Question 1

Compensation for services rendered to an S corporation is subject to FICA taxes.

Accepted Answer

A) True 
 B)False  True

Question 2

An S shareholder's basis is decreased by distributions treated as being paid from AAA.

Accepted Answer

A) True 
 B)False  True

Question 3

Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?

Accepted Answer

A)  Operating income. 
B)  Short-term capital gain. 
C)  Advertising expenses. 
D)  Long-term capital loss. 
E)  The 20% QBI deduction. 
A)  Operating income. 
B)  Short-term capital gain. 
C)  Advertising expenses. 
D)  Long-term capital loss. 
E)  The 20% QBI deduction. E

Question 4

A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14. By the end of the year, $60,000 of these receivables are collected. Calculate any built-in gains tax, assuming that there is sufficient taxable income.

Accepted Answer

A)  $0 
B)  $12,600 
C)  $21,000 
D)  $35,000 
A)  $0 
B)  $12,600 
C)  $21,000 
D)  $35,000

Question 5

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

Accepted Answer

A)  Payroll penalty. 
B)  Unreasonable compensation. 
C)  Life insurance proceeds (nontaxable to the recipient S corporation). 
D)  Taxable interest. 
A)  Payroll penalty. 
B)  Unreasonable compensation. 
C)  Life insurance proceeds (nontaxable to the recipient S corporation). 
D)  Taxable interest.

Question 6

NOL carryovers from C years can be used in an S corporation year against ordinary income.

Accepted Answer

A) True 
 B)False

Question 7

If the beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance?

Accepted Answer

A)  $1,300. 
B)  $6,700. 
C)  $23,300. 
D)  $27,500. 
A)  $1,300. 
B)  $6,700. 
C)  $23,300. 
D)  $27,500.

Question 8

Mock Corporation converts to S corporation status in 2019. Mock used the LIFO inventory method in 2018 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election. How much tax must be added to Mock's 2018 corporate tax liability, assuming that Mock is subject to a 21% tax rate.

Accepted Answer

A)  $0 
B)  $6,038 
C)  $24,150 
D)  $115,000 
A)  $0 
B)  $6,038 
C)  $24,150 
D)  $115,000

Question 9

If an S corporation's beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance?

Accepted Answer

A)  $1,300 
B)  $7,600 
C)  $23,300 
D)  $27,500 
E)  None of the above 
A)  $1,300 
B)  $7,600 
C)  $23,300 
D)  $27,500 
E)  None of the above

Question 10

A per-day, per-share allocation of flow-through S corporation items must be used.

Accepted Answer

A) True 
 B)False

Question 11

Depreciation recapture income is a ___________________ (separately, nonseparately) computed amount.

Accepted Answer

The answer of Depreciation recapture income is a ___________________ (separately,...

Question 12

Identify a disadvantage of being an S corporation.

Accepted Answer

A)  Estates can be shareholders. 
B)  Losses flow through immediately to the shareholders. 
C)  Section 1202 treatment (Qualified Small Business Stock) is not available. 
D)  Tax-exempt income flows through as excludible to shareholders. 
E)  None of the above is a disadvantage of the S election. 
A)  Estates can be shareholders. 
B)  Losses flow through immediately to the shareholders. 
C)  Section 1202 treatment (Qualified Small Business Stock) is not available. 
D)  Tax-exempt income flows through as excludible to shareholders. 
E)  None of the above is a disadvantage of the S election.

Question 13

On January 1, Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight. The entity incurs a $60,000 loss for a non-leap year. On the 200th day of the year (not a leap year), Bobby sells his one-half of the stock to his son, Saul. How much of the $60,000 loss, if any, is allocated to Bobby?

Accepted Answer

A)  $0 
B)  $13,562 
C)  $16,438 
D)  $32,877 
A)  $0 
B)  $13,562 
C)  $16,438 
D)  $32,877

Question 14

Several individuals acquire assets on behalf of Skip Corporation on May 28, purchased assets on June 3 and began business on June 11. They subscribe to shares of stock, file articles of incorporation for Skip, and become shareholders on June 21. The S election must be filed no later than 2 1/2 months after:

Accepted Answer

A)  May 28. 
B)  June 3. 
C)  June 11. 
D)  June 21. 
E)  December 31. 
A)  May 28. 
B)  June 3. 
C)  June 11. 
D)  June 21. 
E)  December 31.

Question 15

In the case of a complete termination of an S corporation interest, __________________ a tax year may occur.

Accepted Answer

The answer of In the case of a complete termination...

Question 16

A calendar year C corporation reports a $41,000 NOL in 2018, but it elects S status for 2019 and generates an NOL of $30,000 in that year. At all times during 2019, the stock of the corporation was owned by the same 10 shareholders, each of whom owned 10% of the stock. Kris, one of the 10 shareholders, holds an S stock basis of $2,300 at the beginning of 2019. How much of the 2019 loss, if any, is deductible by Kris?

Accepted Answer

A)  $0 
B)  $2,300 
C)  $3,000 
D)  $7,100 
A)  $0 
B)  $2,300 
C)  $3,000 
D)  $7,100

Question 17

Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.

Accepted Answer

A) True 
 B)False

Question 18

Stock basis first is increased by income items, then by distributions, and finally decreased by ____________________.

Accepted Answer

The answer of Stock basis first is increased by income...

Question 19

An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

Accepted Answer

A) True 
 B)False

Question 20

Which corporation is eligible to make the S election?

Accepted Answer

A)  Non-U.S. corporation. 
B)  One-person limited liability company. 
C)  Insurance company. 
D)  U.S. bank. 
E)  None of the above can select S status. 
A)  Non-U.S. corporation. 
B)  One-person limited liability company. 
C)  Insurance company. 
D)  U.S. bank. 
E)  None of the above can select S status.

Exam 22: S Corporations

Compensation for services rendered to an S corporation is subject to FICA taxes.

An S shareholder's basis is decreased by distributions treated as being paid from AAA.

Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?

A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14. By the end of the year, $60,000 of these receivables are collected. Calculate any built-in gains tax, assuming that there is sufficient taxable income.

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

NOL carryovers from C years can be used in an S corporation year against ordinary income.

If the beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance?

If an S corporation's beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance?

A per-day, per-share allocation of flow-through S corporation items must be used.

Depreciation recapture income is a ___________________ (separately, nonseparately) computed amount.

Identify a disadvantage of being an S corporation.

In the case of a complete termination of an S corporation interest, __________________ a tax year may occur.

Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.

Stock basis first is increased by income items, then by distributions, and finally decreased by ____________________.

An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

Which corporation is eligible to make the S election?

An Introduction to Taxation and Understanding the Federal Tax Law

Working with the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: In General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters