Question 1

Which of the following statements is correct?

Accepted Answer

A)  The LIFO recapture tax precludes an S corporation from using the LIFO method. 
B)  The LIFO recapture tax is paid in five annual installments. 
C)  The LIFO recapture amount increases the corporation's adjusted basis in its inventory. 
D)  The LIFO recapture tax does not apply to S corporations with no earnings and profits from prior C corporation years. 
E)  None of the choices are correct. 
A)  The LIFO recapture tax precludes an S corporation from using the LIFO method. 
B)  The LIFO recapture tax is paid in five annual installments. 
C)  The LIFO recapture amount increases the corporation's adjusted basis in its inventory. 
D)  The LIFO recapture tax does not apply to S corporations with no earnings and profits from prior C corporation years. 
E)  None of the choices are correct.

Question 2

Assume Joe Harry sells his 25percent interest in Joe's S Corporation, to Tyrone on January 29. Using the daily allocation method, how much income does Joe Harry report if Joe's S Corporation,earned $190,000 from January 1 to January 29 and a total of $547,500 from January 1 through December 31 (365 days)?

Accepted Answer

A)  $10,875 
B)  $47,500 
C)  $42,000 
D)  $190,000 
E)  None of the choices are correct. 
A)  $10,875 
B)  $47,500 
C)  $42,000 
D)  $190,000 
E)  None of the choices are correct.

Question 3

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $80,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $36,000. For 2021, J.D. was allocated $35,000 of ordinary income from Clampett, Incorporated, and no separately stated items. What is J.D.'s basis in his Clampett, Incorporated, stock after all transactions in 2021?

Accepted Answer

A)  $71,000 
B)  $36,000 
C)  $1,000 
D)  ($35,000) 
E)  None of the choices are correct. 
A)  $71,000 
B)  $36,000 
C)  $1,000 
D)  ($35,000) 
E)  None of the choices are correct.

Question 4

Unlikein partnerships, adjustments that decrease an S corporation shareholder's basis may reduce it below zero.

Accepted Answer

A) True 
 B)False

Question 5

S corporations may have no more than 50 shareholders, but members of the same family only count as one shareholder.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is correct regarding S corporation estimated taxes?

Accepted Answer

A)  S corporations never pay estimated taxes. 
B)  S corporations with a federal income tax liability of $500 due to the built-in gains tax or excess net passive income tax must pay estimated taxes. 
C)  S corporations that owe $5,000 in LIFO recapture tax only must pay estimated taxes. 
D)  S corporations with a federal income tax liability of $100 due to the excess net passive income tax must pay estimated taxes. 
E)  None of the choices are correct. 
A)  S corporations never pay estimated taxes. 
B)  S corporations with a federal income tax liability of $500 due to the built-in gains tax or excess net passive income tax must pay estimated taxes. 
C)  S corporations that owe $5,000 in LIFO recapture tax only must pay estimated taxes. 
D)  S corporations with a federal income tax liability of $100 due to the excess net passive income tax must pay estimated taxes. 
E)  None of the choices are correct.

Question 7

Assume Joe Harry sells his 25percent interest in Joe's S Corporation, to Tyrone on January 29. Using the specific identification allocation method, how much income does Joe Harry report if Joe's S Corporation, earned $225,000 from January 1 to January 29 and a total of $2,372,500 from January 1 through December 31 (365 days)?

Accepted Answer

A)  $56,250 
B)  $225,000 
C)  $45,500 
D)  $182,000 
E)  None of the choices are correct. 
A)  $56,250 
B)  $225,000 
C)  $45,500 
D)  $182,000 
E)  None of the choices are correct.

Question 8

Separately stated items are tax items that are treated similarly for tax purposes as a shareholder's share of ordinary business income (loss).

Accepted Answer

A) True 
 B)False

Question 9

MWC is a C corporation that uses the accrual method of accounting. MWC made an S election, effective January 1 of 2020. The following assets were owned by MWC on December 31, 2019.
   What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1, 2020?

Accepted Answer

$20,000. The ($5,000) built-in

Question 10

CB Corporation was formed as a calendar-year S corporation. Casey is a 60percent shareholder and Bryant is a 40percent shareholder. On September 30, 2020, Bryant sold his CB shares to Don. CB reported business income for 2020 as follows: (Assume that there are 365 days in the year.)
   How much 2020 income is allocated to each shareholder if CB uses its normal accounting rules to allocate income to the specific periods in which it was actually earned?

Accepted Answer

Casey is allocated $438,000 of

Question 11

During 2020, MVC operated as a C corporation. However, it made an election to be taxed as an S corporation effective January 1, 2021. MVC uses the accrual method of accounting and uses the LIFOmethod of accounting for its inventory. At the end of 2020 its inventory basis under the LIFO method was $80,000. If MVC had used the FIFOmethod of accounting for its inventory, it would have had a $100,000 basis in its inventory. Finally, MVC's regular taxable income in 2020 was $5,000. What amount of LIFO recapture tax must MVC pay? When must it pay the tax?

Accepted Answer

MVC must pay $4,200 [($100,000 FIFO inve

Question 12

SoTired, Incorporated, a C corporation with a June 30 year-end, elects S corporation status this year. Assuming no special elections, SoTired, Incorporated, will continue to use a June 30 year-end as an S corporation.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not an adjustment to an S corporation shareholder's stock basis?

