Question 1

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 2

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 3

Partners may deduct on their individual income tax returns an amount equal to 100% of self-employment tax paid.

Accepted Answer

A) True 
 B)False

Question 4

Alice is a partner in Axel Partnership. Her share of the partnership's 2012 ordinary business income was $100,000. She received a $60,000 cash distribution from the partnership on December 1, 2012. Assuming that Alice's marginal tax rate is 35%, calculate her after-tax cash flow from the partnership in 2012.

Accepted Answer

A)  $65,000 
B)  $39,000 
C)  $60,000 
D)  $25,000 
A)  $65,000 
B)  $39,000 
C)  $60,000 
D)  $25,000

Question 5

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 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 8

If a business is formed as an S corporation, its income may be subject to double taxation.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

Randolph Scott operates a business as a sole proprietorship. This year his net profit was $10,570. For tax purposes this amount should be reported on:

Accepted Answer

A)  Schedule C, Statement of Profit or Loss from Business 
B)  The first page of Form 1040 as other income 
C)  A separate tax return prepared for the business operation 
D)  Schedule E, Statement of Rent and Royalty Income 
A)  Schedule C, Statement of Profit or Loss from Business 
B)  The first page of Form 1040 as other income 
C)  A separate tax return prepared for the business operation 
D)  Schedule E, Statement of Rent and Royalty Income

Question 11

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 12

In 2012, 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?

Accepted Answer

A)  Mike does not owe any self-employment tax because his salary exceeded the 2012 base amount ($110,100) for federal employment tax. 
B)  Mike owes both the Medicare and Social Security tax portions of self-employment tax on his $39,000 earnings from his small business. 
C)  Mike owes Medicare tax but not Social Security tax on his $39,000 earnings from his small business. 
D)  Mike owes Social Security tax but not Medicare tax on his $39,000 earnings from his small business. 
A)  Mike does not owe any self-employment tax because his salary exceeded the 2012 base amount ($110,100) for federal employment tax. 
B)  Mike owes both the Medicare and Social Security tax portions of self-employment tax on his $39,000 earnings from his small business. 
C)  Mike owes Medicare tax but not Social Security tax on his $39,000 earnings from his small business. 
D)  Mike owes Social Security tax but not Medicare tax on his $39,000 earnings from his small business.

Question 13

During 2012, Elena generated $24,500 of earnings on Schedule C. If Elena had no other earned income, how much self-employment tax will she owe on her Schedule C net profit?

Accepted Answer

A)  $3,749 
B)  $3,259 
C)  $3,461 
D)  $3,008 
A)  $3,749 
B)  $3,259 
C)  $3,461 
D)  $3,008

Question 14

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 15

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 16

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 17

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 18

Corporations cannot be shareholders in an S corporation.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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

Accepted Answer

A) True 
 B)False

Which of the following statements regarding S corporations is true?

Partners may deduct on their individual income tax returns an amount equal to 100% of self-employment tax paid.

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

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

If a business is formed as an S corporation, its income may be subject to double taxation.

Randolph Scott operates a business as a sole proprietorship. This year his net profit was $10,570. For tax purposes this amount should be reported on:

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

In 2012, 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?

During 2012, Elena generated $24,500 of earnings on Schedule C. If Elena had no other earned income, how much self-employment tax will she owe on her Schedule C net profit?

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?

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

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:

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

Corporations cannot be shareholders in an S corporation.

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

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

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 S corporations is true?

Partners may deduct on their individual income tax returns an amount equal to 100% of self-employment tax paid.

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

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

If a business is formed as an S corporation, its income may be subject to double taxation.

Randolph Scott operates a business as a sole proprietorship. This year his net profit was $10,570. For tax purposes this amount should be reported on:

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

In 2012, 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?

During 2012, Elena generated $24,500 of earnings on Schedule C. If Elena had no other earned income, how much self-employment tax will she owe on her Schedule C net profit?

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?

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

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:

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

Corporations cannot be shareholders in an S corporation.

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

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

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