Question 1

Which of the following statements is false for a C corporation that incurred a net operating loss for a tax year beginning before 2018?

Accepted Answer

A)  If it carries back the NOL and/or carries it forward, it may offset up to 80 percent of the taxable income (before the NOL deduction) in those years. 
B)  It may carry the NOL forward for up to 20 years and offset up to 100 percent of the taxable income (before the NOL deduction) in those years. 
C)  It may carry the NOL back two years and offset up to 100 percent of the taxable income (before the NOL deduction) in those years. 
D)  None of these (selecting this option means you believe all of the other responses are true).

Question 2

Sole proprietors are subject to self-employment taxes on net income from their sole proprietorships.

Accepted Answer

A) True 
 B)False

Question 3

Unincorporated entities with only one individual owner are taxed as sole proprietorships.

Accepted Answer

A) True 
 B)False

Question 4

The C corporation tax rate is lower than the top individual marginal tax rate.

Accepted Answer

A) True 
 B)False

Question 5

On which tax form does a single-member LLC with one individual owner report its income and losses?

Accepted Answer

A)  Form 1120. 
B)  Form 1120S. 
C)  Form 1065. 
D)  Form 1040, Schedule C.

Question 6

Owners of which of the following entity types receive deductible compensation from the entity for working for the entity?

Accepted Answer

A)  Sole proprietorship 
B)  Entity taxed as a partnership 
C)  S corporation 
D)  Both Entity taxes as a partner and S corporation

Question 7

Due to recent tax law changes, C corporations are no longer subject to double taxation.

Accepted Answer

A) True 
 B)False

Question 8

Rodger owns 100 percent of the shares in Trevor Incorporated a C corporation. Assume the following for the current year:
  Given these assumptions, how much cash does Rodger have from the dividend after paying taxes on the distribution?

Accepted Answer

The answer of Rodger owns 100 percent of the shares...

Question 9

For tax purposes, sole proprietorships pay sole proprietors guaranteed payments as compensation for their services.

Accepted Answer

A) True 
 B)False

Question 10

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 11

When an employee/shareholder receives a business income allocation from an S corporation, what taxes apply to the business income allocation?

Accepted Answer

A)  FICA tax only. 
B)  Self-employment tax only. 
C)  FICA  and self-employment tax. 
D)  Income tax. 
E)  None of the choices are correct.

Question 12

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 13

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 14

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 15

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 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 is taxed as a partnership and it is decided that both Roberto and Reagan will be allocated 70 percent of his own store's profit, with the remaining profits allocated pro rata among all the owners, how much income will be allocated to Reagan in total?

Accepted Answer

A)  ($25,000) 
B)  ($17,500) 
C)  $5,000 
D)  $20,000

Question 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

If an individual forms a sole proprietorship, which nontax factor will be of greatest benefit to the sole proprietor?

Accepted Answer

A)  Liability protection. 
B)  Legal flexibility in defining rights and responsibilities of owners. 
C)  Facilitation of initial public offerings. 
D)  Minimal time and cost to organize.

Question 19

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 20

The deduction for qualified business income applies to income from all but which of the following tax entity types?

Accepted Answer

A)  Sole proprietorship. 
B)  Entity taxed as a partnership. 
C)  S corporation. 
D)  C corporation.

Exam 4: Business Entities Overview

Which of the following statements is false for a C corporation that incurred a net operating loss for a tax year beginning before 2018?

Sole proprietors are subject to self-employment taxes on net income from their sole proprietorships.

Unincorporated entities with only one individual owner are taxed as sole proprietorships.

The C corporation tax rate is lower than the top individual marginal tax rate.

On which tax form does a single-member LLC with one individual owner report its income and losses?

Owners of which of the following entity types receive deductible compensation from the entity for working for the entity?

Due to recent tax law changes, C corporations are no longer subject to double taxation.

Rodger owns 100 percent of the shares in Trevor Incorporated a C corporation. Assume the following for the current year: Given these assumptions, how much cash does Rodger have from the dividend after paying taxes on the distribution?

For tax purposes, sole proprietorships pay sole proprietors guaranteed payments as compensation for their services.

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

When an employee/shareholder receives a business income allocation from an S corporation, what taxes apply to the business income allocation?

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

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?

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

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

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

If an individual forms a sole proprietorship, which nontax factor will be of greatest benefit to the sole proprietor?

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

The deduction for qualified business income applies to income from all but which of the following tax entity types?