Question 1

A limited liability company is always taxed as a partnership, regardless of the number of its members.

Accepted Answer

A) True 
 B)False  False

Question 2

Partners receiving guaranteed payments are not required to pay self-employment tax on such payments.

Accepted Answer

A) True 
 B)False  False

Question 3

Cramer Corporation and Mr. Chips formed a general partnership. 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 C

Question 4

Which of the following statements regarding the home office deduction is true?

Accepted Answer

A) In order to qualify for the deduction, a portion of the taxpayer's home must be used regularly and exclusively to meet with clients or customers. 
B) A home office deduction is not allowed for using the home office for administrative or management activities only. 
C) The home office deduction is limited to the taxable income of the business before the deduction. 
D) A depreciation deduction is not allowed for a home office. 
A) In order to qualify for the deduction, a portion of the taxpayer's home must be used regularly and exclusively to meet with clients or customers. 
B) A home office deduction is not allowed for using the home office for administrative or management activities only. 
C) The home office deduction is limited to the taxable income of the business before the deduction. 
D) A depreciation deduction is not allowed for a home office.

Question 5

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 6

In 2013, 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' 2013 self-employment tax, assuming he has no other earned income.
c. Compute the total increase in William's 2013 taxable income attributable to his business.

Accepted Answer

a. Only the $130,000 net earnings from s

Question 7

Kelly received a $60,000 salary during 2013. Her federal income tax withholding rate was 20%, and the Social Security base amount for 2013 was $113,700. What is the total amount that her employer should have withheld in 2013?

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 8

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 9

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 10

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 11

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 12

Alice is a partner in Axel Partnership. Her share of the partnership's 2013 ordinary business income was $100,000. She received a $60,000 cash distribution from the partnership on December 1, 2013. Assuming that Alice's marginal tax rate is 39.6%, calculate her after-tax cash flow from the partnership in 2012.

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 13

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 14

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 15

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 16

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 17

Corporations cannot be shareholders in an S corporation.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

A limited liability company is always taxed as a partnership, regardless of the number of its members.

Partners receiving guaranteed payments are not required to pay self-employment tax on such payments.

Cramer Corporation and Mr. Chips formed a general partnership. 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?

Which of the following statements regarding the home office deduction is true?

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

Kelly received a $60,000 salary during 2013. Her federal income tax withholding rate was 20%, and the Social Security base amount for 2013 was $113,700. What is the total amount that her employer should have withheld in 2013?

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

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 can include only his or her own loans to the corporation in tax basis.

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

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?

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:

Which of the following statements regarding S corporations is true?

Which of the following statements regarding sole proprietorships is false?

Corporations cannot be shareholders in an S corporation.

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.

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

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 a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Filters

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

A limited liability company is always taxed as a partnership, regardless of the number of its members.

Partners receiving guaranteed payments are not required to pay self-employment tax on such payments.

Cramer Corporation and Mr. Chips formed a general partnership. 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?

Which of the following statements regarding the home office deduction is true?

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

Kelly received a $60,000 salary during 2013. Her federal income tax withholding rate was 20%, and the Social Security base amount for 2013 was $113,700. What is the total amount that her employer should have withheld in 2013?

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

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 can include only his or her own loans to the corporation in tax basis.

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

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?

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:

Which of the following statements regarding S corporations is true?

Which of the following statements regarding sole proprietorships is false?

Corporations cannot be shareholders in an S corporation.

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.

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

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 a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Filters