Exam 10: Sole Proprietorships, Partnerships, Llcs, and S Corporations

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.

Funky Chicken is a calendar year general partnership with the following current year information: Operating loss \ (300,000) Liabilities: Note payable, Big Bank Note payable, June Cross On January 1 June Cross bought 60% of Funky Chicken for $45,000. She then loaned the partnership $20,000. How much of the operating loss may Cross deduct currently?

At the beginning of year 1, Paulina purchased a 25% general partner interest in Gamma Partnership for $25,000. Paulina's partnership Schedule K-1 for year 1 reported that her share of Gamma's debt at year-end was $10,000 and her share of ordinary loss was $5,000. On January 1, year 2, Paulina sold her interest to another partner for $22,000 cash. Compute Paulina's gain or loss on the sale of her partnership interest.

In 2016, William Wallace's sole proprietorship, Western Wear Apparel, generated $140,769 Schedule C net profit ($130,000 net earnings from self-employment). In addition, William recognized a $25,000 Section 1231 gain on a sale of land formerly used by the business as a parking lot. The business checking account earned $250 interest income. a. Which of these income items are subject to self-employment tax? b. Compute Williams' 2016 self-employment tax, assuming he has no other earned income. c. Compute the total increase in William's 2016 taxable income attributable to his business.

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?

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?

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:

Which of the following statements regarding the basis limitation on deduction of partnership losses is false?

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

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

John's share of partnership loss was $60,000. He had only enough tax basis to deduct $34,000 of the loss. He may deduct the remaining loss against other income in the following year, regardless of what happens in the partnership.

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

Gavin owns a 50% interest in London Partnership. His tax basis in his partnership interest at the beginning of the year was $20,000. His partnership Schedule K-1 showed the following: Ordinary business income \ 60,000 Share of partnership debt, beginning of year Share of partnership debt, end of year Calculate Gavin's tax basis in his partnership interest at the end of the year?

Perry is a partner in a calendar year partnership. His Schedule K-1 for the current tax year showed the following: Ordinary business loss \ (20,000) Short-term capital gain 2,100 Dividend income Cash distribution 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?

Kelly received a $60,000 salary during 2016. Her federal income tax withholding rate was 20%, and the Social Security base amount for 2016 was $118,500. What is the total amount that her employer should have withheld in 2016?

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

In 2016, Mike Elfred received a $165,000 salary from his employer and generated $39,000 net earnings from self-employment from his small business. Which of the following statements is true?