Question 1

Tax-exempt interest earned by an S corporation is not reported to its shareholders because it is excluded from the shareholders' gross income.

Accepted Answer

A) True 
 B)False

Question 2

April Corporation's Subchapter S election was voluntarily terminated for 2010.The first year that April would be eligible to reelect S corporation status is

Accepted Answer

A) 2012. 
B) 2013. 
C) 2014. 
D) 2015. 
A) 2012. 
B) 2013. 
C) 2014. 
D) 2015.

Question 3

Identify which of the following statements is true.

Accepted Answer

A) A partnership can be an S corporation shareholder. 
B) A nonresident alien can be an S corporation shareholder. 
C) An S corporation can have more than 100 shareholders,since families are treated as a single shareholder. 
D) All of the above are false. 
A) A partnership can be an S corporation shareholder. 
B) A nonresident alien can be an S corporation shareholder. 
C) An S corporation can have more than 100 shareholders,since families are treated as a single shareholder. 
D) All of the above are false.

Question 4

Krause Corporation makes an S election,believing that it has no current or accumulated E&P.However,after an IRS audit,Krause is found to have failed the passive investment income test for three consecutive years and also to have a Subchapter C E&P balance from its three pre-election tax years.The IRS will

Accepted Answer

A) automatically terminate the election and Krause cannot reelect for a 5-year time period. 
B) retroactively revoke the election to the first day on which it was effective and Krause will not be able to reelect. 
C) treat the error as such and allow the election to continue unbroken. 
D) likely treat the termination as inadvertent and will probably approve a continued S election if the corporation distributes the Subchapter C E&P. 
A) automatically terminate the election and Krause cannot reelect for a 5-year time period. 
B) retroactively revoke the election to the first day on which it was effective and Krause will not be able to reelect. 
C) treat the error as such and allow the election to continue unbroken. 
D) likely treat the termination as inadvertent and will probably approve a continued S election if the corporation distributes the Subchapter C E&P.

Question 5

The accumulated adjustments account is the cumulative total of ordinary income or loss and separately stated items (excluding tax-exempt income and expenses)for the most recent continuous period during which the corporation has been an S corporation.

Accepted Answer

A) True 
 B)False

Question 6

What is a permitted year?

Accepted Answer

A permitted year is defined as

Question 7

An S corporation reports ordinary income of $120,000 after deducting $20,000 for Fred's salary.Fred and his three children own the S corporation equally.The IRS determines Fred's stock transfer to his three children is not bona fide.Reasonable compensation for Fred is $40,000.How much of the S corporation's $140,000 pre-salary income must be reported by Fred?

Accepted Answer

A) $140,000 
B) $100,000 
C) $50,000 
D) $40,000 
A) $140,000 
B) $100,000 
C) $50,000 
D) $40,000

Question 8

Connie's Restaurant has been an S corporation since it was formed in 2006.Its results for the previous year are as follows:
   What are Connie's separately stated items? What is the S corporation's ordinary income?

Accepted Answer

The separately stated items,ot

Question 9

Identify which of the following statements is true.

Accepted Answer

A) Convertible debt issues might be considered "stock" for purposes of the S corporation single class of stock requirement. 
B) The S election must be made no later than the fifteenth day of the fourth month of the tax year for which the election is to be effective. 
C) A majority of shareholders must consent to the S corporation election. 
D) All of the above are false. 
A) Convertible debt issues might be considered "stock" for purposes of the S corporation single class of stock requirement. 
B) The S election must be made no later than the fifteenth day of the fourth month of the tax year for which the election is to be effective. 
C) A majority of shareholders must consent to the S corporation election. 
D) All of the above are false.

Question 10

List and discuss five advantages and five disadvantages of electing to be taxed as an S corporation over a C corporation or a partnership.

Accepted Answer

Some of the advantages and disadvantages

Question 11

Identify which of the following statements is true.

Accepted Answer

A) The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation. 
B) A partnership can elect to be taxed as a corporation under the check-the-box regulations.As a corporation,an S election can be made. 
C) For C corporations that desire to be taxed like a partnership,the S corporation rules provide a practical alternative for an existing C corporation to obtain many of the tax benefits of being taxed as a partnership. 
D) All of the above are true. 
A) The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation. 
B) A partnership can elect to be taxed as a corporation under the check-the-box regulations.As a corporation,an S election can be made. 
C) For C corporations that desire to be taxed like a partnership,the S corporation rules provide a practical alternative for an existing C corporation to obtain many of the tax benefits of being taxed as a partnership. 
D) All of the above are true.

Question 12

The passive income test relating to an S corporation election is applied

Accepted Answer

A) daily. 
B) monthly. 
C) quarterly. 
D) annually. 
A) daily. 
B) monthly. 
C) quarterly. 
D) annually.

