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The Four Major Types of Firm in the U.S.

  1. What are the four major types of firm in the U. S, how are they described, and what exactly are the key distinctions between them?

In singular proprietorships, the business is managed by a single owner. In partnerships, business is possessed and run by several owner. In a limited liability company, associates own the business but have limited liability. Apart from these three organizations, the organization is a legal entity, different from the owners, and is also solely responsible for the its own responsibilities however, not the employees or the customers whereas in the other three organizational forms, owners aren't different from the business and for just about any other commitments, they themselves are liable.

Ch. 1 - 1P

  • Corportations


  • In corporation, there is no limitation on getting the shares of the stock
  • The Organization provides free and anonymous trading system
  • Corporation gives growing capital quickly than other company types
  • Sole Proprietorships
  • Partnerships

Limited Responsibility Companies: A restricted responsibility company is the form of corporate composition which has the aspect of partnership with limited responsibility.

Limitited responsibility to the owners to the magnitude of their share in the business, if anything happens which is not expected then the owners liability will not pass to their own possessions. The limited liability company is a restricted partnership without general partner. The people have limited liability, but the business can run by them as controlling members. It really is a business company that has some of the apects of the company with those of a exclusive proprietorship.

The so this means of Limited Responsibility in a commercial context is usually that the liability encountered by the owners is bound. Which means, in a restricted liability relationship, the firm could not have the right to work with the owners personal property to pay off outstanding obligations. The owners have limited liablility predicated on their investment and the utmost responsibility owners have is their investment in the company.

  1. How can corporate individual bankruptcy be looked at as a change in firm ownership? Describe why a firm would like to file for bankruptcy as well as the benefits and disadvantages of such a decision.

Ch1. 2 - 3CC

A corporation gathers its initial funds by advertising its shares. The owners who aquire these shares are called the shareholders or equity holders. Inside the porecess of expansion or acquisitions, a corporation often borrows money from outsiders. In such cases, the debtors end up being the buyers in the firm. However, the possession of the organization rests with the collateral holders.

In case of its lack of ability to repay the funds to its debtors, a company may seek bankruptcy relief. Bankruptcy does not necessarily bring about a closure to the prevailing businesses of an corporation. It reflects the inability of the organization to gratify the boasts of the folks from whom the cash were lent.

Upon being declared as bankrupt, the possession and control of the corporation goes by on from the equity holders to your debt holders who end up being the decision producers of its future course of action.

  1. List the four major financial claims required by the SEC for publicly traded firms, establish each and describe why these are valuable.

Four basic financial statement:

1. Balance Sheet.

2. Income affirmation.

3. Satement of maintained earnings.

4. Assertion of cash flows.

Praimary purpose of preparinf the basic financial record:

1. Balance Sheet: It shows the financial health of any entity. The praimary reason for planning Balance Sheet is to article the budget of your entity at the end of a specific period. It includes the assets, responsibility, and equity of the business.

2. Income statement: The praimary reason for income affirmation is to record the net income or the web lack of the entity. The web income or net loss is determined by complementing the bills with the income.

3. Affirmation of retained income: The purpose of preparing retained revenue statement is to identify the effect of net income and syndication of dividend on the budget of the business.

4. Satement of cash moves: The goal of setting up satement of cash flows is to recognize the inflow and outflow of cash for a partcular period. It catagorises the total activity directly into operating, financing, and committing activities. It shows the web cash produced or used in each activitirs.

Important financial record:

All the four basisc financial stsement is important for an organization, because all the four affirmation displays the financial shows of the company. But as the investment is concerned the income assertion, and Balance sheet are the main financial record of the company. Because, the income assertion shows the success of the entity, and the total amount Sheet shows the financial health of the business.

An investor while investing in a company praimarily wants to know the profitabilty and the financial steadiness of the commpany. On itsbalance sheet, Maxidrive overstated the economic resources it owned or operated and understated its debt to others.

On itsincome assertion, Maxidrive overstated its potential to sell goods for more than the cost to produce and sell them.

