploit differences between the individual and corporate rate structures is significant.
• D) Under the current tax rate structure, corporations are effective tax shelters only if business income is very small and the owners are willing to forgo dividends for a long period of time.

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Definitions:

Variable Manufacturing Overhead

Refers to the production costs that fluctuate with the level of output, such as utility costs or raw materials, which are not directly tied to individual units.

Materials Quantity Variance

The difference between the expected and actual quantity of materials used in production, impacting materials cost.

Standard Quantity

This represents the expected amount of materials or inputs needed to produce a unit of product under normal conditions.

Actual Output

Actual output is the factual quantity of goods or services produced within a specified time frame, representing productivity.