Question 13

Identify which of the following statements is false.

Accepted Answer

A) A C corporation short-year income tax liability must be determined on an annualized basis. 
B) If the termination of an S election is considered to be inadvertent,then the election is permitted to continue in place as if the termination had never occurred. 
C) If an S election is terminated and the termination is not considered to be inadvertent,a ten-tax-year waiting period is required before making a new election. 
D) A corporation can obtain relief for a late S election if the IRS consents. 
A) A C corporation short-year income tax liability must be determined on an annualized basis. 
B) If the termination of an S election is considered to be inadvertent,then the election is permitted to continue in place as if the termination had never occurred. 
C) If an S election is terminated and the termination is not considered to be inadvertent,a ten-tax-year waiting period is required before making a new election. 
D) A corporation can obtain relief for a late S election if the IRS consents.

Question 14

Eagle Corporation has always been an S corporation.Eagle is 100% owned by Katy.Katy's adjusted basis in the Eagle stock is $100,000 on January 1 of the current year.During the current year,Eagle distributes XYZ stock (a capital asset)to Katy.The XYZ stock has a $50,000 FMV and a $40,000 adjusted basis on Eagle's books.The XYZ stock has been held as an investment for four years by Eagle.Eagle Corporation reports $40,000 of ordinary income in the current year.What is Katy's basis in the Eagle stock at the beginning of the next year?

Accepted Answer

The answer of Eagle Corporation has always been an S...

Question 15

Corporations and partnerships can be S corporation shareholders.

Accepted Answer

A) True 
 B)False

Question 16

Potter Corporation reports the following results for the current year:
   At the end of the year,Potter's Subchapter C E&P is $50,000.What is the amount of Potter's excess net passive income?

Accepted Answer

@#IMG-DLM& 
Excess net passive

Question 17

Gofer Corporation,an S corporation,is owned equally by Mahmoud and Kwame.The corporation had long-term capital gains of $100,000 and ordinary income of $90,000 for the current year and made no distributions.What is the amount of ordinary income from S corporation activities that Mahmoud must report?

Accepted Answer

$90,000 ×

Question 18

Martha,a U.S.citizen,owns 40% of the stock of George Corporation,an electing S corporation.At the time of her death this year,the George stock passes to her estate.The stock is subsequently transferred to a trust provided for in Martha's will.Can the testamentary trust hold the George stock for a two-year period before the S election is terminated?

Accepted Answer

The trust can hold the S corporation sto

Question 19

Dilley Corporation is an electing S corporation that uses a calendar year as its tax year.On October 31,Dilley's S election is terminated because of the acquisition of stock by an ineligible stockholder.Dilley Corporation shareholder Alan is allocated an S corporation loss for the year,which cannot be used because of the basis limitation.Alan will lose the unused loss if not used by

Accepted Answer

A) December 31 of this year. 
B) March 15 of next year. 
C) October 31 of next year. 
D) December 31 of next year. 
A) December 31 of this year. 
B) March 15 of next year. 
C) October 31 of next year. 
D) December 31 of next year.

Question 20

On June 30 of the current year,the S election of Great Corporation is terminated,thus creating a six-month S short year and a six-month C short year.Great Corporation is a calendar-year taxpayer.The S short-year return is due

Accepted Answer

A) September 15. 
B) December 15. 
C) March 15 of the next year. 
D) June 30 of the next year. 
A) September 15. 
B) December 15. 
C) March 15 of the next year. 
D) June 30 of the next year.

Exam 11: S Corporations

Tax-exempt interest earned by an S corporation is not reported to its shareholders because it is excluded from the shareholders' gross income.

April Corporation's Subchapter S election was voluntarily terminated for 2010.The first year that April would be eligible to reelect S corporation status is

Identify which of the following statements is true.

The accumulated adjustments account is the cumulative total of ordinary income or loss and separately stated items (excluding tax-exempt income and expenses)for the most recent continuous period during which the corporation has been an S corporation.

What is a permitted year?

Connie's Restaurant has been an S corporation since it was formed in 2006.Its results for the previous year are as follows: What are Connie's separately stated items? What is the S corporation's ordinary income?

Identify which of the following statements is true.

List and discuss five advantages and five disadvantages of electing to be taxed as an S corporation over a C corporation or a partnership.

Identify which of the following statements is true.

The passive income test relating to an S corporation election is applied

Identify which of the following statements is false.

Corporations and partnerships can be S corporation shareholders.

Potter Corporation reports the following results for the current year: At the end of the year,Potter's Subchapter C E&P is $50,000.What is the amount of Potter's excess net passive income?

On June 30 of the current year,the S election of Great Corporation is terminated,thus creating a six-month S short year and a six-month C short year.Great Corporation is a calendar-year taxpayer.The S short-year return is due

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