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WGU D362 CORPORATE FINANCE SECTION1 QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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WGU D362 CORPORATE FINANCE SECTION1 QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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WGU D362 CORPORATE FINANCESECTION1 QUESTIONS AND ANSWERS
WITH SOLUTIONS 2024
Last year, a company filed an income tax return and paid taxes on its net income. From this net income,
the company paid cash dividends to its shareholders, who were required to pay taxes on the dividends
they received.
Which type of business organization is this company?
S-corporation
Partnership
C-corporation
Limited liability company (LLC) - ANSWER A major disadvantage of a C-corporation is that it must pay
taxes on the income it earns. If the corporation pays a cash dividend, the stockholders must also pay
taxes on the dividends they receive. Thus, the owners of C-corporations are subject to double taxation—
first at the corporate level and then at the personal level when they receive dividends.
What are two key characteristics of an S-corporation? Choose two answers.
Costlier to establish than a sole proprietorship or a partnership
Unlimited number of stockholders
Limited liability of owners
Double taxation - ANSWER "Costlier to establish than a sole proprietorship or a partnership" is correct.
Starting a corporation is costlier than starting a sole proprietorship. For example, it requires writing
articles of incorporation and by-laws that conform to the laws of the state of incorporation.
"Limited liability of owners" is correct. A major advantage of a corporation is that stockholders have
limited liability for debts and other obligations. Owners of corporations have limited liability because
corporations are legal persons that take actions in their own names, not in the names of individual
owners.
What are two key characteristics of a C-corporation? Choose two answers.
Inexpensive formation
Access to capital
Unlimited liability of owners
Double taxation - ANSWER "Access to capital" is correct. Shares in a corporation can be sold to raise
capital from investors who are not involved in the business. This can greatly increase the amount of
capital that can be raised to fund the business.
"Double taxation" is correct. A major disadvantage of a C-corporation is that it must pay taxes on the
income it earns. If the corporation pays a cash dividend, the stockholders must also pay taxes on the
dividends they receive. Thus, the owners of C-corporations are subject to double taxation—first at the
corporate level and then at the personal level when they receive dividends.
A new corporation is being formed, and reporting standards are being considered.
Who reports directly to the owners in this business structure?
Board of directors
Chief financial officer (CFO)
Audit committee
, Chief executive officer (CEO) - ANSWER Correct:The board of directors is elected by the shareholders and
is responsible to them, not to management.
Who is responsible for preparing a company's financial statements?
The internal auditor
The controller
The treasurer
The external auditor - ANSWER Answer
Correct:In addition to maintaining the firm's financial and cost accounting systems, preparing taxes, and
working closely with the firm's external auditors, the controller is responsible for preparing the financial
statements.
Which type of business organization is subject to paying taxes on its income, while its stockholders are
also taxed on the dividends?
Partnership
Sole proprietorship
C-corporation
Limited liability corporation (LLC) - ANSWER Correct:
A major disadvantage of a C-corporation is that it must pay taxes on the income it earns. If the
corporation pays a cash dividend, the stockholders must also pay taxes on the dividends they receive.
Thus, the owners of C-corporations are subject to being taxed twice—first at the corporate level and
then at the personal level when they receive dividends.
Who is responsible for managing a company's insurance portfolio?
The controller
The treasurer
The internal auditor
The risk manager - ANSWER Correct:
The risk manager is responsible for monitoring and managing the firm's risk exposure in financial and
commodity markets and the firm's relationships with insurance providers.
What is a key difference between C-corporations and S-corporations?
C-corporations can be owned by other types of companies and are easily acquired, while S-corporations
cannot be acquired.
Owners of S-corporations have limited liability, while owners of C-corporations have unlimited liability.
An S-corporation is the default corporation when articles of incorporation are filed in a state, but C-
corporations require an additional forms.
S-corporations must pay taxes on the income they earn; all profits earned by C-corporations pass directly
to the stockholders. - ANSWER rrect
Answer
Correct:If an organization has a desire to be bought out by another company, it should form as a C-
corporation to make the future process easier.
A person wants to start a coffee shop. Initial funding came from the entrepreneur, but more funds are
required to open the coffee shop. The entrepreneur receives the remaining seed money from friends
and family.
Which capitalization strategy did the entrepreneur use?
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