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Instructor's
Key for Quiz 4 - Finance and Taxation of Cooperatives
1. Cooperative
members capitalize their business by purchasing:
a. Common Stock
b. Preferred Stock
c. Transferable Delivery Rights
2. Retained
patronage refers to the proceeds from net income generated by the
cooperative allocated to users and then kept in the
business.
Per-unit retains is
capital kept by the cooperative based on the volume or units handled by
the cooperative for the users.
3. Equity capital
is supplied by the members and usually does not have a specific due
date or regular rate of interest. Debt capital is borrowed money and
generally has a due date and an assigned rate of interest.
4. Sources of
long-term credit are:
Commercial banks
National Cooperative Bank
CoBank
Commercial paper
Leasing
Capital stock purchased by member or
nonmembers
Insurance companies
State governments
5. Cooperatives do
pay taxes, which include:
Personal property tax
Social security tax
Fuel tax
Sales tax
Real estate tax
Excise tax
The liability for taxes
on net earnings (profit) for business operations is transferred to
members when the net earnings are allocated to the members, otherwise
the cooperative pays the tax.
6. The single tax
principle means the profits of the business are taxed only one time
either at the business level or at the member level.
7. (S) Sources of cash
(U) Uses of cash for the business
(S) Sale of fixed assets
(S) Members purchase common stock
(U) Giving customers credit
(U) Buying inventory
(S) Sale of inventory
(U) Purchasing members production
(S) Collecting accounts receivable
(S) Nonmembers purchase preferred stock
(S) Suppliers give 30 day credit
(U) Paying accounts receivables
8. Depreciation is
classified as an expense when determining the profitability of the
business. The operating statement and balance sheet show
depreciation as an expense. However, depreciation expense isn’t paid in
cash like the expenses such as salary and wages or the electric
bill.
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