Sole proprietorships, partnerships, corporations, and why entrepreneurs take risks

Grade 12 Social Studies Worksheet

Circle the best answer.

1. 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.

2. 1.

   Pia reads card A. If the corporation pays out all its profit as dividends, which comparison of owners' take-home pay is correct?

   • 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 corporation's owner keeps $79,000, because the corporate rate of 21% is below the 22% rate
   • The sole proprietor keeps $78,000; the corporation's owner keeps $67,150 after both taxes
3. 2.

   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 keeps $79,000; the 15% owner tax is delayed until dividends are paid
   • The owner pays the 15% tax on $79,000 anyway, because the profit already belongs to the owner and the firm
   • The firm pays no tax this year, because profit that is kept is not taxed
   • The firm pays $21,000 and the owner $22,000, as a sole proprietor would
4. 3.

   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
   • Refuted: the corporation pays just 21% on its profit, less than the 22%
   • Shown: it keeps $78,000 against $67,150, so it is the better form for any owner of any kind of business
5. 4.

   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
   • Partner 1 pays $13,200 and Partner 2 pays $8,800, each at 22% of a share
   • The partnership pays $21,000, then each partner pays 15% of a share
   • Each partner pays $11,000, which splits the $22,000 tax evenly

6. 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.

7. 5.

   Ari reads card A. The market price is $26 a cake. How many cakes should the bakery bake?

   • Four: the 4th is the cake with the lowest average cost, $21.50
   • Five: the 5th adds $26 for $22 more cost, but the 6th adds $26 for $28
   • Seven: keep baking until total cost, $172, passes sales, $182
   • Six: profit is still positive at six cakes, $156 of sales against $136 of cost
8. 6.

   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
   • 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
   • Close, because baking 4 cakes costs $86 and sales are just $80
9. 7.

   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

10. 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.

11. 8.

    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 rise, because more customers want meals at each price
    • 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 fall, because new trucks offer more meals at each price and buyers pay less for them
12. 9.

    Luz reads the "after" columns on card A, where buyers' and trucks' quantities match. What happens to the price and meals sold?

    • The price stays at $6 and meals sold stay at 60
    • The price falls to $5 and meals sold rise to 70, as with new trucks alone
    • The price rises to $7 and meals sold rise to 80
    • The price stays at $6 while meals sold rise from 60 to 90
13. 10.

    Suppose only the new trucks arrive and no new customers do. Milo uses card A. What happens to the price and meals sold?

    • The price falls from $6 to $5 and meals sold stay at 60
    • The price rises from $6 to $7 and meals sold rise from 60 to 80
    • The price falls to $4 and meals sold fall to 50
    • The price falls from $6 to $5 and meals sold rise from 60 to 70