Question 1

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. D

Question 2

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. A

Question 3

Aaron James has a qualifying home office.The office is 500 square feet and the entire house is 2,500 square feet.Use the following information to determine his allowable home office deduction:

Accepted Answer

A) $5,240 
B) $4,140 
C) $4,260 
D) $21,800 
A) $5,240 
B) $4,140 
C) $4,260 
D) $21,800 A

Question 4

A partnership is an unincorporated business activity owned by at least two taxpayers.

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

A shareholder in an S corporation can include only his or her own loans to the corporation in tax basis.

Accepted Answer

A) True 
 B)False

Question 7

A limited liability company with more than one member is generally considered a partnership for federal tax purposes.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements regarding limited liability companies is false?

Accepted Answer

A) Every member of an LLC has limited liability for the LLC's debts. 
B) An LLC with only one member is generally treated as a corporation for income tax purposes. 
C) An LLC with more than one member is generally treated as a partnership for income tax purposes. 
D) State laws do not limit the number of members or the type of entity that can be a member in an LLC. 
A) Every member of an LLC has limited liability for the LLC's debts. 
B) An LLC with only one member is generally treated as a corporation for income tax purposes. 
C) An LLC with more than one member is generally treated as a partnership for income tax purposes. 
D) State laws do not limit the number of members or the type of entity that can be a member in an LLC.

Question 9

Gabriel operates his business as a sole proprietorship.This year the business incurred an operating loss.The loss can be used to offset other income he earned during the year.

Accepted Answer

A) True 
 B)False

Question 10

Orange,Inc.is a calendar year partnership with the following current year information:     On January 1,John James bought 50% general interest in Orange,Inc.for $30,000.How much of the operating loss may John deduct on his Form 1040?

Accepted Answer

A) $60,000 
B) $30,000 
C) $40,000 
D) $50,000 
A) $60,000 
B) $30,000 
C) $40,000 
D) $50,000

Question 11

A partnership deducts guaranteed payments paid to its partners in computing ordinary income,and partners report guaranteed payments received as ordinary income.

Accepted Answer

A) True 
 B)False

Question 12

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:

Accepted Answer

A) $110,000 
B) $85,000 
C) $125,000 
D) $215,000 
A) $110,000 
B) $85,000 
C) $125,000 
D) $215,000

Question 13

George and Martha formed a partnership by each contributing $5,000 cash.The partnership then borrowed another $60,000 to finance its operations.If George and Martha are both general partners,compute each partner's initial basis in his/her partnership interest.

Accepted Answer

A) $5,000 
B) $65,000 
C) $35,000 
D) $0 
A) $5,000 
B) $65,000 
C) $35,000 
D) $0

Question 14

Perry is a partner in a calendar year partnership.His Schedule K-1 for the current tax year showed the following:     Perry's tax basis in his partnership interest at the beginning of the year was $15,400.How much of the ordinary loss may he deduct on his Form 1040?

Accepted Answer

A) $11,700 
B) $14,000 
C) $10,200 
D) $13,300 
A) $11,700 
B) $14,000 
C) $10,200 
D) $13,300

Question 15

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.Assuming that Alice's marginal tax rate is 39.6%,calculate her after-tax cash flow from the partnership this year.

Accepted Answer

A) $60,400 
B) $39,600 
C) $60,000 
D) $20,400 
A) $60,400 
B) $39,600 
C) $60,000 
D) $20,400

Question 16

Which of the following statements regarding a sole proprietorship is false?

Accepted Answer

A) A sole proprietorship is an unincorporated business operated by one individual. 
B) Taxable income from a sole proprietorship is reported on Schedule D of the proprietor's individual income tax return. 
C) Sole proprietors are entitled to deduct 50 percent of self-employment tax paid. 
D) None of the above statements are false. 
A) A sole proprietorship is an unincorporated business operated by one individual. 
B) Taxable income from a sole proprietorship is reported on Schedule D of the proprietor's individual income tax return. 
C) Sole proprietors are entitled to deduct 50 percent of self-employment tax paid. 
D) None of the above statements are false.

Question 17

Alan is a general partner in ADK Partnership.His partnership Schedule K-1 reports $50,000 ordinary business income,$22,000 guaranteed payment,$5,000 long-term capital gain,and $400 dividend income.Which of these items are subject to self-employment tax?

Accepted Answer

A) $50,000 ordinary income 
B) $50,000 ordinary business income and $22,000 guaranteed payment 
C) $50,000 ordinary business income,$22,000 guaranteed payment,and $5,000 long-term capital gain 
D) All income reported on a general partner's Schedule K-1 are subject to self-employment tax 
A) $50,000 ordinary income 
B) $50,000 ordinary business income and $22,000 guaranteed payment 
C) $50,000 ordinary business income,$22,000 guaranteed payment,and $5,000 long-term capital gain 
D) All income reported on a general partner's Schedule K-1 are subject to self-employment tax

Question 18

Which of the following statements regarding a partner's tax basis in a partnership interest is true?

