Which of the following is correct? 1 It would be cheaper for ABCL to own and pay for the insurance policies because the corporate earnings in a small business corporation like ABCL are sheltered from tax, therefore the funds required to pay the insurance premiums could come out of completely tax-free corporate earnings. 2 It would be cheaper for ABCL to own and pay for the insurance policies because the company can deduct the premiums paid as a business expense, while the individuals would have to pay the premiums with after-tax dollars. 3 It would be cheaper for ABCL to own and pay for the insurance policies because a portion of corporate earnings in a small business corporation like ABCL are only taxed at around the 20% marginal rate, therefore lesser pre-tax corporate earnings would be required to generate the necessary

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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 Which of the following is correct? 1 It would be cheaper for ABCL to own and pay for the insurance policies because the corporate earnings in a small business corporation like ABCL are sheltered from tax, therefore the funds required to pay the insurance premiums could come out of completely tax-free corporate earnings. 2 It would be cheaper for ABCL to own and pay for the insurance policies because the company can deduct the premiums paid as a business expense, while the individuals would have to pay the premiums with after-tax dollars. 3 It would be cheaper for ABCL to own and pay for the insurance policies because a portion of corporate earnings in a small business corporation like ABCL are only taxed at around the 20% marginal rate, therefore lesser pre-tax corporate earnings would be required to generate the necessary after-tax funds to pay the insurance premiums.

(A) 1 only.

(B) 2 and 3 only.

(C) 1 and 2 only.

(D) 3 only.

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