Francisco Is the Sole Owner of Rose Company

question 52

Multiple Choice

Francisco is the sole owner of Rose Company. For 2012, the only income of Rose was a long-term capital gain of $25,000. The business made no distributions during the year to Francisco. Irrespective of Rose Company, Francisco's marginal tax rate is 35% and he has no capital asset transactions. Which of the following statements is incorrect?

• A)If Rose Company is a sole proprietorship or S corporation, Francisco must report the $25,000 long-term capital gain on his personal income tax return.
• B)If Rose Company is a C corporation, Francisco will report none of the $25,000 long-term capital gain on his personal income tax return.
• C)If Rose Company is a sole proprietorship or S corporation, a preferential tax rate applies to the $25,000 long-term capital gain.
• D)If Rose Company is a C corporation, a preferential tax rate does not apply to the $25,000 long-term capital gain.
• E)None of the above.

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Definitions:

LRMC

Long-Run Marginal Cost, which is the additional cost of producing one more unit of output when all inputs, including capital, are variable.

LRAC

Long-Run Average Cost, a curve that shows the lowest possible average cost of production, allowing all factors of production to vary.

Long-run Elasticities

Measure of responsiveness of demand or supply to changes in price or income, considered over a period long enough for all adjustments to be made.

Short-run Elasticities

Measures of how responsive the quantity demanded or supplied of a good is to a price change over a short period.