Multiple Choice
Which of the following is considered the most important type of decision that a financial manager makes?
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1. Introduction to Accounting
Types of Accounting
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Which of the following entities is NOT considered a flow-through entity?
A
Limited Liability Company (LLC) taxed as a partnership
B
Partnership
C
C Corporation
D
S Corporation
Verified step by step guidance1
Understand the concept of flow-through entities: Flow-through entities are business structures where income, deductions, and credits pass directly to the owners or shareholders, avoiding corporate-level taxation. Examples include partnerships, LLCs taxed as partnerships, and S Corporations.
Review the characteristics of each entity type: Partnerships and LLCs taxed as partnerships are flow-through entities because their income is reported on the owners' personal tax returns. S Corporations are also flow-through entities, as their income flows to shareholders and is taxed at the individual level.
Contrast flow-through entities with C Corporations: C Corporations are not flow-through entities. They are subject to double taxation, where the corporation pays taxes on its income, and shareholders pay taxes on dividends received.
Identify the entity that does not meet the flow-through criteria: Based on the explanation, the C Corporation is the entity that is NOT considered a flow-through entity.
Conclude the reasoning: The correct answer is C Corporation because it is taxed at the corporate level and does not pass income directly to its shareholders for individual taxation.
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