Accepted Answer

A) Partnership tax basis is increased annually by cash distributions from the partnership. 
B) Partnership tax basis is reduced by the partner's share of nondeductible partnership expenses. 
C) Partnership tax basis is reduced by the partner's share of nontaxable partnership income. 
D) Partnership tax basis becomes negative if allocable losses exceed basis. 
A) Partnership tax basis is increased annually by cash distributions from the partnership. 
B) Partnership tax basis is reduced by the partner's share of nondeductible partnership expenses. 
C) Partnership tax basis is reduced by the partner's share of nontaxable partnership income. 
D) Partnership tax basis becomes negative if allocable losses exceed basis.

Question 19

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 20

Haddie's Hats is a regular corporation.The business must file an income tax return each year to report its taxable income or loss and pay any related taxes.

Accepted Answer

A) True 
 B)False

Which of the following statements concerning partnerships is false?

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:

Aaron James has a qualifying home office.The office is 500 square feet and the entire house is 2,500 square feet.Use the following information to determine his allowable home office deduction:

A partnership is an unincorporated business activity owned by at least two taxpayers.

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.

A shareholder in an S corporation can include only his or her own loans to the corporation in tax basis.

A limited liability company with more than one member is generally considered a partnership for federal tax purposes.

Which of the following statements regarding limited liability companies is false?

Gabriel operates his business as a sole proprietorship.This year the business incurred an operating loss.The loss can be used to offset other income he earned during the year.

Orange,Inc.is a calendar year partnership with the following current year information: On January 1,John James bought 50% general interest in Orange,Inc.for $30,000.How much of the operating loss may John deduct on his Form 1040?

A partnership deducts guaranteed payments paid to its partners in computing ordinary income,and partners report guaranteed payments received as ordinary income.

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:

George and Martha formed a partnership by each contributing $5,000 cash.The partnership then borrowed another $60,000 to finance its operations.If George and Martha are both general partners,compute each partner's initial basis in his/her partnership interest.

Perry is a partner in a calendar year partnership.His Schedule K-1 for the current tax year showed the following: Perry's tax basis in his partnership interest at the beginning of the year was $15,400.How much of the ordinary loss may he deduct on his Form 1040?

Which of the following statements regarding a sole proprietorship is false?

Alan is a general partner in ADK Partnership.His partnership Schedule K-1 reports $50,000 ordinary business income,$22,000 guaranteed payment,$5,000 long-term capital gain,and $400 dividend income.Which of these items are subject to self-employment tax?

Which of the following statements regarding a partner's tax basis in a partnership interest is true?

Haddie's Hats is a regular corporation.The business must file an income tax return each year to report its taxable income or loss and pay any related taxes.

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

Which of the following statements concerning partnerships is false?

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:

Aaron James has a qualifying home office.The office is 500 square feet and the entire house is 2,500 square feet.Use the following information to determine his allowable home office deduction:

A partnership is an unincorporated business activity owned by at least two taxpayers.

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.

A shareholder in an S corporation can include only his or her own loans to the corporation in tax basis.

A limited liability company with more than one member is generally considered a partnership for federal tax purposes.

Which of the following statements regarding limited liability companies is false?

Gabriel operates his business as a sole proprietorship.This year the business incurred an operating loss.The loss can be used to offset other income he earned during the year.

Orange,Inc.is a calendar year partnership with the following current year information: On January 1,John James bought 50% general interest in Orange,Inc.for $30,000.How much of the operating loss may John deduct on his Form 1040?

A partnership deducts guaranteed payments paid to its partners in computing ordinary income,and partners report guaranteed payments received as ordinary income.

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:

George and Martha formed a partnership by each contributing $5,000 cash.The partnership then borrowed another $60,000 to finance its operations.If George and Martha are both general partners,compute each partner's initial basis in his/her partnership interest.

Perry is a partner in a calendar year partnership.His Schedule K-1 for the current tax year showed the following: Perry's tax basis in his partnership interest at the beginning of the year was $15,400.How much of the ordinary loss may he deduct on his Form 1040?

Which of the following statements regarding a sole proprietorship is false?

Alan is a general partner in ADK Partnership.His partnership Schedule K-1 reports $50,000 ordinary business income,$22,000 guaranteed payment,$5,000 long-term capital gain,and $400 dividend income.Which of these items are subject to self-employment tax?

Which of the following statements regarding a partner's tax basis in a partnership interest is true?

Haddie's Hats is a regular corporation.The business must file an income tax return each year to report its taxable income or loss and pay any related taxes.

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