Question 1

Which of the following statements regarding sole proprietorships is false?

Accepted Answer

A) A sole proprietorship has no legal identity separate from that of its owner. 
B) Sole proprietorships are the most common form of business entity in the U.S. 
C) The cash flow generated by a sole proprietorship belongs to the owner. 
D) The assets and liabilities of a sole proprietorship are held in the name of the business,not the owner. 
A) A sole proprietorship has no legal identity separate from that of its owner. 
B) Sole proprietorships are the most common form of business entity in the U.S. 
C) The cash flow generated by a sole proprietorship belongs to the owner. 
D) The assets and liabilities of a sole proprietorship are held in the name of the business,not the owner.

Question 2

XYZ,Inc.wishes to make an election to become an S corporation for federal tax purposes.Which of the following statements regarding the election is false?

Accepted Answer

A) All of the corporation's shareholders must consent to make an S election. 
B) If a shareholder in an S corporation sells his shares of stock to a nonresident alien,the election will terminate. 
C) If an S corporation loses its election,the shareholders cannot make a new election for five years without IRS consent. 
D) All of the shareholders must consent to voluntarily terminating an S election. 
A) All of the corporation's shareholders must consent to make an S election. 
B) If a shareholder in an S corporation sells his shares of stock to a nonresident alien,the election will terminate. 
C) If an S corporation loses its election,the shareholders cannot make a new election for five years without IRS consent. 
D) All of the shareholders must consent to voluntarily terminating an S election.

Question 3

Corporations cannot be shareholders in an S corporation.

Accepted Answer

A) True 
 B)False

Question 4

Businesses are required by law to withhold federal income tax from the compensation paid to their employees.

Accepted Answer

A) True 
 B)False

Question 5

During the current year,Margie earned wage income of $300,000.If Margie is single,which of the following statements regarding her Medicare tax liability is true?

Accepted Answer

A) Margie will owe both the regular 1.45 percent Medicare tax and the additional .9 percent Medicare tax on her entire wage income. 
B) Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $200,000. 
C) Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $250,000. 
D) Margie's employer is required to withhold both the regular Medicare tax but does not withhold the additional .9 percent Medicare tax. 
A) Margie will owe both the regular 1.45 percent Medicare tax and the additional .9 percent Medicare tax on her entire wage income. 
B) Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $200,000. 
C) Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $250,000. 
D) Margie's employer is required to withhold both the regular Medicare tax but does not withhold the additional .9 percent Medicare tax.

Question 6

A corporate shareholder usually cannot be held personally liable for the debts arising from the corporate business.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) Just like an S corporation,an LLC member's share of ordinary income is not subject to self-employment taxes. 
B) Just like an S corporation,an LLC is restricted to 100 members. 
C) Because LLCs are a relatively new organizational form,many tax questions concerning their operation have yet to be resolved. 
D) Just like a limited partnership,only LLC members who are not actively involved in the entity's business activities have limited liability for the LLC's debts. 
A) Just like an S corporation,an LLC member's share of ordinary income is not subject to self-employment taxes. 
B) Just like an S corporation,an LLC is restricted to 100 members. 
C) Because LLCs are a relatively new organizational form,many tax questions concerning their operation have yet to be resolved. 
D) Just like a limited partnership,only LLC members who are not actively involved in the entity's business activities have limited liability for the LLC's debts.

Question 8

Bevo Partnership had the following financial activity for the year:     Compute Bevo's ordinary business income for the year and indicate which items must be separately stated.

Accepted Answer

Ordinary business income: $280,000 = $86

Question 9

Which of the following items would be separately stated instead of included in ordinary income when reported by a partnership?

Accepted Answer

A) Municipal bond interest income 
B) Capital loss 
C) Dividend income 
D) All of the above items would be separately stated 
A) Municipal bond interest income 
B) Capital loss 
C) Dividend income 
D) All of the above items would be separately stated

Question 10

Waters Corporation is an S corporation with two equal shareholders,Mia Jones and David Kerns.This year,Waters recorded the following items of income and expense:     Waters distributed $25,000 to each of its shareholders during the year.If Mia's adjusted tax basis in her partnership interest was $50,000 at the beginning of the year,compute her adjusted tax basis in her partnership interest at the end of the year.

Accepted Answer

A) $93,000 
B) $118,000 
C) $50,000 
D) $85,000 
A) $93,000 
B) $118,000 
C) $50,000 
D) $85,000

Question 11

At the beginning of 2017,Quentin purchased a 25 percent general partner interest in Maxim Partnership for $30,000.Quentin's 2017 Schedule K-1 reported that his share of Maxim's debt at year-end was $20,000 and his share of ordinary loss was $42,000.On January 1,2018,Quentin sold his interest to another partner for $5,000 cash.
a.How much of his share of Maxim's loss can Quentin deduct on his 2017 return?
b.Compute Quentin's recognized gain on sale of his Maxim interest.

Accepted Answer

a.Quentin can deduct the full amount of

Question 12

All general partners have unlimited personal liability for the debts of the entity.

Accepted Answer

A) True 
 B)False

Question 13

On January 1,Leon purchased a 10% stock interest in an S corporation for $30,000.He also loaned the S corporation $5,000 in exchange for a written promissory note.The S corporation generated a $330,000 operating loss for the year.Leon deducted his 10% share of the loss,reducing his tax basis in his stock to zero,and his tax basis in the note to $2,000.The following year,the S corporation repaid the note before Leon restored his basis in the note.What are the consequences of the loan repayment to Leon?

Accepted Answer

A) $3,000 capital gain 
B) $3,000 ordinary income 
C) $2,000 capital gain 
D) $2,000 ordinary income 
A) $3,000 capital gain 
B) $3,000 ordinary income 
C) $2,000 capital gain 
D) $2,000 ordinary income

Question 14

A major advantage of an S corporation is the ability to specially allocate losses to specific members of the company.

Accepted Answer

A) True 
 B)False

Question 15

A shareholder in an S corporation includes in tax basis his or her share of the corporation's liabilities.

Accepted Answer

A) True 
 B)False

Question 16

Martha Pim is a general partner in PLF Partnership.This year,Martha received a $48,000 guaranteed payment from PLF,and her distributive share of PLF's ordinary business income was $93,200.Which of the following is accurate?

Accepted Answer

A) Martha must pay income tax on $141,200 and self-employment tax on $48,000. 
B) Martha must pay income tax on $141,200 and self-employment tax on $93,200. 
C) Martha must pay both income tax and self-employment tax on $141,200. 
D) Martha must pay income tax on $48,000 and self-employment tax on $93,200. 
A) Martha must pay income tax on $141,200 and self-employment tax on $48,000. 
B) Martha must pay income tax on $141,200 and self-employment tax on $93,200. 
C) Martha must pay both income tax and self-employment tax on $141,200. 
D) Martha must pay income tax on $48,000 and self-employment tax on $93,200.

Question 17

During 2017,Scott Howell received a salary of $135,000.The social security base amount for 2017 was $127,200.How much payroll tax should have been withheld from Scott's salary for 2017?

Accepted Answer

A) $0 
B) $10,328 
C) $9,731 
D) $9,844 
A) $0 
B) $10,328 
C) $9,731 
D) $9,844

Question 18

A partner's distributive share of partnership profits will increase his or her tax basis in the partnership interest.

Accepted Answer

A) True 
 B)False

Question 19

A partner's tax basis in his or her partnership interest is decreased by partnership distributions.

Accepted Answer

A) True 
 B)False

Question 20

William is a member of an LLC.His Schedule K-1 reported a $1,200 share of capital loss and a $3,000 share of Section 1231 gain.William recognized a $4,500 capital gain on the sale of marketable securities and a $15,000 Section 1231 loss on the sale of business equipment.What is the net effect of these gains and losses on William's taxable income?

Accepted Answer

A) $3,300 net capital gain; $12,000 deductible net Section 1231 loss 
B) $4,500 net capital gain; $12,000 deductible net Section 1231 loss 
C) $4,500 net capital gain; $15,000 deductible net Section 1231 loss 
D) $3,300 net capital gain; -0- deductible net Section 1231 loss 
A) $3,300 net capital gain; $12,000 deductible net Section 1231 loss 
B) $4,500 net capital gain; $12,000 deductible net Section 1231 loss 
C) $4,500 net capital gain; $15,000 deductible net Section 1231 loss 
D) $3,300 net capital gain; -0- deductible net Section 1231 loss

Which of the following statements regarding sole proprietorships is false?

XYZ,Inc.wishes to make an election to become an S corporation for federal tax purposes.Which of the following statements regarding the election is false?

Corporations cannot be shareholders in an S corporation.

Businesses are required by law to withhold federal income tax from the compensation paid to their employees.

During the current year,Margie earned wage income of $300,000.If Margie is single,which of the following statements regarding her Medicare tax liability is true?

A corporate shareholder usually cannot be held personally liable for the debts arising from the corporate business.

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

Bevo Partnership had the following financial activity for the year: Compute Bevo's ordinary business income for the year and indicate which items must be separately stated.

Which of the following items would be separately stated instead of included in ordinary income when reported by a partnership?

All general partners have unlimited personal liability for the debts of the entity.

A major advantage of an S corporation is the ability to specially allocate losses to specific members of the company.

A shareholder in an S corporation includes in tax basis his or her share of the corporation's liabilities.

Martha Pim is a general partner in PLF Partnership.This year,Martha received a $48,000 guaranteed payment from PLF,and her distributive share of PLF's ordinary business income was $93,200.Which of the following is accurate?

During 2017,Scott Howell received a salary of $135,000.The social security base amount for 2017 was $127,200.How much payroll tax should have been withheld from Scott's salary for 2017?

A partner's distributive share of partnership profits will increase his or her tax basis in the partnership interest.

A partner's tax basis in his or her partnership interest is decreased by partnership distributions.

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 regarding sole proprietorships is false?

XYZ,Inc.wishes to make an election to become an S corporation for federal tax purposes.Which of the following statements regarding the election is false?

Corporations cannot be shareholders in an S corporation.

Businesses are required by law to withhold federal income tax from the compensation paid to their employees.

During the current year,Margie earned wage income of $300,000.If Margie is single,which of the following statements regarding her Medicare tax liability is true?

A corporate shareholder usually cannot be held personally liable for the debts arising from the corporate business.

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

Bevo Partnership had the following financial activity for the year: Compute Bevo's ordinary business income for the year and indicate which items must be separately stated.

Which of the following items would be separately stated instead of included in ordinary income when reported by a partnership?

All general partners have unlimited personal liability for the debts of the entity.

A major advantage of an S corporation is the ability to specially allocate losses to specific members of the company.

A shareholder in an S corporation includes in tax basis his or her share of the corporation's liabilities.

Martha Pim is a general partner in PLF Partnership.This year,Martha received a $48,000 guaranteed payment from PLF,and her distributive share of PLF's ordinary business income was $93,200.Which of the following is accurate?

During 2017,Scott Howell received a salary of $135,000.The social security base amount for 2017 was $127,200.How much payroll tax should have been withheld from Scott's salary for 2017?

A partner's distributive share of partnership profits will increase his or her tax basis in the partnership interest.

A partner's tax basis in his or her partnership interest is decreased by partnership distributions.

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