Question 1

The Section 179 expense deduction is a Schedule K item on the Form 1120S.

Accepted Answer

A) True 
 B)False

Question 2

The termination of an S election occurs on the day after a corporation ceases to be a qualifying S corporation.

Accepted Answer

A) True 
 B)False

Question 3

The passive investment income of an S corporation includes net capital gains from the sale of stocks and securities.

Accepted Answer

A) True 
 B)False

Question 4

When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.

Accepted Answer

A) True 
 B)False

Question 5

Which item does not appear on Schedule K of Form 1120S?

Accepted Answer

A)  Intangible drilling costs. 
B)  Foreign loss. 
C)  Utilities expense. 
D)  Recovery of a tax benefit. 
E)  All of the above items appear on Schedule K. 
A)  Intangible drilling costs. 
B)  Foreign loss. 
C)  Utilities expense. 
D)  Recovery of a tax benefit. 
E)  All of the above items appear on Schedule K.

Question 6

An estate may be a shareholder of an S corporation.

Accepted Answer

A) True 
 B)False

Question 7

An item that appears in the "Other Adjustments Account" affects stock basis, but not AAA, such as tax-exempt interest.

Accepted Answer

A) True 
 B)False

Question 8

A corporation may alternate between S corporation and C corporation status each year, depending on which results in more tax savings.

Accepted Answer

A) True 
 B)False

Question 9

Lemon Corporation incurs the following transactions.  
Lemon maintains a valid S election and does not distribute any dividends to its shareholder, Patty. As a result, Patty must recognize (ignore the 20% QBI deduction):

Accepted Answer

A)  Ordinary income of $115,000 and long-term capital gain of $5,000 
B)  Ordinary income of $115,000, long-term capital gain of $9,000, and $4,000 short-term capital loss. 
C)  Ordinary income of $120,000. 
D)  Capital gain of $120,000. 
A)  Ordinary income of $115,000 and long-term capital gain of $5,000 
B)  Ordinary income of $115,000, long-term capital gain of $9,000, and $4,000 short-term capital loss. 
C)  Ordinary income of $120,000. 
D)  Capital gain of $120,000.

Question 10

The passive investment income of an S corporation includes gains from the sale of securities.

Accepted Answer

A) True 
 B)False

Question 11

Persons who were S shareholders during any part of the year before the election date, but were not shareholders when the election was made, also must consent to an S election.

Accepted Answer

A) True 
 B)False

Question 12

Form 1120S provides an S shareholder's computation of his or her stock basis.

Accepted Answer

A) True 
 B)False

Question 13

You are given the following facts about a 40% owner of an S corporation, and you are asked to prepare her ending stock basis.

Accepted Answer

A)  $71,600 
B)  $74,120 
C)  $76,220 
D)  $78,920 
A)  $71,600 
B)  $74,120 
C)  $76,220 
D)  $78,920

Question 14

Alomar, a cash basis S corporation in Orlando, Florida, holds the following assets and liabilities on January 1, 2019, the date the S election is made.
   
During the year, Alomar collects the accounts receivable and pays the accounts payable. The land is sold for $3 million, and the taxable income for the year is $590,000. Calculate any built-in gains tax.

Accepted Answer

$123,900. The net unrealized built-in ga

Question 15

Depreciation recapture income is a Schedule K item on the Form 1120S.

Accepted Answer

A) True 
 B)False

Question 16

A one person LLC can be a shareholder of an S corporation.

Accepted Answer

A) True 
 B)False

Question 17

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)  Long-term capital gain. 
C)  Cost of goods sold. 
D)  Short-term capital loss. 
E)  The 20% QBI deduction. 
A)  Operating income. 
B)  Long-term capital gain. 
C)  Cost of goods sold. 
D)  Short-term capital loss. 
E)  The 20% QBI deduction.

Question 18

Which type of distribution from an S corporation is taxed at ordinary income rates?

Accepted Answer

A)  AAA. 
B)  OAA 
C)  AEP 
D)  None of the above items is taxed as ordinary income. 
A)  AAA. 
B)  OAA 
C)  AEP 
D)  None of the above items is taxed as ordinary income.

Question 19

Which, if any, of the following can be eligible shareholders of an S corporation?

Accepted Answer

A)  A partnership. 
B)  A nonresident alien. 
C)  A three-person LLC. 
D)  The estate of a deceased shareholder. 
E)  None of the above are eligible shareholders. 
A)  A partnership. 
B)  A nonresident alien. 
C)  A three-person LLC. 
D)  The estate of a deceased shareholder. 
E)  None of the above are eligible shareholders.

Question 20

What method is used to allocate S corporation income or losses (unless an election to the contrary is made)?

Accepted Answer

A)  Any method agreed to by all of the shareholders. 
B)  Per-day allocation. 
C)  FIFO method. 
D)  LIFO method. 
A)  Any method agreed to by all of the shareholders. 
B)  Per-day allocation. 
C)  FIFO method. 
D)  LIFO method.

Exam 22: S Corporations

The Section 179 expense deduction is a Schedule K item on the Form 1120S.

The termination of an S election occurs on the day after a corporation ceases to be a qualifying S corporation.

The passive investment income of an S corporation includes net capital gains from the sale of stocks and securities.

When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.

Which item does not appear on Schedule K of Form 1120S?

An estate may be a shareholder of an S corporation.

An item that appears in the "Other Adjustments Account" affects stock basis, but not AAA, such as tax-exempt interest.

A corporation may alternate between S corporation and C corporation status each year, depending on which results in more tax savings.

Lemon Corporation incurs the following transactions. Lemon maintains a valid S election and does not distribute any dividends to its shareholder, Patty. As a result, Patty must recognize (ignore the 20% QBI deduction):

The passive investment income of an S corporation includes gains from the sale of securities.

Persons who were S shareholders during any part of the year before the election date, but were not shareholders when the election was made, also must consent to an S election.

Form 1120S provides an S shareholder's computation of his or her stock basis.

You are given the following facts about a 40% owner of an S corporation, and you are asked to prepare her ending stock basis.

Depreciation recapture income is a Schedule K item on the Form 1120S.

A one person LLC can be a shareholder of an S corporation.

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

Which type of distribution from an S corporation is taxed at ordinary income rates?

Which, if any, of the following can be eligible shareholders of an S corporation?

What method is used to allocate S corporation income or losses (unless an election to the contrary is made)?

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