Final answer:
In setting up a sole proprietorship, Nicole would not incur corporate-specific expenses like attorney fees for articles of incorporation or stock issuance costs. Organizational expenditures for a sole proprietorship would generally exclude these costs, but whether pre-operational wages and rent are allowable depends on their direct connection to setting up the sole proprietorship. Accounting profit considers only explicit costs, whereas economic profit also takes into account implicit costs such as lost salary opportunities.
Step-by-step explanation:
When considering the total allowable organizational expenditures for a sole proprietorship, different rules apply than for a corporation. The expenses that Nicole incurred related to the corporation before it began business, such as attorney fees for articles of incorporation and stock issuance costs, are specific to corporations and wouldn't directly translate to a sole proprietorship. In the context of a sole proprietorship, she would not have stock issuance costs or legal fees for articles of incorporation. Thus, her organizational expenditures would exclude costs associated with corporate equity and formation documents. The wages prior to the start of the business (March 1–March 30) and the rent would typically also be considered startup costs but may be allowable if they pertain directly to setting up the sole proprietorship. However, the question does not provide enough context to determine if these costs would be directly tied to the setup of a sole proprietorship and allowable as such. Therefore, without additional context, we can only definitively exclude the attorney fees ($37,000) and stock issuance costs ($31,000) from allowable organizational expenditures for a sole proprietorship.
Similarly, when we talk about the concept of accounting profit, this refers to the profit figure calculated when only explicit costs are considered. It is important to note that the economic profit also includes implicit costs, like the opportunity cost of Nicole's time and alternative earnings if she didn't open her business. This consideration of implicit costs changes the profitability assessment. For example, in Fred's scenario, even though the accounting profit of his legal practice may seem profitable with $200,000 in revenues and explicit costs of $85,000, the implicit cost of giving up his job with a salary of $125,000 must be considered when assessing true economic profitability.