Question

Exercise 12-2 Forms of organization C1 For each separate case, indicate which type of organization should be formed. a. Sharif, Henry, and Korb want to start a tech firm. They are deciding between an S corporation and ac corporation. The founders want limited liability, but they also want to avoid paying corporate income taxes. b. Jackie and Susie are starting an accounting firm. They are deciding between a general partnership and a limited liability partnership. It is crucial to Jackie that she has limited liability and is not personally liable if Susie is negligent. c. Rob and Bran want to form a snow removal business. They are deciding between a general partnership and a limited liability company. Bran says it is important that the two have limited liability and do not pay corporate income taxes. Exercise 12-3 Journalizing partnership formation P1 Moss and Barber organize a partnership on January 1. Moss's initial net investment is $75,000, consisting of cash ($17,500), equipment ($82,500), and a note payable reflecting a bank loan for the new business ($25,000). Barber's initial investment is cash of $31,250. Prepare journal entries to record (1) Moss's in- vestment and (2) Barber's investment.

Exercise 12-2 a, b and c. Also, exercise 12-3 please

Answer 1

12.2

(a) Sharif, Henry and Korb should opt for S Corporation because in S corporation, they will enjoy both the benefits i,e. limited liability and avoidance of paying corporate income taxes because in S corporation, profits/losses of the business are reported on owner's personal tax returns.

(b) Jackie and Susie should opt for Limited Liability Partnership because in general partnership, both the partners will be financially responsible for any suit against the partnership.

(c) Rob and Bran should opt for an LLC because in LLC, they will enjoy the perk of limited liability of partners and moreover LLC can elect to be taxed as partnership firm and avoid paying the corporate taxes.

12.3

Journal Entry for Moss's Investment

Dr. Cash $17,500

Dr. Equipment $82,500

Cr. Moss Capital $75,000

Cr. Notes Payable $25,000

Journal Entry for Barber's Investment

Dr. Cash $31,250

Cr. Barber Capital $31,250