Chapter 21, Problem 1TF

Income taxes are a unique expense of the corporate form of business.

To determine

Indicate whether the given statement is true or false.

Answer to Problem 1TF

The given statement is true.

Explanation of Solution

Corporation: The form of business entity ,which is incorporated by state law into a separate legal entity, owned by stockholders, and managed by board of directors elected by stockholders, is referred to as corporation.

Description: Corporate form of organizations incur income tax expense but the sole proprietorships and partnerships do not. Corporation has to pay tax because it is recognized as a separate taxable unit. Stockholders also pay the taxes on their share of earnings from the business. Proprietors or owners pay tax on the earnings from the sole proprietorship business. Similar to sole proprietors, partners pay tax on their share of partnership earnings. Hence, the statement is true.

Conclusion

Thus, the given statement is true, in stating that the income tax expense is unique for a corporate form of business organization.