FAC1601 Assignment
4 (SOLUTIONS)
Semester 2 (2022
,1. A close corporation is a legal entity, which implies that it is not liable to pay for
obligations and can acquire assets in its own name.
A. False
B. True
2. Which one of the following alternatives is correct?
A. A close corporation is taxed 50% of the profits separately from its members and the
other half is taxed directly on the members in their personal capacity
B. A close corporation is taxed separately from its members
C. A close corporation is taxed separately from its members only during its last year of
operation
D. A close corporation is not taxed separately from its members as members are liable
for the entity’s tax in their individual capacity based on the balance of individual loans
they owe to the entity
3. Which one of the following alternatives is incorrect?
A. A close corporation continues to exist under its registered name irrespective of a
change in its membership.
B. A close corporation may give financial assistance to a person to acquire an interest in
the close corporation.
C. A close corporation can have up to ten natural persons as members.
D. A close corporation can enter into contracts and cannot be sued as a legal person in
its own right.
, 4. Which one of the following alternatives is correct?
A. The liability of a member for the obligations of the close corporation is limited to the
extent of the member's contribution to the close corporation less distributions already
paid to the members.
B. The liability of a member for the obligations of the close corporation is limited to the
extent of the member's contribution to the close corporation.
C. The liability of a member for the obligations of the close corporation is limited to the
extent of the member's contribution of the least active members in the close
corporation.
D. The liability of a member for the obligations of the close corporation is limited to the
extent of the member's contribution to the close corporation and members’ loans
advanced to the business.
5. Which one of the following alternatives is correct journal entry to record
income tax expense for a close corporation?
A. Credit “Income tax expense” profit or loss and Debit “SARS (income tax)” liability
B. Debit “Income tax expense” profit or loss and Credit “SARS (income tax)” liability
C. Debit “Bank” asset and Credit “SARS (income tax)” liability
D. Credit “Bank” asset and Debit “SARS (income tax)” liability
4 (SOLUTIONS)
Semester 2 (2022
,1. A close corporation is a legal entity, which implies that it is not liable to pay for
obligations and can acquire assets in its own name.
A. False
B. True
2. Which one of the following alternatives is correct?
A. A close corporation is taxed 50% of the profits separately from its members and the
other half is taxed directly on the members in their personal capacity
B. A close corporation is taxed separately from its members
C. A close corporation is taxed separately from its members only during its last year of
operation
D. A close corporation is not taxed separately from its members as members are liable
for the entity’s tax in their individual capacity based on the balance of individual loans
they owe to the entity
3. Which one of the following alternatives is incorrect?
A. A close corporation continues to exist under its registered name irrespective of a
change in its membership.
B. A close corporation may give financial assistance to a person to acquire an interest in
the close corporation.
C. A close corporation can have up to ten natural persons as members.
D. A close corporation can enter into contracts and cannot be sued as a legal person in
its own right.
, 4. Which one of the following alternatives is correct?
A. The liability of a member for the obligations of the close corporation is limited to the
extent of the member's contribution to the close corporation less distributions already
paid to the members.
B. The liability of a member for the obligations of the close corporation is limited to the
extent of the member's contribution to the close corporation.
C. The liability of a member for the obligations of the close corporation is limited to the
extent of the member's contribution of the least active members in the close
corporation.
D. The liability of a member for the obligations of the close corporation is limited to the
extent of the member's contribution to the close corporation and members’ loans
advanced to the business.
5. Which one of the following alternatives is correct journal entry to record
income tax expense for a close corporation?
A. Credit “Income tax expense” profit or loss and Debit “SARS (income tax)” liability
B. Debit “Income tax expense” profit or loss and Credit “SARS (income tax)” liability
C. Debit “Bank” asset and Credit “SARS (income tax)” liability
D. Credit “Bank” asset and Debit “SARS (income tax)” liability
