Consider the Following Methods of Taxing a Corporation's Income

question 150

Multiple Choice

Consider the following methods of taxing a corporation's income:
a. A flat tax, as opposed to a progressive tax, is levied on corporate profits.
b. A system whereby a corporation calculates its annual profit and notifies each shareholder of her portion of the profits. The shareholder would then be required to include this amount as taxable income for her personal income tax. The corporation does not pay a tax.
c. A system where the federal government continues to tax corporate income through the corporate income tax but allows individual taxpayers to receive, tax free, corporate dividends and capital gains.
Which of the methods above would avoid double taxation?

• A) a, b, and c
• B) a and b only
• C) a and c only
• D) b and c only

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Definitions:

Cash Basis

An accounting method where revenues are recognized when cash is received, and expenses are recorded when cash is paid.

Debit Portion

The side of an accounting entry that increases asset or expense accounts or decreases liability, equity, or revenue accounts.

Asset Account

A category in accounting ledgers that records the increases and decreases in specific assets owned by a business.

Liability Account

An account on a company's balance sheet representing debts or obligations that the company owes to others.