Which Equity Arrangement Cannot Be Used by an S Corporation

question 11

Multiple Choice

Which equity arrangement cannot be used by an S corporation?

• A)Phantom stock.
• B)Stock appreciation rights.
• C)Warrants.
• D)Straight debt.
• E)An insurance company structure.

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Definitions:

Break-even

The point at which total cost and total revenue are equal, meaning there is no net loss or gain.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

Absorption Costing

An approach in accounting that comprises all costs of manufacturing, like direct materials, direct labor, and both types of manufacturing overheads (variable and fixed), in determining a product's cost.

Overproduction

The creation of more products or goods than are needed, leading to excess inventory and potential waste.