Business Structure Paper 10

(c) Shareholders have the right to vote on the dissolution of the corporation. Stockholders also have the right to elect the directors of the corporation, who in turn elect the officers. Answer (b) is incorrect as shareholders do not have the right to receive dividends unless they are declared by the board of directors. Answer (d) is incorrect as shareholders are not necessarily involved in the management of the corporation and cannot prevent corporate borrowing.

(d) Under corporate law when a consolidation takes place, one new corporation comes from the joining of two or more corporations. Also, the assets and liabilities of the old corporations are acquired by the new corporation and the new corporation is liable for the debts of the old corporations.

(d) When a corporation elects to be a Subchapter S corporation, the corporate income and loss flow through to the income tax returns of the individual shareholders even when the income is not distributed to them. Answer (a) is incorrect because the corporation’s income is not taxed at the corporate level when the Subchapter S election is made. Answer (b) is incorrect because the income flows through to the stockholders’ tax returns regardless of when the distribution takes place. Answer (c) is incorrect because Statement IV as well as Statement III are both correct as discussed above.

(a) The requirement is to determine an auditor’s reporting responsibility when reporting on comparative financial statements in which the first year presented originally received a going concern modification on a matter that has now been resolved, thus removing the auditor’s substantial doubt. Answer (a) is correct because if substantial doubt has been removed in the current period, the emphasis-of-matter paragraph included in the auditor’s report on the financial statements of the prior period should not be repeated. Answers (b), (c), and (d) are all incorrect because they suggest the need for an emphasis-of-matter paragraph.

(b) The requirement is to determine the auditor’s responsibility when s/he concludes that there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. Answer (b) is correct because when the auditor concludes there is substantial doubt, s/he should consider the possible effects on the financial statements, and the adequacy of the related disclosures. Answer (a) is incorrect because either an unmodified opinion with an emphasis-of-matter paragraph or a disclaimer is generally appropriate, not a qualified or adverse opinion. Answer (c) is incorrect because the substantial doubt of going concern status does not require adjusting accounting estimates. Answer (d) is incorrect because the prior year’s audit report need not be reissued with an emphasis-ofmatter paragraph.

Correct answer: (B)
Corporation.