According to the Entity Concept

question 46

Multiple Choice

According to the entity concept
I.a sole proprietorship is similar to a conduit entity.
II.a sole proprietor cannot convert nondeductible personal items into deductible business items by commingling expenditures.
III.a partnership is an example of a mixture of a taxable and a conduit entity.
IV.an S corporation is a tax paying entity.
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• A)Statements I and II are correct.
• B)Statements II and III are correct.
• C)Only statement IV is correct.
• D)Statements I, II, and III are correct.
• E)Statements I, II, and IV are correct.

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Definitions:

True Risk

The actual level of risk associated with an investment or decision, considering all factors including unknowable future events.

Systematic Risk Principle

Principle stating that the expected return on a risky asset depends only on that asset’s systematic risk.

Expected Return

The weighted average of all possible returns for an investment, with each return being weighted by its probability of occurrence.

CAPM

The Capital Asset Pricing Model, a theory that describes the relationship between systematic risk and expected return for assets, particularly stocks.