Exam 11: Sole Proprietorships and Flow-Through Entities

The entity concept of a partnership views the partnership as separate from the partners and permits certain transactions between the partner and the partnership.

Partners pay taxes on their share of all the partnership net income annually.

Which of the following does not affect the basis of S corporation stock?

The S corporation income tax return includes all of the following except

For 2018, compare the income and FICA or self-employment tax burdens only of an individual in the 24 percent marginal income tax bracket who owns a business that has operating income of $50,000 if the business is (a) an S corporation or (b) a sole proprietorship. The owner takes $30,000 out of the business as a salary.

An S corporation shareholder can only deduct losses of the S corporation to the extent he or she has positive stock basis.

Active participation requires a higher level of activity than material participation.

Nathan's basis for his interest in the Nabors Partnership was $24,000. In complete liquidation of his interest, Nathan received cash of $4,000 and investment land having a fair market value of $40,000. Nabors Partnership's adjusted basis for this land was $15,000. Nathan's basis for this land is:

Which of the following may not be partners in a partnership?

Mario, who is married filing a joint return, is allocated $510,000 of income and $788,000 of deductions from Perez General Partnership resulting in a $278,000 loss allocated to him for 2018. Mario's basis in the partnership is $300,000. How much of this loss must Mario carry forward to 2019?

Jared owns 50% of an S corporation's stock. His basis in the stock was $50,000 on January 1, 2017. On February 1, 2017, the S corporation borrowed $30,000 from Jared, signing a formal note. The S corporation reported an ordinary loss of $150,000 at the end of 2017 and ordinary income of $20,000 at the end of 2018. What are Jared's bases in his stock and his note at the end of both 2017 and 2018?

For 2018, compare the income and FICA or self-employment tax burdens only for a couple in the 35 percent marginal income tax bracket who jointly own a business with $120,000 of operating income, if the business is a partnership or if it is an S corporation. The husband and wife each take $50,000 out of the business as salary.

Willy is involved in a number of businesses as a consultant. Below are the businesses and the hours of activity that Willy spent in each. Identify any activities that are passive and explain why the income or loss from the other activities is not passive income or loss. *F is Willy's sole proprietorship and he has no employees.

Other Objective Questions Indicate by a PRP if the characteristic applies to a sole proprietorship, an SC if it applies to an S corporation, and a PAR if it applies to a partnership, and N if it does not apply to any of the three businesses. A characteristic can apply to more than one entity; write a brief explanation if a characteristic may only apply under certain conditions. -Gain recognized by owners on liquidation of entity.

James and Jerry are equal partners in JJ partnership. James works full-time in the business and receives a $40,000 guaranteed salary from the partnership. Jerry is to receive the first $20,000 of profit before the remainder is divided equally between James and Jerry. If the accounting income before either of these payments is $30,000, what is the amount of income or loss allocated to Jerry?

An S election terminates

Which of the following is not a potential S corporation tax?

Which of the following cannot be taxed as a partnership?

Which of the following is not a characteristic of a partnership?

The Clio Corporation, an S corporation, makes a nonliquidating distribution of $10,000 cash and property (fair market value = $10,000; basis = $7,000) to James, a 50 percent shareholder. What are the effects of these distributions on Clio and James's incomes, Clio's AAA account, and James's basis in his stock?