On itsstatement of maintained cash flow, Maxidrive overstated the amount of income it reinvested in the business for future development.

On itsstatement of cash flows, Maxidrive overstated its capacity to generate from sales of drive drives the cash necessary to meet its current obligations.

  1. Define what's included in a management discussion and analysis portion of a financial statement (that cannot be found anywhere else)

Ch2. 7 - 2CC

Financial Claims (issued by a company usually quarterly and annually) are accounting reports that present earlier performance information to give a snapshot of an firms assets. In america the general public companies are required to file their financial assertions with the US securities and Exchanges.

Companies provide comprehensive records with additional details on the information provided in the claims in addition to the four financial statements i. e. Balance Sheet, Cash Flow Statement, Income Declaration, and Income Affirmation.

The information that the notes to the financial assertions are:

  1. They provide information related to a firms subsidiaries or its independent products.
  2. They show the details of different kinds of personal debt the organization has outstanding and firms stock-based payment programs for the employees.
  3. The notes are also support the details of acquisitions, spin-offs, leases, taxes, and risk management activities.

Off-balance sheet orders do not seem on the total amount sheet or the ventures or arrangements nevertheless they can have a materials effect on a firms future performance.

The off-balance sheet deals are disclosed within the managerial decision and evaluation (MD&A). Managerial Decision and Research is circumstances of the financial statement where the companys management discusses about the recent time or quarter, considering about the significant occasions that have occurred and the business. Management must also discuss the year ahead, and format goals and new projects

Thus, the off-balance sheet ventures come in Management Decision and Examination in a firms financial statement and cannot be found in other places.


  1. Discuss the Sarbanes-Oxley Work in wake of the financial reporting misdeeds of Enron and WorldCom. Compare the two companies, why they were caught, and how policies have evolved for companies today. You can use examples of other companies to assist in your discourse.

Ch2. 8 - 1CC & 2CC

Sarbanes-Oxley Take action (SOX) legislation was handed by congress in 2002, intended to improve the accuracy and reliability of financial information provided to both boards and to shareholders. This function was passed because of the amounts of scandals experienced before.

For Example:

Problems at Enron and somewhere else kept covered from boards and shareholders. In the end these scandals many people noticed that accounting declaration of the companies, did not present an accurate picture of the financial health of an company, while often remaining true to the letter of GAAP.

WorldCom professionals effectively fudged the business's accounting numbers, inflating the business's belongings by around $12 billion us dollars. The swift personal bankruptcy that followed resulted in massive losses for investors

The mark-to-market practice led to schemes that were designed to conceal the losses and make the business look like more profitable than it really was. To be able to cope with the mounting losses, Andrew Fastow, a growing star who was marketed to CFO in 1998, came up with a devious intend to make the business appear to be in great shape, despite the fact that a lot of its subsidiaries were losing money. That structure was achieved through the use of special purpose entities (SPE). An SPE could be used to cover any assets that were losing profits or business ventures that had opted under; this would keep carefully the failed assets off of the company's books. In exchange, the company would issue to the traders of the SPE, shares of Enron's common stock, to pay them for the loss.

Sarbanes-Oxley Act attempted to do that in three ways:

  1. By offering bonuses and self-reliance in the auditing process:

The obligation of the accounting firm is to ensure that the companys financial claims accurately reveal the financial point out of the firm but if an audit team won't accommodate the get by a clients management than that client won't choose the same accounting firm again for its next contract. SOX addresses this matter by placing rigid limits on the amount of non-audit fees (consulting or elsewhere) that an accounting firm can earn from the same company that this audits.

  1. By suffering fines for providing false information:

Sox also place the criminal fines on providing the wrong information to the shareholders i. e. $5 million and inprisionment of no more than 20 season. So, it is for both the CEO and CFO to in my opinion attest to the reliability of the financial claims offered to the shareholders also to sign a assertion to that impact.

  1. Finally, Section 404 of SOX requires older management and the boards of public companies to attest to the effectiveness and validity with the process by which functions are allocated and operated, and outcomes watched through the company.
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