Accepted Answer

A)  Increase for any contributions to the S corporation during the year. 
B)  Increase for shareholder's share of ordinary business income. 
C)  Decrease for shareholder's share of nondeductible items. 
D)  Increase for distributions during the year. 
E)  None of the choices are correct. 
A)  Increase for any contributions to the S corporation during the year. 
B)  Increase for shareholder's share of ordinary business income. 
C)  Decrease for shareholder's share of nondeductible items. 
D)  Increase for distributions during the year. 
E)  None of the choices are correct.

Question 14

Distributions to owners may not cause the AAA to go negative or to become more negative.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following income items from an S corporation is not considered investment income for purposes of the net investment income tax?

Accepted Answer

A)  Passive income 
B)  Investment interest income 
C)  Dividends 
D)  Short-term capital gains 
E)  All of these choices are considered investment income for the net investment income tax. 
A)  Passive income 
B)  Investment interest income 
C)  Dividends 
D)  Short-term capital gains 
E)  All of these choices are considered investment income for the net investment income tax.

Question 16

As in partnerships, an S corporation shareholder's basis is dynamic and must be adjusted annually.

Accepted Answer

A) True 
 B)False

Question 17

During the post-termination transition period, property distributions are tax-free to shareholders to the extent they do not exceed the S corporation's AAA balance and the individual shareholder's basis in the stock.

Accepted Answer

A) True 
 B)False

Question 18

S corporation shareholders are not allowed to include any S corporation-level debt in their stock basis.

Accepted Answer

A) True 
 B)False

Question 19

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $43,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $41,500. For 2021, J.D. was allocated $10,700 of ordinary income from Clampett, Incorporated, and no separately stated items. How much capital gain does J.D. recognize related to Clampett, Incorporated, in 2021?

Accepted Answer

A)  $53,700 
B)  $43,000 
C)  $21,400 
D)  $10,700 
E)  None of the choices are correct. 
A)  $53,700 
B)  $43,000 
C)  $21,400 
D)  $10,700 
E)  None of the choices are correct.

Question 20

An S corporation can make a voluntary revocation of an S election if shareholders holding more than 25 percent of the S corporation stock (including nonvoting shares) agree.

Accepted Answer

A) True 
 B)False

Which of the following statements is correct?

Unlikein partnerships, adjustments that decrease an S corporation shareholder's basis may reduce it below zero.

S corporations may have no more than 50 shareholders, but members of the same family only count as one shareholder.

Which of the following statements is correct regarding S corporation estimated taxes?

Separately stated items are tax items that are treated similarly for tax purposes as a shareholder's share of ordinary business income (loss).

MWC is a C corporation that uses the accrual method of accounting. MWC made an S election, effective January 1 of 2020. The following assets were owned by MWC on December 31, 2019. What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1, 2020?

SoTired, Incorporated, a C corporation with a June 30 year-end, elects S corporation status this year. Assuming no special elections, SoTired, Incorporated, will continue to use a June 30 year-end as an S corporation.

Which of the following is not an adjustment to an S corporation shareholder's stock basis?

Distributions to owners may not cause the AAA to go negative or to become more negative.

Which of the following income items from an S corporation is not considered investment income for purposes of the net investment income tax?

As in partnerships, an S corporation shareholder's basis is dynamic and must be adjusted annually.

During the post-termination transition period, property distributions are tax-free to shareholders to the extent they do not exceed the S corporation's AAA balance and the individual shareholder's basis in the stock.

S corporation shareholders are not allowed to include any S corporation-level debt in their stock basis.

An S corporation can make a voluntary revocation of an S election if shareholders holding more than 25 percent of the S corporation stock (including nonvoting shares) agree.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Business Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Non-Liquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 11: S Corporations

Which of the following statements is correct?

Unlikein partnerships, adjustments that decrease an S corporation shareholder's basis may reduce it below zero.

S corporations may have no more than 50 shareholders, but members of the same family only count as one shareholder.

Which of the following statements is correct regarding S corporation estimated taxes?

Separately stated items are tax items that are treated similarly for tax purposes as a shareholder's share of ordinary business income (loss).

MWC is a C corporation that uses the accrual method of accounting. MWC made an S election, effective January 1 of 2020. The following assets were owned by MWC on December 31, 2019. What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1, 2020?

SoTired, Incorporated, a C corporation with a June 30 year-end, elects S corporation status this year. Assuming no special elections, SoTired, Incorporated, will continue to use a June 30 year-end as an S corporation.

Which of the following is not an adjustment to an S corporation shareholder's stock basis?

Distributions to owners may not cause the AAA to go negative or to become more negative.

Which of the following income items from an S corporation is not considered investment income for purposes of the net investment income tax?

As in partnerships, an S corporation shareholder's basis is dynamic and must be adjusted annually.

During the post-termination transition period, property distributions are tax-free to shareholders to the extent they do not exceed the S corporation's AAA balance and the individual shareholder's basis in the stock.

S corporation shareholders are not allowed to include any S corporation-level debt in their stock basis.

An S corporation can make a voluntary revocation of an S election if shareholders holding more than 25 percent of the S corporation stock (including nonvoting shares) agree.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Business Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Non-Liquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters