Question 1

Roberto and Reagan are both 25-percent owner/managers for Bright Light Incorporated. Roberto runs the retail store in Sacramento, California, and Reagan runs the retail store in San Francisco, California. Bright Light Incorporated generated a $125,000 profit companywide made up of a $75,000 profit from the Sacramento store, a ($25,000) loss from the San Francisco store, and a combined $75,000 profit from the remaining stores. If Bright Light Incorporated is an S corporation, how much income will be allocated to Roberto?

Accepted Answer

A)  $31,250 
B)  $62,500 
C)  $75,000 
D)  $125,000

Question 2

What kind of deduction is the deduction for qualified business income?

Accepted Answer

A)  A for AGI deduction. 
B)  A from AGI deduction that is not an itemized deduction. 
C)  A from AGI deduction that is an itemized deduction. 
D)  None of the choices is correct.

Question 3

A single-member LLC is taxed as a partnership.

Accepted Answer

A) True 
 B)False

Question 4

Generally, which of the following flow-through entities can elect to be treated as a C corporation?

Accepted Answer

A)  Limited partnership. 
B)  Limited liability company. 
C)  General partnership. 
D)  All of these choices are correct.

Question 5

Which of the following legal entities are generally classified as C corporations for tax purposes?

Accepted Answer

A)  Limited liability companies. 
B)  S corporations. 
C)  Limited partnerships. 
D)  Sole proprietorships. 
E)  None of the choices is correct.

Question 6

C corporations and S corporations are separate taxpaying entities that pay tax on their own income.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following entity characteristics are generally key factors for small business owners in deciding which entity to choose?

Accepted Answer

A)  Rate at which income from entity will be taxed. 
B)  Required accounting period. 
C)  Liability protection. 
D)  Both the rate at which income from entity will be taxed and the required accounting period. 
E)  Both the rate at which income from entity will be taxed and liability protection.

Question 8

For tax purposes, only unincorporated entities can be considered to be disregarded entities.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is true for a C corporation incurring a NOL for a tax year that begins in 2020?

Accepted Answer

A)  It may carry the NOL back two years and forward 20 years. 
B)  It may not carry the NOL back to prior years but it may carry it forward 20 years. 
C)  It may not carry the NOL back to prior years but it can carry the loss forward indefinitely. 
D)  It may carry the loss back five years and carry the loss forward indefinitely. 
E)  None of the choices is correct.

Question 10

Shareholders of C corporations receiving property distributions must recognize dividend income equal to the fair market value of the distributed property if the distributing corporation has sufficient earnings and profits.

Accepted Answer

A) True 
 B)False

Question 11

On which form is income from a single-member LLC with one corporate (C corporation) owner reported?

Accepted Answer

A)  Form 1120 used by C corporations to report their income. 
B)  Form 1120S used by S corporations to report their income. 
C)  Form 1065 used by partnerships to report their income. 
D)  Form 1040, Schedule C used by sole proprietorships to report their income. 
E)  None of the choices are correct.

Question 12

The excess loss limitations apply to owners of all of the following entities except which of the following?

Accepted Answer

A)  C corporations 
B)  S corporations 
C)  Entities taxed as partnerships 
D)  Single-member LLCs (owned by an individual taxpayer)

Question 13

Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.

Accepted Answer

A) True 
 B)False

Question 14

Crocker and Company (CC) is a C corporation. For the year, CC reported taxable income of $550,000. At the end of the year, CC distributed all its after-tax earnings to Jimmy, the company's sole shareholder. Jimmy's marginal ordinary tax rate is 37 percent and his marginal tax rate on dividends is 23.8 percent, including the net investment income tax. What is the overall tax rate on Crocker and Company's pretax income?

Accepted Answer

A)  18.8% 
B)  23.8% 
C)  21% 
D)  39.8% 
E)  44.8%

Question 15

For which type of entity does the entity not pay compensation to an owner who is working for the entity?

Accepted Answer

A)  S corporation. 
B)  C corporation. 
C)  Entity taxed as a partnership. 
D)  None of the choices is correct.

Question 16

Roberto and Reagan are both 25-percent owner/managers for Bright Light Incorporated. Roberto runs the retail store in Sacramento, California, and Reagan runs the retail store in San Francisco, California. Bright Light Incorporated generated a $129,900 profit companywide made up of a $76,400 profit from the Sacramento store, a ($28,500) loss from the San Francisco store, and a combined $82,000 profit from the remaining stores. If Bright Light Incorporated is an S corporation, how much income will be allocated to Roberto?

Accepted Answer

A)  $32,475.00. 
B)  $64,950.00. 
C)  $76,400.00. 
D)  $129,900.00.

Question 17

What is the maximum number of unrelated shareholders a C corporation can have, the maximum number of unrelated shareholders an S corporation can have, and the maximum number of partners a partnership may have, respectively?

Accepted Answer

A)  100; no limit; no limit 
B)  no limit; 100; 2 
C)  no limit; 100; no limit 
D)  100; 100; no limit

Question 18

What tax year-end must an unincorporated entity with only one owner adopt?

Accepted Answer

A)  The entity is free to adopt any tax year-end. 
B)  The entity must adopt the same year-end as its owner. 
C)  The entity must adopt a calendar year-end. 
D)  The entity may adopt any year-end except for a calendar year-end.

Question 19

What document must an LLC file with the state to organize its business?

Accepted Answer

A)  Articles of incorporation. 
B)  Certificate of LLC. 
C)  Articles (or a certificate) of organization. 
D)  Partnership agreement. 
E)  None of the choices is correct. An LLC does not have to file with the state to organize its business.

Question 20

Which legal entity is correctly paired with the party that bears the ultimate responsibility for paying the legal entity's liabilities?

Accepted Answer

A)  LLC - LLC members. 
B)  Corporation - Shareholders.. 
C)  General partnership - Partnership. 
D)  Limited partnership - General partner.

Exam 4: Business Entities Overview

What kind of deduction is the deduction for qualified business income?

A single-member LLC is taxed as a partnership.

Generally, which of the following flow-through entities can elect to be treated as a C corporation?

Which of the following legal entities are generally classified as C corporations for tax purposes?

C corporations and S corporations are separate taxpaying entities that pay tax on their own income.

Which of the following entity characteristics are generally key factors for small business owners in deciding which entity to choose?

For tax purposes, only unincorporated entities can be considered to be disregarded entities.

Which of the following statements is true for a C corporation incurring a NOL for a tax year that begins in 2020?

Shareholders of C corporations receiving property distributions must recognize dividend income equal to the fair market value of the distributed property if the distributing corporation has sufficient earnings and profits.

On which form is income from a single-member LLC with one corporate (C corporation) owner reported?

The excess loss limitations apply to owners of all of the following entities except which of the following?

Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.

For which type of entity does the entity not pay compensation to an owner who is working for the entity?

What is the maximum number of unrelated shareholders a C corporation can have, the maximum number of unrelated shareholders an S corporation can have, and the maximum number of partners a partnership may have, respectively?

What tax year-end must an unincorporated entity with only one owner adopt?

What document must an LLC file with the state to organize its business?

Which legal entity is correctly paired with the party that bears the ultimate responsibility for paying the legal entity's liabilities?