Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Sue's 2017 net (take-home)pay was $23,205.Her only payroll deductions were for payroll taxes and federal income tax.Federal income tax withholdings totaled $4,500.What was the amount of her gross wages for the year?

Accepted Answer

A) $25,127 
B) $30,000 
C) $29,480 
D) None of the above 
A) $25,127 
B) $30,000 
C) $29,480 
D) None of the above

Question 3

Which of the following statements regarding S corporations is true?

Accepted Answer

A) An S corporation may have no more than 50 shareholders. 
B) Any individual,estate,corporation,or trust may be an S corporation shareholder. 
C) An S corporation may have only one class of stock. 
D) An S corporation shareholder's allocable share of ordinary income is subject to self-employment tax. 
A) An S corporation may have no more than 50 shareholders. 
B) Any individual,estate,corporation,or trust may be an S corporation shareholder. 
C) An S corporation may have only one class of stock. 
D) An S corporation shareholder's allocable share of ordinary income is subject to self-employment tax.

Question 4

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 5

Mutt and Jeff are general partners in M&J Partnership and share profits and losses equally.Partnership operations for the current tax year were:     Mutt's tax basis in his partnership interest at the beginning of the current year was $12,000.What is his basis at the beginning of next year?

Accepted Answer

A) $25,000 
B) $37,000 
C) $13,000 
D) $27,000 
A) $25,000 
B) $37,000 
C) $13,000 
D) $27,000

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Drake Partnership earned a net profit of $400,000.Four partners share profits and losses equally.No cash was distributed.The partners will report taxable income from the partnership on their personal income tax returns for the year.

Accepted Answer

A) True 
 B)False

Question 8

On January 1,2017,Laura Wang contributed $30,000 cash in exchange for 30 shares of stock in Suki Inc.,an S corporation.On May 12,Laura loaned $8,500 to Suki in exchange for a 5-year interest-bearing note.Laura's pro rata share of Suki's 2017 ordinary business loss was $34,100,and she received no cash distributions during the year.Which of the following statements is accurate?

Accepted Answer

A) Laura can deduct $30,000 of the loss in 2017.On January 1,2018,the basis in her Suki stock is zero,and the basis in her Suki note is $8,500. 
B) Laura can deduct $34,100 of the loss in 2017.On January 1,2018,the basis in her Suki stock is $4,400,and the basis in her Suki note is zero. 
C) Laura can deduct $34,100 of the loss in 2017.On January 1,2018,the basis in her Suki stock is zero,and the basis in her Suki note is $4,400. 
D) None of the above is accurate. 
A) Laura can deduct $30,000 of the loss in 2017.On January 1,2018,the basis in her Suki stock is zero,and the basis in her Suki note is $8,500. 
B) Laura can deduct $34,100 of the loss in 2017.On January 1,2018,the basis in her Suki stock is $4,400,and the basis in her Suki note is zero. 
C) Laura can deduct $34,100 of the loss in 2017.On January 1,2018,the basis in her Suki stock is zero,and the basis in her Suki note is $4,400. 
D) None of the above is accurate.

Question 9

On January 1 of this year,Conrad Nelson contributed $15,000 cash in exchange for 50 shares of stock in Sterling Inc.,an S corporation.Sterling employs Conrad as its director of marketing.Conrad's current year salary was $70,000 and his pro rata share of Sterling's ordinary business income was $16,800.During the year,Conrad received a $9,000 cash distribution with respect to his Sterling stock.Compute Conrad's basis in his Sterling stock at year end.

Accepted Answer

A) $15,000 
B) $22,800 
C) $31,800 
D) $92,800 
A) $15,000 
B) $22,800 
C) $31,800 
D) $92,800

Question 10

A partner's distributive share of partnership nondeductible losses does not decrease his or her tax basis in the partnership interest.

Accepted Answer

A) True 
 B)False

Question 11

The allocations made to a partner are reported on Schedule K-1 and are referred to as his or her distributive share of partnership items.

Accepted Answer

A) True 
 B)False

Question 12

Kelly received a $60,000 salary during 2017.Her federal income tax withholding rate was 20%,and the Social Security base amount for 2017 was $127,200.What is the total amount that her employer should have withheld in 2017?

Accepted Answer

A) $16,590 
B) $12,000 
C) $4,590 
D) $0 
A) $16,590 
B) $12,000 
C) $4,590 
D) $0

Question 13

Alex is a partner in a calendar year partnership.His partnership Schedule K-1 for the current tax year showed the following:     Alex has a $7,000 loss carryforward from the partnership last year,which he could not deduct because of the basis limitation.What is his tax basis in his partnership interest at the end of the current tax year?

Accepted Answer

A) $41,000 
B) $32,500 
C) $39,500 
D) $34,000 
A) $41,000 
B) $32,500 
C) $39,500 
D) $34,000

Question 14

Hay,Straw and Clover formed the HSC Partnership,agreeing to share profits and losses equally.Clover will manage the business for which he will receive a guaranteed payment of $30,000 per year.Cash receipts and disbursements for the year were as follows     What is Clover's share of the partnership's ordinary income and guaranteed payment?

Accepted Answer

A) Ordinary income,$30,000; Guaranteed payment,$10,000. 
B) Ordinary income,$20,000; Guaranteed payment,$10,000. 
C) Ordinary income,$30,000; Guaranteed payment,$30,000. 
D) Ordinary income,$20,000; Guaranteed payment,$30,000. 
A) Ordinary income,$30,000; Guaranteed payment,$10,000. 
B) Ordinary income,$20,000; Guaranteed payment,$10,000. 
C) Ordinary income,$30,000; Guaranteed payment,$30,000. 
D) Ordinary income,$20,000; Guaranteed payment,$30,000.

