An Owner Should Choose an S-Corporation Form of Ownership When

question 83

Multiple Choice

An owner should choose an S-corporation form of ownership when he/she:

• A)has an established company that is suffering losses due to double taxation.
• B)is starting up a company and anticipating either net losses or high profits with large dividends.
• C)owns a company in which net profits before any compensation to shareholders are less than $100,000 per year.
• D)has an existing sole proprietorship and wants to lower the tax bill through deducting fringe benefits as business expenses.

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Definitions:

Work-in-Process Inventory

Items that are partially completed in the production process; they are not yet finished goods but are no longer raw materials.

Schedule of Cost of Goods Sold

A detailed statement showing the direct costs, indirect costs, and total cost of goods that have been sold during a specific period.

Underapplied

A situation where the allocated manufacturing overhead is less than actual, leading to costs not being fully assigned to products.

Overapplied Overhead

Occurs when the allocated overhead costs exceed the actual overhead costs incurred, leading to a variance in accounting records.