Establishing A Subsidiary As A Corporation Case Study

Register to read the introduction… One reason is that a corporation maintains a capital stock account, additional paid-in capital accounts, and a retained earnings account. “Net income or loss becomes part of retained earnings, and dividends are always paid equally to all shareholders of a particular class of stock” (Bline, Fischer, & Skekel, 2004, Chapter 7). Corporations are also able to reacquire some of its own equity interest in the form of treasury stock. Other advantages of establishing a subsidiary as a corporation are
Limited Liability. When it comes to taking responsibility for business debts and actions of a corporation, shareholders’ personal assets are protected. Shareholders can generally only be held accountable for their investment in stock of the company.
Ability to Generate Capital. Corporations have an advantage when it comes to raising capital for their business - the ability to raise funds through the sale of stock.
Corporate Tax Treatment. Corporations file taxes separately from their owners. Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends, but any additional profits are awarded a corporate tax rate, which is usually lower than a personal income tax
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The purpose of a review is to provide limited assurance that financial statements do not have any known errors or departures from the accounting rules found in GAAP. There is usually no testing of information in the financial statements beyond inquiry and analytical review. The CPA will not obtain an understanding of the internal control system or address how the organization is addressing the risk of fraud in the financial statements (Ulvog, 2006).

A review involves the CPA performing procedures that will provide a reasonable basis for obtaining limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework. A review does not contemplate obtaining an understanding of the entity’s internal control; assessing fraud risk; testing accounting records; or other procedures ordinarily performed in an audit (Barfield, Murphy, Shank & Smith LLC, 2013).
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An audit provides more assurance to a reader of the financial statements than a review.


AICPA. (2013). Retrieved from URCES/PRACTICECENTER/PROFESSIONALRESPONSIBILITIES/Pages/Profession alResponsibilities.aspx
Barfield, Murphy, Shank & Smith LLC. (2013). Retrieved from story.php?cn=172
Bline, D., Fischer, M., & Skekel, T. (2004). Advanced Accounting. Retrieved from The University of Phoenix eBook Collection database
FASB. (2013). Retrieved from
The CPA Journal. (2004). Retrieved from
Ulvog, J.L. (2006). Ulvog CPA. Retrieved from

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