Sole proprietorships, partnerships, corporations, and why entrepreneurs take risks
Grade 12 Social Studies Worksheet
Circle the best answer.
Read this first
Use this
Card A. Compare chart "One year's profit of $100,000" (made up for practice, except the 21% corporate rate), columns Form | Tax on the business's profit | Tax when the owner receives the profit: Sole proprietorship | none; profit counts as the owner's income | 22% of the $100,000; Corporation | 21% of the $100,000 | 15% of the dividends paid out. Note: the 21% federal corporate rate is real. The 22% and 15% rates are assumed for this sheet and are not tax advice. A partnership works like a sole proprietorship: each partner pays 22% on a share of the profit.
Pia reads card A. If the corporation pays out all its profit as dividends, which comparison of owners' take-home pay is correct?
- The corporation's owner keeps $79,000, because the corporate rate of 21% is below the 22% rate
- Both owners keep $78,000, because 22% and 21% plus 15% are close to the same
- The corporation's owner keeps $85,000, because a 15% rate is lower than 22%
- The sole proprietor keeps $78,000; the corporation's owner keeps $67,150 after both taxes
Ren imagines the corporation keeping its profit in the firm instead of paying dividends. Using card A, what happens this year?
- The firm pays $21,000 and the owner $22,000, as a sole proprietor would
- The firm pays $21,000 and keeps $79,000; the 15% owner tax is delayed until dividends are paid
- The firm pays no tax this year, because profit that is kept is not taxed
- The owner pays the 15% tax on $79,000 anyway, because the profit already belongs to the owner and the firm
A writer says card A shows owners should always choose a sole proprietorship because it keeps more profit. Tala tests the claim. What is the verdict?
- Unsupported: the sole proprietorship earns more because it pays a lower rate
- Weakly supported: it keeps more of paid-out profit, but card A says nothing on risk such as debts
- Shown: it keeps $78,000 against $67,150, so it is the better form for any owner of any kind of business
- Refuted: the corporation pays just 21% on its profit, less than the 22%
Two partners split the $100,000 profit 60% and 40%. Zee uses card A. How much tax does each partner pay?
- Partner 1 pays $60,000 and Partner 2 pays $40,000, the size of each share
- The partnership pays $21,000, then each partner pays 15% of a share
- Partner 1 pays $13,200 and Partner 2 pays $8,800, each at 22% of a share
- Each partner pays $11,000, which splits the $22,000 tax evenly
Use this
Card A. Compare chart "A bakery's costs" (made up for practice), columns Cakes baked | Extra cost of the next cake | Total cost, with $26 fixed: 1 | $12 | $38; 2 | $14 | $52; 3 | $16 | $68; 4 | $18 | $86; 5 | $22 | $108; 6 | $28 | $136; 7 | $36 | $172. Note: invented bakery, made up for practice. The $26 fixed cost is owed this month even if the bakery bakes nothing. Each cake sells at the market price.
Ari reads card A. The market price is $26 a cake. How many cakes should the bakery bake?
- Seven: keep baking until total cost, $172, passes sales, $182
- Five: the 5th adds $26 for $22 more cost, but the 6th adds $26 for $28
- Six: profit is still positive at six cakes, $156 of sales against $136 of cost
- Four: the 4th is the cake with the lowest average cost, $21.50
The market price falls to $20 a cake. Bo uses card A. What should the bakery do this month?
- Bake 4 cakes: $80 of sales covers the $60 of extra cost, so the loss is $6, not the $26 fixed cost
- Close, because baking 4 cakes costs $86 and sales are just $80
- Bake 7 cakes, because more cakes spread the $26 fixed cost thinner
- Bake 5 cakes, since the $2 lost on the 5th is small next to the $26 fixed cost the bakery owes anyway
The price drops further, to $11 a cake. Esme uses card A. What should the bakery do this month?
- Bake 2 cakes, because the 2nd costs $14, close to the $11 price
- Bake 4 cakes, because the average cost of the first four is lowest, at $21.50 a cake, so those four pay their way
- Bake 1 cake, because it brings $11 and that helps pay the $26 fixed cost
- Close for now: even the 1st cake costs $12 more to bake, above the $11 price, so baking adds to the loss
A manager says a bakery should close whenever it is losing money. Jun tests this against the $20 price on card A. What is the verdict?
- Supported: at $20 the bakery loses $6 on 4 cakes, and a loss is a reason to stop
- Not supported: at $20 baking 4 cakes loses $6, but closing loses the $26 fixed cost
- Supported: with a loss of $6 the bakery could lose more at a lower price
- Not supported: the bakery earns $80 at a $20 price, so it makes a profit
Use this
Card A. Compare chart "Food trucks at a fair, per day" (made up for practice), columns Price | Buyers want now | Buyers want after new customers come | Trucks offer now | Trucks offer after new trucks arrive: $4 | 80 | 110 | 20 | 50; $5 | 70 | 100 | 40 | 70; $6 | 60 | 90 | 60 | 90; $7 | 50 | 80 | 80 | 110; $8 | 40 | 70 | 100 | 130. Note: made up for practice. The market starts where the "now" columns match. In the first move, new customers want more meals at each price. In the second move, new trucks offer more meals at each price.
Both moves on card A happen at once. Kira asks what can be said without reading the sizes. Which statement is best supported?
- The price must fall, because new trucks offer more meals at each price and buyers pay less for them
- Meals sold must rise; the price could rise, fall or stay the same, depending on the larger move
- Meals sold must fall, because the two moves cancel out
- The price must rise, because more customers want meals at each price
A reporter says new food trucks always push prices down. Noah tests the claim with both moves on card A. What is the verdict?
- Not supported: the price rose to $7, so trucks push prices up
- Supported: new trucks lowered the price in the first move, so they do in each case
- Not supported: the number of trucks is not on the card
- Not supported: with new customers too, the price stays at $6 and 30 more meals sell