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

The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of the employee's wages for the year.

Accepted Answer

A) True 
 B)False

Question 17

Max is a 10% limited partner in LMN partnership.His adjusted basis in his partnership interest was $50,000 at the beginning of the current year.During the year,the partnership earned $100,000 of ordinary income,incurred a $5,000 capital loss,and paid $1,000 of nondeductible expenses.Max received a distribution of $2,000 from the partnership.Calculate Max's ending adjusted basis in his partnership interest.

Accepted Answer

A) $142,000 
B) $57,400 
C) $57,500 
D) $59,200 
A) $142,000 
B) $57,400 
C) $57,500 
D) $59,200

Question 18

Cramer Corporation and Mr.Chips formed a partnership in which Cramer is the general partner and Mr.Chips is a limited partner.Cramer contributed $500,000 cash,and Mr.Chips contributed a building with a $500,000 FMV and $300,000 tax basis.The partnership immediately borrowed $700,000 of recourse debt.What is Cramer's tax basis in its partnership interest?

Accepted Answer

A) $500,000 
B) $1,200,000 
C) $850,000 
D) $650,000 
A) $500,000 
B) $1,200,000 
C) $850,000 
D) $650,000

Question 19

Bernard and Leon formed a partnership on January 1 with cash contributions of $600,000 and $200,000,respectively.The partners agree to share profits and losses in the ratio of their initial capital contributions.The partnership immediately borrowed $800,000.What is Bernard's tax basis in his partnership interest?

Accepted Answer

A) $1,200,000 
B) $600,000 
C) $800,000 
D) $1,400,000 
A) $1,200,000 
B) $600,000 
C) $800,000 
D) $1,400,000

Question 20

Loretta is the sole shareholder of Country Collectibles,a calendar year S corporation.Although Loretta spends at least 40 hours per week supervising Country Collectible's employees,she has never drawn a salary from the business.Country Collectibles has been in existence for five years and has earned a profit every year.Loretta withdraws $100,000 cash from the S corporation each year.Which of the following statements accurately describes the tax consequences of these withdrawals?

Accepted Answer

A) The withdrawals are nontaxable,with no risk that they could be recharacterized as taxable salary or dividend payments. 
B) The withdrawals are considered taxable dividends to Loretta. 
C) There is significant risk that the IRS could recharacterize the payments to Loretta as salary.Such treatment would increase taxable income for both Loretta and the S corporation. 
D) There is significant risk that the IRS could recharacterize the payments to Loretta as salary.Such treatment would not change taxable income for Loretta and reduce taxable income of the S corporation. 
A) The withdrawals are nontaxable,with no risk that they could be recharacterized as taxable salary or dividend payments. 
B) The withdrawals are considered taxable dividends to Loretta. 
C) There is significant risk that the IRS could recharacterize the payments to Loretta as salary.Such treatment would increase taxable income for both Loretta and the S corporation. 
D) There is significant risk that the IRS could recharacterize the payments to Loretta as salary.Such treatment would not change taxable income for Loretta and reduce taxable income of the S corporation.

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

Sue's 2017 net (take-home)pay was $23,205.Her only payroll deductions were for payroll taxes and federal income tax.Federal income tax withholdings totaled $4,500.What was the amount of her gross wages for the year?

Which of the following statements regarding S corporations is true?

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

Mutt and Jeff are general partners in M&J Partnership and share profits and losses equally.Partnership operations for the current tax year were: Mutt's tax basis in his partnership interest at the beginning of the current year was $12,000.What is his basis at the beginning of next year?

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

Drake Partnership earned a net profit of $400,000.Four partners share profits and losses equally.No cash was distributed.The partners will report taxable income from the partnership on their personal income tax returns for the year.

A partner's distributive share of partnership nondeductible losses does not decrease his or her tax basis in the partnership interest.

The allocations made to a partner are reported on Schedule K-1 and are referred to as his or her distributive share of partnership items.

Kelly received a $60,000 salary during 2017.Her federal income tax withholding rate was 20%,and the Social Security base amount for 2017 was $127,200.What is the total amount that her employer should have withheld in 2017?

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.

The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of the employee's wages for the year.

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

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

Sue's 2017 net (take-home)pay was $23,205.Her only payroll deductions were for payroll taxes and federal income tax.Federal income tax withholdings totaled $4,500.What was the amount of her gross wages for the year?

Which of the following statements regarding S corporations is true?

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

Mutt and Jeff are general partners in M&J Partnership and share profits and losses equally.Partnership operations for the current tax year were: Mutt's tax basis in his partnership interest at the beginning of the current year was $12,000.What is his basis at the beginning of next year?

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

Drake Partnership earned a net profit of $400,000.Four partners share profits and losses equally.No cash was distributed.The partners will report taxable income from the partnership on their personal income tax returns for the year.

A partner's distributive share of partnership nondeductible losses does not decrease his or her tax basis in the partnership interest.

The allocations made to a partner are reported on Schedule K-1 and are referred to as his or her distributive share of partnership items.

Kelly received a $60,000 salary during 2017.Her federal income tax withholding rate was 20%,and the Social Security base amount for 2017 was $127,200.What is the total amount that her employer should have withheld in 2017?

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.

The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of the employee's wages for the year.

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