Exam 10: Sole Proprietorships, partnerships, llcs, and S Corporations

Waters Corporation is an S corporation with two equal shareholders,Mia Jones and David Kerns.This year,Waters recorded the following items of income and expense: Waters distributed $25,000 to each of its shareholders during the year.If Mia has no other sources of income,what is her gross income for the year?

At the beginning of year 1,Paulina purchased a 25% general partner interest in Gamma Partnership for $25,000.Paulina's partnership Schedule K-1 for year 1 reported that her share of Gamma's debt at year-end was $10,000 and her share of ordinary loss was $5,000.On January 1,year 2,Paulina sold her interest to another partner for $22,000 cash (including relief of liabilities).Compute Paulina's gain or loss on the sale of her partnership interest.

Cramer Corporation and Mr.Chips formed a partnership in which Cramer is the general partner and Mr.Chips is a limited partner.Cramer contributed $500,000 cash,and Mr.Chips contributed a building with a $500,000 FMV and $300,000 tax basis.The partnership immediately borrowed $700,000 of recourse debt.What is Mr.Chips' tax basis in its partnership interest?

Loretta is the sole shareholder of Country Collectibles,a calendar year S corporation.Although Loretta spends at least 40 hours per week supervising Country Collectible's employees,she has never drawn a salary from the business.Country Collectibles has been in existence for five years and has earned a profit every year.Loretta withdraws $100,000 cash from the S corporation each year.Which of the following statements accurately describes the tax consequences of these withdrawals?

Which of the following statements regarding the home office deduction is true?

Cactus Company is a calendar year S corporation with the following current year information: On January 1,John James bought 50% of Cactus Company stock for $30,000.How much of the operating loss may John deduct on his Form 1040? Assume the excess business loss limitation does not apply.

A major advantage of an S corporation is the ability to specially allocate losses to specific members of the company.

Gavin owns a 50% interest in London Partnership.His tax basis in his partnership interest at the beginning of the year was $20,000.His partnership Schedule K-1 showed the following: Calculate Gavin's tax basis in his partnership interest at the end of the year?

A partner's distributive share of partnership nondeductible losses does not decrease his or her tax basis in the partnership interest.

Which of the following statements regarding sole proprietorships is false?

A limited liability company with one or more members is generally considered to be a partnership or S Corporation if the LLC has elected to do so for tax purposes.

Max is a 10% limited partner in LMN partnership.His adjusted basis in his partnership interest was $50,000 at the beginning of the current year.During the year,the partnership earned $100,000 of ordinary income,incurred a $5,000 capital loss,and paid $1,000 of nondeductible expenses.Max received a distribution of $2,000 from the partnership.Calculate Max's ending adjusted basis in his partnership interest.

During 2019,Scott Howell received a salary of $135,000.The social security base amount for 2019 was $132,900.How much payroll tax should have been withheld from Scott's salary for 2018?

In contrast to a partnership,every member of an LLC has limited liability for the LLC's debts.

Ms.Jack operates a service business as a sole proprietorship.Her taxable income for the current year will be less than $100,000.Ms.Jack is not eligible for the QBI deduction.

Jackie contributed $60,000 in cash to a partnership for a 50% interest.This year,the partnership earned $200,000 ordinary business income,made a $20,000 contribution to the United Way,and distributed $25,000 cash to Jackie.Her tax basis in the partnership at year end is:

Which of the following statements regarding S corporations is true?

Waters Corporation is an S corporation with two equal shareholders,Mia Jones and David Kerns.This year,Waters recorded the following items of income and expense: Waters distributed $25,000 to each of its shareholders during the year.If Mia's adjusted tax basis in her partnership interest was $50,000 at the beginning of the year,compute her adjusted tax basis in her partnership interest at the end of the year.

Mr.Dilly has expenses relating to a qualifying home office of $14,320.The taxable income generated by the business before any deduction of home office expenses was $13,700.His allowable home office deduction is $14,320.

Hay,Straw and Clover formed the HSC Partnership,agreeing to share profits and losses equally.Clover will manage the business for which he will receive a guaranteed payment of $30,000 per year.Cash receipts and disbursements for the year were as follows What is Clover's share of the partnership's ordinary income and guaranteed payment?