Disclosure in notes to financial statements only IV. Choice: A V. Justification: Equity: Stockholder’s equity represents ownership in a company or a company’s net financial assets (assets less liabilities). Stock options represent the privilege to purchase ownership in the company. Option (B) shows this right to ownership in the notes to the financial statements but does not portray how it truly affects the company’s equity. Option (A) provides a clearer picture on how the stock options affect the company’s equity through the balance sheet.
• Income Taxes – being a sole proprietor gives the individual the option to file taxes under a separate employer identification number. The other option is to file their return normally and just fill out an IRS Schedule C to show profit or loss for the business (Smith, 2011). • Longevity/Continuity – One of the main issues of longevity in regards to sole proprietorship is that it dissolves when the owner dies so it makes it not possible to have continuity (Joseph, 2011). • Control – one of the great advantages of sole proprietorship that a person doesn’t have with a partnership or corporation is that you don’t have to answer to anyone but yourself in our decisions. You have
The primary users are the 3 current owners including yourself who take an active role in managing the company. You would like the financial statements to be presented in such a manner as to indicate strong financial success and growth. You have plans to expand and possibly go public and having strong financial statements will enable you to attract the right investors and resources needed to make this happen. The more money the company makes the more you will benefit financially as the owners. It is important to remember that financial statements must be presented fairly and in accordance with accounting principles as it is evident here that there is a bias towards presenting statements in a financially strong way.
In this example, Owen will be the only owner and since he wants to have employees under this business form he is allowed to hire employees whereas if he was thinking of an S- Corporation he could not have any employees. Some other benefits of sole proprietorship: * Filing taxes involves a simple self-employment income tax form since all the profits and losses are pass on to the owner or sole proprietor * No high or any fees or registration requirements- since Owen is investing all his personal savings on this new business not having start-up fees is beneficial. * No payroll set-up * Net earnings of the business are not subject to corporate income taxes but are taxed only as personal income. Some of the disadvantages of sole proprietorship are: * The proprietor is subject to unlimited personal liability for the debts of the business. If Owen fails to pay his business debts, creditors will come
Under law the employee is not required to pay any taxes and will have to pay capital gains tax. The second stock options is called a nonqualified stock option (NQSO), which this type of option doesn’t receive any type of special incentives and is the same as a cash compensation. The member is required to pay payroll, income tax, and capital gain tax if the stock is sold. (Kaplan, Warren, 2010). 2.
Things start to spiral out of control when borrowers are unable to make their payment. Often times, feeling the pinch when the money comes due, borrowers will go back to the payday loan shop and take out another loan to cover their first loan. As time goes by borrowers have had to do this multiple times to keep the loans in good standings. It’s believed that up to 60 percent of payday lender customers have taken out 12 loans in the past year- meaning that they likely are repeatedly borrowing to pay the previous loan (Barrett,
Full Disclosure ACC/421 August 3, 2015 Full Disclosure The full disclosure principle was created to protect users of financial statements by requiring publicly held organizations to disclose pertinent information regarding transactions and details surrounding business operations. Full disclosure is increasing because of the need for more information in a timely manner. The necessity for full disclosure in financial statements brings consequences punishable by laws and fines and pushes organizations to act in honest and ethical manners when compiling their financial statements to the public. The Full Disclosure Principle in Accounting The full disclosure principle in accounting was created to protect investors who may be misled by businesses withholding crucial financial information. Without the full disclosure principle important negative financial information on company standings would likely be withheld from investors.
The financial balance sheet will demonstrate the current and total assets and the current and total liabilities of the business. The financial income statement will demonstrate the projected income, or losses, of the business in a given year. And, the financial statement of cash flows will demonstrate the projected liquidity and the operating cash for the business in a given year. (What is a Pro Forma Financial Statement?, n.d.) A pro forma financial statement is a statement that is usually presented to a potential investor in a company to demonstrate the financial merits of investing. As well, public companies must file a pro forma financial statement with the Securities and Exchange Commission (SEC).
One tax rate makes for easy computation by the Internal Revenue Service and straightforward payments from taxpayers (Meehan). Because the flat tax taxes only one income, it is easier to understand and to report. Taxpayers save the financial cost of complying with current IRS regulations, which often includes lawyers, accountants and other resources (Meehan). The flat tax remains a popular idea in part because it eliminates double taxation (Meehan). It removes the section of the tax code that is biased against the formation of capital (Meehan).
The income statement and the balance sheet can often be misleading to an investor as there are many ways to record the dispensing of an asset or other types of financial obligations (Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports, 2009). The cash flow statement contains three sections: the cash flows from operating activities, which shows how much money the business received from operating the business; the cash flows from investing activities, which shows the money the business has gained or loss from investing; and the cash flow from financing activities, which shows the money that was taken in or paid out to finance the different business activities. Using the cash flow statement allows an investor to see if a business is generating more money than is used to operate the business. If this is happening regularly, the business is considered healthy and should be a good