Question 1

Which of the following reduces a shareholder's S corporation stock basis?

Accepted Answer

A)  Depletion deductions in excess of the basis of property. 
B)  Illegal kickbacks paid. 
C)  Nontaxable income. 
D)  Sales income. 
E)  A 20% QBI deduction. 
A)  Depletion deductions in excess of the basis of property. 
B)  Illegal kickbacks paid. 
C)  Nontaxable income. 
D)  Sales income. 
E)  A 20% QBI deduction.

Question 2

Which statement is incorrect with respect to an S shareholder's consent?

Accepted Answer

A)  Both husband and wife must consent if one owns the stock as community property. 
B)  An S election requires a consent from all of the S corporation's shareholders. 
C)  A consent must be in writing. 
D)  All of these statements are correct. 
A)  Both husband and wife must consent if one owns the stock as community property. 
B)  An S election requires a consent from all of the S corporation's shareholders. 
C)  A consent must be in writing. 
D)  All of these statements are correct.

Question 3

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

Accepted Answer

A)  Payroll penalty. 
B)  Unreasonable compensation. 
C)  Life insurance proceeds (nontaxable to the recipient S corporation). 
D)  Taxable interest. 
A)  Payroll penalty. 
B)  Unreasonable compensation. 
C)  Life insurance proceeds (nontaxable to the recipient S corporation). 
D)  Taxable interest.

Question 4

Which statement is incorrect with respect to filing an S election?

Accepted Answer

A)  Form 2553 must be filed. 
B)  All shareholders must consent. 
C)  The election may be filed in the previous year. 
D)  An extension of time is available for filing Form 2553. 
E)  All of these are correct. 
A)  Form 2553 must be filed. 
B)  All shareholders must consent. 
C)  The election may be filed in the previous year. 
D)  An extension of time is available for filing Form 2553. 
E)  All of these are correct.

Question 5

A newly formed S corporation does not receive any tax benefit from a C corporation's NOL incurred in its first election tax year.

Accepted Answer

A) True 
 B)False

Question 6

You are given the following facts about a solely owned S corporation. What is the shareholder's ending stock basis? $$\begin{array}{l}
\begin{array} { l r } 
\text { Increase in AAA } & \$ 31,000 \
\text { Increase in OAA } & 6,300 \
\text { Payroll tax penalty } & 2,140 \
\text { Beginning stock basis } & 39,800 \
\text { Stock purchases } & 22,000 \
\text { Tax-exempt life insurance proceeds } & 4,800 \
\text { Life insurance premiums paid } & 2,700
\end{array}\
\text { (nondeductible) }
\end{array}$$

Accepted Answer

A)  $61,800 
B)  $68,100 
C)  $99,100 
D)  $100,100 
A)  $61,800 
B)  $68,100 
C)  $99,100 
D)  $100,100

Question 7

On January 2, 2019, David loans his S corporation $10,000. By the end of 2019 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2020, the company's operating income is $10,000. The company makes 2020 distributions to David of $11,000. David reports a(n):

Accepted Answer

A)  $1,000 LTCG. 
B)  $3,000 LTCG. 
C)  $11,000 LTCG. 
D)  Loan basis of $10,000. 
A)  $1,000 LTCG. 
B)  $3,000 LTCG. 
C)  $11,000 LTCG. 
D)  Loan basis of $10,000.

Question 8

As with partnerships, the income, deductions, and tax credits of an S corporation to the shareholders annually.

Accepted Answer

The answer of As with partnerships, the income, deductions, and...

Question 9

Advise your client how income, expenses, gain, and losses are allocated to shareholders of an S corporation.

Accepted Answer

In general, S corporation items are divi

Question 10

If any entity electing S status is currently a C corporation, NOL carryovers from prior years generally be used in an S corporation year.

Accepted Answer

The answer of If any entity electing S status is...

Question 11

An S corporation is limited to a theoretical maximum of shareholders.

Accepted Answer

The answer of An S corporation is limited to a...

Question 12

Samantha owned 1,000 shares in Evita, Inc., an S corporation, that uses the calendar year. On October 11, Samantha sells all of her Evita stock. Her stock basis at the beginning of the tax year was $60,000. Evita's ordinary income for the year was $22,000 through the date of sale, and Samantha receives a distribution of $35,000 on May 3rd. Her stock basis at the time of the sale is:

Accepted Answer

A)  $117,000. 
B)  $82,000. 
C)  $60,000. 
D)  $47,000. 
A)  $117,000. 
B)  $82,000. 
C)  $60,000. 
D)  $47,000.

Question 13

An S shareholder's basis is decreased by distributions treated as being paid from AAA.

Accepted Answer

A) True 
 B)False

Question 14

An S corporation does not recognize a loss when distributing assets that are worth less than their basis.

Accepted Answer

A) True 
 B)False

Question 15

An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

Accepted Answer

A) True 
 B)False

Question 16

Estella, Inc., a calendar year S corporation, incurred the following items during the tax year. $$\begin{array} { l r } 
\text { Municipal bond interest } & \$ 7,000 \
\text { Sales } & 120,000 \
\text { Depreciation recapture income } & 14,000 \
\text { Long-term capital gain } & 20,000 \
\text { Cost of goods sold } & ( 42,000 ) \
\text { Administrative expenses } & ( 15,000 ) \
\text { Depreciation expense } & ( 13,000 ) \
\text { Charitable contributions } & ( 10,000 ) \
20 \% \text { QBI deduction } & 4,370
\end{array}$$ Calculate Estella's nonseparately computed income.

Accepted Answer

The answer of Estella, Inc., a calendar year S corporation,...

Question 17

A new S corporation shareholder can revoke the S election unilaterally, if he or she owns how much of the existing S corporation's stock?

Accepted Answer

A)  More than 50%. 
B)  50% or more. 
C)  The election can be revoked only if all of the shareholders consent. 
D)  The election cannot be revoked during the first year of the new shareholder's ownership. 
A)  More than 50%. 
B)  50% or more. 
C)  The election can be revoked only if all of the shareholders consent. 
D)  The election cannot be revoked during the first year of the new shareholder's ownership.

Question 18

The choice of a flow-through entity for a closely held corporation often is between a(n) (a Federal tax entity) and a(n) (a state tax entity).

Accepted Answer

S corporat

Question 19

An S corporation must possess which of the following characteristics?

Accepted Answer

A)  Not more than 100 shareholders. 
B)  Corporation organized in the United States. 
C)  Only one class of stock. 
D)  All of these. 
E)  None of these. 
A)  Not more than 100 shareholders. 
B)  Corporation organized in the United States. 
C)  Only one class of stock. 
D)  All of these. 
E)  None of these.

Question 20

You are a 60% owner of an S corporation. Calculate your ending stock basis based upon these facts. $$\begin{array} { l r } 
\text { Beginning stock basis } & \$ 52,600 \
\text { Purchases of additional stock } & 15,000 \
\text { Insurance premiums paid (nondeductible) } & 3,600 \
\text { Tax-exempt interest income } & 5,230 \
\text { Payroll tax penalty } & 3,770 \
\text { Increase in AAA } & 22,400 \
\text { Increase in OAA } & 5,800
\end{array}$$

Accepted Answer

$84,520 [$52,600 + $

Exam 22: S Corporations

Which of the following reduces a shareholder's S corporation stock basis?

Which statement is incorrect with respect to an S shareholder's consent?

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

Which statement is incorrect with respect to filing an S election?

A newly formed S corporation does not receive any tax benefit from a C corporation's NOL incurred in its first election tax year.

On January 2, 2019, David loans his S corporation $10,000. By the end of 2019 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2020, the company's operating income is $10,000. The company makes 2020 distributions to David of $11,000. David reports a(n):

As with partnerships, the income, deductions, and tax credits of an S corporation to the shareholders annually.

Advise your client how income, expenses, gain, and losses are allocated to shareholders of an S corporation.

If any entity electing S status is currently a C corporation, NOL carryovers from prior years generally be used in an S corporation year.

An S corporation is limited to a theoretical maximum of shareholders.

An S shareholder's basis is decreased by distributions treated as being paid from AAA.

An S corporation does not recognize a loss when distributing assets that are worth less than their basis.

An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

A new S corporation shareholder can revoke the S election unilaterally, if he or she owns how much of the existing S corporation's stock?

The choice of a flow-through entity for a closely held corporation often is between a(n) (a Federal tax entity) and a(n) (a state tax entity).

An S corporation must possess which of the following characteristics?

Understanding and Working With the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters