Buckwold Chapter 11 Solutions
CHAPTER 11
CORPORATIONS―AN INTRODUCTION
Review Questions
1. “A corporation is an artificial person separate and distinct from its owners.” Briefly explain this statement.
2. Identify the types of relationships that can exist between a corporation and its shareholders.
3. What factors may influence the value of a corporation’s common share capital?
4. Identify two ways in which a shareholder can realize a return on a share investment. Describe the relationship between them.
5. “Given the choice, individual shareholders of a corporation prefer to receive their return on investment by way of dividends, rather than from the sale of shares at a profit.” Is this statement true? Explain.
6. “A shareholder may have a primary relationship as well as secondary relationships with the corporation. The difference between the two relationships relates to the tax treatment of income flows between the corporation and the shareholder.” Explain.
7. Corporations and individuals determine their taxable income in different ways. What are the differences?
8. How are the net capital losses and non-capital losses of a corporation affected when voting control of the corporation shifts from one shareholder to another?
9. If the shares of a corporation that has non-capital losses are about to be sold and if those losses arise from business operations, why is it important for the vendor to consider the nature of the purchaser?
10. An existing corporation that operates a profitable retail business is considering expanding its activities to include manufacturing. The expansion business can be organized in either of two basic ways. Describe them. Also, what factors must be considered when a choice is being made between the two structures?
11. How does the tax treatment of intercorporate dividends affect the relationship between dividends and capital gains when one corporation invests in shares of another corporation? (Assume that both entities
CORPORATIONS―AN INTRODUCTION
Review Questions
1. “A corporation is an artificial person separate and distinct from its owners.” Briefly explain this statement.
2. Identify the types of relationships that can exist between a corporation and its shareholders.
3. What factors may influence the value of a corporation’s common share capital?
4. Identify two ways in which a shareholder can realize a return on a share investment. Describe the relationship between them.
5. “Given the choice, individual shareholders of a corporation prefer to receive their return on investment by way of dividends, rather than from the sale of shares at a profit.” Is this statement true? Explain.
6. “A shareholder may have a primary relationship as well as secondary relationships with the corporation. The difference between the two relationships relates to the tax treatment of income flows between the corporation and the shareholder.” Explain.
7. Corporations and individuals determine their taxable income in different ways. What are the differences?
8. How are the net capital losses and non-capital losses of a corporation affected when voting control of the corporation shifts from one shareholder to another?
9. If the shares of a corporation that has non-capital losses are about to be sold and if those losses arise from business operations, why is it important for the vendor to consider the nature of the purchaser?
10. An existing corporation that operates a profitable retail business is considering expanding its activities to include manufacturing. The expansion business can be organized in either of two basic ways. Describe them. Also, what factors must be considered when a choice is being made between the two structures?
11. How does the tax treatment of intercorporate dividends affect the relationship between dividends and capital gains when one corporation invests in shares of another corporation? (Assume that both entities