Question 1

A limited liability company is always taxed as a partnership,regardless of the number of its members.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements concerning partnerships is false?

Accepted Answer

A) A properly-drafted partnership agreement is crucial. 
B) A general partner's basis in a partnership includes his share of partnership debt. 
C) Limited partnerships must have at least one general partner. 
D) A partner is taxed annually on only that portion of a partnership's taxable income that is actually distributed. 
A) A properly-drafted partnership agreement is crucial. 
B) A general partner's basis in a partnership includes his share of partnership debt. 
C) Limited partnerships must have at least one general partner. 
D) A partner is taxed annually on only that portion of a partnership's taxable income that is actually distributed.

Question 3

Corporations cannot be shareholders in an S corporation.

Accepted Answer

A) True 
 B)False

Question 4

The earnings of a C corporation are taxed only at the shareholder level.

Accepted Answer

A) True 
 B)False

Question 5

Grant and Amy have formed a new business to be operated through an S corporation.They each own 50% of the corporation's outstanding common stock.During the first year of operations,the business incurred an operating loss of $100,000.In allocating this loss to the shareholders:

Accepted Answer

A) Grant and Amy must each be allocated $50,000 of the operating loss. 
B) If the corporate charter permits,the S corporation can make a special allocation of 100% of the operating loss to Grant. 
C) Because the shareholders have limited liability for the S corporation's debts,they are not permitted any deduction for the operating loss. 
D) The corporation should also consider ownership of any outstanding preferred stock in making the loss allocation. 
A) Grant and Amy must each be allocated $50,000 of the operating loss. 
B) If the corporate charter permits,the S corporation can make a special allocation of 100% of the operating loss to Grant. 
C) Because the shareholders have limited liability for the S corporation's debts,they are not permitted any deduction for the operating loss. 
D) The corporation should also consider ownership of any outstanding preferred stock in making the loss allocation.

Question 6

Bevo Partnership had the following financial activity for the year:
   Compute Bevo's ordinary business income for the year and indicate which items must be separately stated.

Accepted Answer

Ordinary business income: $280,000 = $86

Question 7

Alice is a partner in Axel Partnership.Her share of the partnership's current ordinary business income was $100,000.She received a $60,000 cash distribution from the partnership on December 1.Alice qualifies for the QBI deduction,without regard to the wage or taxable income limitations.Assuming that Alice's marginal tax rate is 37%,calculate her after-tax cash flow from the partnership this year.

Accepted Answer

A) $70,400 
B) $30,400 
C) $45,200 
D) $29,600 
A) $70,400 
B) $30,400 
C) $45,200 
D) $29,600

Question 8

In applying the basis limitation on the deduction of S corporation losses,which of the following statements is true?

Accepted Answer

A) The basis of a shareholder's interest in an S corporation,for purposes of limiting deductibility of losses,is computed in the same manner as a partner's basis in a partnership interest. 
B) A shareholder is permitted to deduct losses against basis in any debt obligation from the S corporation to the shareholder. 
C) If a shareholder's tax basis in a debt obligation is reduced,any gain resulting from the repayment of that obligation is considered ordinary income. 
D) All of the above statements are false. 
A) The basis of a shareholder's interest in an S corporation,for purposes of limiting deductibility of losses,is computed in the same manner as a partner's basis in a partnership interest. 
B) A shareholder is permitted to deduct losses against basis in any debt obligation from the S corporation to the shareholder. 
C) If a shareholder's tax basis in a debt obligation is reduced,any gain resulting from the repayment of that obligation is considered ordinary income. 
D) All of the above statements are false.

Question 9

Adam and Barbara formed a partnership to construct an apartment building.Adam contributed $500,000 cash and Barbara contributed land ($500,000 FMV and $250,000 basis)in exchange for a 50 percent interest in AB Partnership.Immediately after its formation,the partnership borrowed $600,000 from a local bank to begin construction.Compute each partner's initial basis in their partnership interest,assuming that:
a.Adam and Barbara are both general partners.
b.Adam is a limited partner and Barbara is a general partner.

Accepted Answer

a.If both are general partners,Adam's in

Question 10

Martha Pim is a general partner in PLF Partnership.This year,Martha received a $48,000 guaranteed payment from PLF,and her distributive share of PLF's ordinary business income was $93,200.Which of the following is accurate?

Accepted Answer

A) Martha must pay income tax on $141,200 and self-employment tax on $48,000. 
B) Martha must pay income tax on $141,200 and self-employment tax on $93,200. 
C) Martha must pay both income tax and self-employment tax on $141,200. 
D) Martha must pay income tax on $48,000 and self-employment tax on $93,200. 
A) Martha must pay income tax on $141,200 and self-employment tax on $48,000. 
B) Martha must pay income tax on $141,200 and self-employment tax on $93,200. 
C) Martha must pay both income tax and self-employment tax on $141,200. 
D) Martha must pay income tax on $48,000 and self-employment tax on $93,200.

Question 11

A partner's tax basis in his or her partnership interest is decreased by partnership distributions.

Accepted Answer

A) True 
 B)False

Question 12

A guaranteed payment may be designed to compensate a partner for personal services rendered to the partnership.

Accepted Answer

A) True 
 B)False

Question 13

Businesses are required by law to withhold federal income tax from the compensation paid to their employees.

Accepted Answer

A) True 
 B)False

Question 14

A partner's distributive share of partnership profits will increase his or her tax basis in the partnership interest.

Accepted Answer

A) True 
 B)False

Question 15

On June 1,Jefferson had a basis in his partnership interest of $75,000.On June 2,he received a cash distribution from the partnership of $28,000.All of the cash distribution is taxable.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements regarding the basis limitation on deduction of partnership losses is false?

