Mrs. Carroll and her sister, Ms. Howard, plan to operate a small day care center in a remodeled building. They're licensed and staffed to handle up to 24 children. Ms. Howard doesn't plan to work at the center and hasn't incurred as many debts or responsibilities as Mrs. Carroll. She originally invested $8,000 in the business and Mrs. Carroll invested $24,000.
1. Mrs. Carroll and her sister want to keep their taxes low and keep Ms. Howard's liability to the amount of her original investment. Which type of business arrangement would be best for them?
A. Sole proprietorship
B. General partnership
C. Limited partnership
D. Corporation
2. Mrs. Carroll and Ms. Howard decide to divide all profits and share all losses using a fixed ratio. If the ratio agreed upon is in proportion to their original investment, what would be Ms. Howard's share of a $60,000 end-of-year profit? (Hint: The original total investment was $32,000—$8,000 from Ms. Howard and $24,000 from Mrs. Carroll. Ms. Howard's $8,000 is one-fourth, or 25 percent, of the total.)
A. $10,000
B. $15,000
C. $25,000
D. $30,000
3. What type of business tax form do Mrs. Carroll and Ms. Howard need to file 75 days after the close of the fiscal year?
A. Schedule C
B. Form 1065
C. Form 1120
D. Form 990
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