What type of company is DM Yard Services? Briefly describe the characteristics of a sole-proprietorship, a limited-liability company, and a corporation; specifically address the equity section of the balance sheet for each.
What will be an ideal response?
DM Yard Services is a sole-proprietorship, a one owner business entity.
a) A sole-proprietorship is a one owner business that has one capital and one draw account in its equity section of the balance sheet. (The income and expenses are reported on Schedule C of the owner’s income tax return.)
b) A limited liability company can have one or more members, with member equity accounts, members’ share of profits or losses are closed to their individual capital accounts. (The income and expenses are reported on Form 1065, an informational return, with individual K-1s for each member. Each member’s share is reported on their individual tax return.)
c) A corporation, a separate legal and taxable entity, reports capital stock and retained earnings in the stockholders’ equity section of the balance sheet. (The income and expenses are reported on Form 1120.)
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