Accepted Answer

A) If a partner's share of partnership losses exceeds the partner's tax basis in the partnership interest,the excess is not deductible in the current year. 
B) Partnership losses that are not deductible due to the basis limitation can be carried forward indefinitely. 
C) Partners can increase tax basis in their partnership interest only by making additional capital contributions. 
D) If a partnership becomes profitable in the future,the partner's share of such future income will create basis against which loss carryforwards can be deducted. 
A) If a partner's share of partnership losses exceeds the partner's tax basis in the partnership interest,the excess is not deductible in the current year. 
B) Partnership losses that are not deductible due to the basis limitation can be carried forward indefinitely. 
C) Partners can increase tax basis in their partnership interest only by making additional capital contributions. 
D) If a partnership becomes profitable in the future,the partner's share of such future income will create basis against which loss carryforwards can be deducted.

Question 17

A corporate shareholder usually cannot be held personally liable for the debts arising from the corporate business.

Accepted Answer

A) True 
 B)False

Question 18

If a business is formed as an S corporation,its income may be subject to double taxation.

Accepted Answer

A) True 
 B)False

Question 19

Randolph Scott operates a business as a sole proprietorship.This year his net profit was $10,570.For tax purposes this amount should be reported on:

Accepted Answer

A) Schedule C,Statement of Profit or Loss from Business 
B) The first page of Form 1040 as other income 
C) A separate tax return prepared for the business operation 
D) Schedule E,Statement of Rent and Royalty Income 
A) Schedule C,Statement of Profit or Loss from Business 
B) The first page of Form 1040 as other income 
C) A separate tax return prepared for the business operation 
D) Schedule E,Statement of Rent and Royalty Income

Question 20

In 2019,William Wallace's sole proprietorship,Western Wear Apparel,generated $162,426 Schedule C net profit ($150,000 net earnings from self-employment).In addition,William recognized a $25,000 Section 1231 gain on a sale of land formerly used by the business as a parking lot.The business checking account earned $250 interest income.William qualifies for the QBI deduction without regard to the wage or taxable income limitations.
a.Which of these income items are subject to self-employment tax?
b.Compute William's 2019 self-employment tax,assuming he has no other earned income.
c.Compute the total increase in William's 2019 taxable income attributable to his business.

Accepted Answer

a.Only the $150,000 net earnings from se

A limited liability company is always taxed as a partnership,regardless of the number of its members.

Which of the following statements concerning partnerships is false?

Corporations cannot be shareholders in an S corporation.

The earnings of a C corporation are taxed only at the shareholder level.

Grant and Amy have formed a new business to be operated through an S corporation.They each own 50% of the corporation's outstanding common stock.During the first year of operations,the business incurred an operating loss of $100,000.In allocating this loss to the shareholders:

Bevo Partnership had the following financial activity for the year: Compute Bevo's ordinary business income for the year and indicate which items must be separately stated.

In applying the basis limitation on the deduction of S corporation losses,which of the following statements is true?

Martha Pim is a general partner in PLF Partnership.This year,Martha received a $48,000 guaranteed payment from PLF,and her distributive share of PLF's ordinary business income was $93,200.Which of the following is accurate?

A partner's tax basis in his or her partnership interest is decreased by partnership distributions.

A guaranteed payment may be designed to compensate a partner for personal services rendered to the partnership.

Businesses are required by law to withhold federal income tax from the compensation paid to their employees.

A partner's distributive share of partnership profits will increase his or her tax basis in the partnership interest.

On June 1,Jefferson had a basis in his partnership interest of $75,000.On June 2,he received a cash distribution from the partnership of $28,000.All of the cash distribution is taxable.

Which of the following statements regarding the basis limitation on deduction of partnership losses is false?

A corporate shareholder usually cannot be held personally liable for the debts arising from the corporate business.

If a business is formed as an S corporation,its income may be subject to double taxation.

Randolph Scott operates a business as a sole proprietorship.This year his net profit was $10,570.For tax purposes this amount should be reported on:

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

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

A limited liability company is always taxed as a partnership,regardless of the number of its members.

Which of the following statements concerning partnerships is false?

Corporations cannot be shareholders in an S corporation.

The earnings of a C corporation are taxed only at the shareholder level.

Grant and Amy have formed a new business to be operated through an S corporation.They each own 50% of the corporation's outstanding common stock.During the first year of operations,the business incurred an operating loss of $100,000.In allocating this loss to the shareholders:

Bevo Partnership had the following financial activity for the year: Compute Bevo's ordinary business income for the year and indicate which items must be separately stated.

In applying the basis limitation on the deduction of S corporation losses,which of the following statements is true?

Martha Pim is a general partner in PLF Partnership.This year,Martha received a $48,000 guaranteed payment from PLF,and her distributive share of PLF's ordinary business income was $93,200.Which of the following is accurate?

A partner's tax basis in his or her partnership interest is decreased by partnership distributions.

A guaranteed payment may be designed to compensate a partner for personal services rendered to the partnership.

Businesses are required by law to withhold federal income tax from the compensation paid to their employees.

A partner's distributive share of partnership profits will increase his or her tax basis in the partnership interest.

On June 1,Jefferson had a basis in his partnership interest of $75,000.On June 2,he received a cash distribution from the partnership of $28,000.All of the cash distribution is taxable.

Which of the following statements regarding the basis limitation on deduction of partnership losses is false?

A corporate shareholder usually cannot be held personally liable for the debts arising from the corporate business.

If a business is formed as an S corporation,its income may be subject to double taxation.

Randolph Scott operates a business as a sole proprietorship.This year his net profit was $10,570.For tax purposes this amount should be reported on:

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters