Question 1

The passive investment income of an S corporation includes gains from the sale of securities.

Accepted Answer

A) True 
 B)False

Question 2

Compensation for services rendered to an S corporation generates a corporate-level FICA tax liability.

Accepted Answer

A) True 
 B)False

Question 3

On December 31, Erica Sumners owns one share of an S corporation's 10 outstanding shares of stock. The basis of Erica's share is $300. The next year, the S corporation incurs a loss of $3,650. Determine the amount of the loss allocated to Erica, and calculate her stock basis at the end of the second year.

Accepted Answer

The loss assigned to each day of the S c

Question 4

Explain the OAA concept.

Accepted Answer

S corporations report changes in the AAA

Question 5

Lemon Corporation incurs the following transactions. $$\begin{array} { l c } 
\text { Net income from operations } & \$ 110,000 \
\text { Interest income from saving account } & 5,000 \
\text { Long-term capital gain from sale of securities } & 9,000 \
\text { Short-term capital loss from sale of securities } & 4,000
\end{array}$$ Lemon maintains a valid S election and does not distribute any dividends to its shareholder, Patty. As a result, which of the following must Patty recognize? Ignore the 20% QBI deduction.

Accepted Answer

A)  Ordinary income of $115,000 and long-term capital gain of $5,000. 
B)  Ordinary income of $115,000, long-term capital gain of $9,000, and $4,000 short-term capital loss. 
C)  Ordinary income of $120,000. 
D)  Capital gain of $120,000. 
A)  Ordinary income of $115,000 and long-term capital gain of $5,000. 
B)  Ordinary income of $115,000, long-term capital gain of $9,000, and $4,000 short-term capital loss. 
C)  Ordinary income of $120,000. 
D)  Capital gain of $120,000.

Question 6

Several individuals acquire assets on behalf of Skip Corporation on May 28, purchased assets on June 3 and began business on June 11. They subscribe to shares of stock, file articles of incorporation for Skip, and become shareholders on June 21. The S election must be filed no later than two and one-half months after:

Accepted Answer

A)  May 28. 
B)  June 3. 
C)  June 11. 
D)  June 21. 
E)  December 31. 
A)  May 28. 
B)  June 3. 
C)  June 11. 
D)  June 21. 
E)  December 31.

Question 7

An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.

Accepted Answer

A) True 
 B)False

Question 8

The AAA begins with a zero balance on the first day of an S corporation's first tax year.

Accepted Answer

A) True 
 B)False

Question 9

Bidden, Inc., a calendar year S corporation, incurred the following items. $\begin{array}{lr}
\text { Sales } & \$ 130,000 \
\text { Depreciation recapture income } & 12,000 \
\text { Short-term capital gain } & 30,000 \
\text { Cost of goods sold } & (42,000) \
\text { Municipal bond interest income } & 7,000 \
\text { Administrative expenses } & (15,000) \
\text { Depreciation expense } & (17,000) \
\text { Charitable contributions } & (14,000)
\end{array}$ Calculate Bidden's nonseparately computed income.

Accepted Answer

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

Question 10

Since loss property receives a_______ in basis without any loss recognition, S corporation distributions of loss property generally should be________ .

Accepted Answer

The answer of Since loss property receives a_______ in basis...

Question 11

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 12

An S shareholder's basis is increased by stock purchases and capital contributions.

Accepted Answer

A) True 
 B)False

Question 13

When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.

Accepted Answer

A) True 
 B)False

Question 14

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 15

S corporation status allows shareholders to realize tax benefits from corporate losses immediately assuming sufficient stock basis).

Accepted Answer

A) True 
 B)False

Question 16

An S corporation can claim a deduction for its operating loss amounts.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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

Accepted Answer

S corporat

Question 19

Which item does not appear on Schedule K of Form 1120S?

Accepted Answer

A)  Intangible drilling costs. 
B)  Foreign loss. 
C)  Utilities expense. 
D)  Recovery of a tax benefit. 
E)  All of these items appear on Schedule K. 
A)  Intangible drilling costs. 
B)  Foreign loss. 
C)  Utilities expense. 
D)  Recovery of a tax benefit. 
E)  All of these items appear on Schedule K.

Question 20

Identify a disadvantage of being an S corporation.

Accepted Answer

A)  Estates can be shareholders. 
B)  Losses flow through immediately to the shareholders. 
C)  Section 1202 treatment qualified small business stock) is not available. 
D)  Tax-exempt income flows through as excludible to shareholders. 
E)  All of these are advantages of the S election. 
A)  Estates can be shareholders. 
B)  Losses flow through immediately to the shareholders. 
C)  Section 1202 treatment qualified small business stock) is not available. 
D)  Tax-exempt income flows through as excludible to shareholders. 
E)  All of these are advantages of the S election.

The passive investment income of an S corporation includes gains from the sale of securities.

Compensation for services rendered to an S corporation generates a corporate-level FICA tax liability.

Explain the OAA concept.

An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.

The AAA begins with a zero balance on the first day of an S corporation's first tax year.

Since loss property receives a_ in basis without any loss recognition, S corporation distributions of loss property generally should be__ .

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 shareholder's basis is increased by stock purchases and capital contributions.

When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.

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

S corporation status allows shareholders to realize tax benefits from corporate losses immediately assuming sufficient stock basis).

An S corporation can claim a deduction for its operating loss amounts.

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

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

Which item does not appear on Schedule K of Form 1120S?

Identify a disadvantage of being an S corporation.

Understanding and Working With the Federal Tax Law

The Deduction for Qualified Business Income for Pass-Through Entities

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Earnings and Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operations, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 12: S Corporations

The passive investment income of an S corporation includes gains from the sale of securities.

Compensation for services rendered to an S corporation generates a corporate-level FICA tax liability.

Explain the OAA concept.

An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.

The AAA begins with a zero balance on the first day of an S corporation's first tax year.

Since loss property receives a_______ in basis without any loss recognition, S corporation distributions of loss property generally should be________ .

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 shareholder's basis is increased by stock purchases and capital contributions.

When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.

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

S corporation status allows shareholders to realize tax benefits from corporate losses immediately assuming sufficient stock basis).

An S corporation can claim a deduction for its operating loss amounts.

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

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

Which item does not appear on Schedule K of Form 1120S?

Identify a disadvantage of being an S corporation.

Understanding and Working With the Federal Tax Law

The Deduction for Qualified Business Income for Pass-Through Entities

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Earnings and Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operations, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Since loss property receives a_ in basis without any loss recognition, S corporation distributions of loss property generally should be__ .

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