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Q. 4SE

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Horngren'S Financial And Managerial Accounting
Found in: Page 33

Short Answer

You would like to start a cellular telephone equipment service business. You are considering organizing the business as a sole proprietorship. Identify the advantages and disadvantages of owning a sole proprietorship.

The advantage of sole proprietorship includes a single owner and it does not require sharing of profits with anyone. Disadvantages include termination of the organization and personal liability of the owner.

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Step by Step Solution

Step1: Explanation on Sole Proprietorship

Sole proprietorship is one of the forms of business organization in which there is only one owner.

Step2: Advantages and disadvantages

Advantages are as follows:

  • There is only a single owner of the business who receives all profits.
  • The profits are not shared with anyone in the organization.

Disadvantages are as follows:

  • It can be terminated at the death of the owner or at the will of the owner.
  • The personal property of the owner can be used to repay the debts of the businesses.

Most popular questions for Business-studies Textbooks

Abby Perry recently opened her own law office on December 1, which she operates as a corporation. The name of the new entity is Abby Perry, Attorney. Perry experienced the following events during the organizing phase of the new business and its first month of operation, December 2018. Some of the events were personal and did not affect the law practice. Others were business transactions and should be accounted for by the business. Dec. 1 Sold personal investment in Nike stock, which she had owned for several years, receiving $30,000 cash. 2 Deposited the $30,000 cash from the sale of the Nike stock in her personal bank account. 3 Deposited $89,000 cash in a new business bank account titled Abby Perry, Attorney. The business issued common stock to Perry. 5 Paid $600 cash for ink cartridges for the printer. 7 Purchased computer for the law office, agreeing to pay the account, $8,000, within three months. 9 Received $2,900 cash from customers for services rendered. 15 Received bill from The Lawyer for magazine subscription, $300. (Use Miscellaneous Expense account.) 23 Finished court hearings on behalf of a client and submitted a bill for legal services, $8,000, on account. 28 Paid bill from The Lawyer. 30 Paid utilities, $900. 31 Received $2,800 cash from clients billed on Dec. 23. 31 Cash dividends of $3,000 were paid to stockholders. Requirements 1. Analyze the effects of the preceding events on the accounting equation of Abby Perry, Attorney. Use a format similar to Exhibit 1-6. 2. Prepare the following financial statements: a. Income statement. b. Statement of retained earnings. c. Balance sheet. d. Statement of cash flows.

Abby Perry recently opened her own law office on December 1, which she operates as a corporation. The name of the new entity is Abby Perry, Attorney. Perry experienced the following events during the organizing phase of the new business and its first month of operation, December 2018. Some of the events were personal and did not affect the law practice. Others were business transactions and should be accounted for by the business. Dec. 1 Sold personal investment in Nike stock, which she had owned for several years, receiving $30,000 cash. 2 Deposited the $30,000 cash from the sale of the Nike stock in her personal bank account. 3 Deposited $89,000 cash in a new business bank account titled Abby Perry, Attorney. The business issued common stock to Perry. 5 Paid $600 cash for ink cartridges for the printer. 7 Purchased computer for the law office, agreeing to pay the account, $8,000, within three months. 9 Received $2,900 cash from customers for services rendered. 15 Received bill from The Lawyer for magazine subscription, $300. (Use Miscellaneous Expense account.) 23 Finished court hearings on behalf of a client and submitted a bill for legal services, $8,000, on account. 28 Paid bill from The Lawyer. 30 Paid utilities, $900. 31 Received $2,800 cash from clients billed on Dec. 23. 31 Cash dividends of $3,000 were paid to stockholders. Requirements 1. Analyze the effects of the preceding events on the accounting equation of Abby Perry, Attorney. Use a format similar to Exhibit 1-6. 2. Prepare the following financial statements: a. Income statement. b. Statement of retained earnings. c. Balance sheet. d. Statement of cash flows

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