Question 1

A limited liability company that has only one member must be taxed as a sole proprietorship.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not a characteristic of a partnership?

Accepted Answer

A) Must be formed under state law 
B) Formation is generally tax free except for services received for a partnership interest 
C) Distributions of entity income are tax-free 
D) Loss is never recognized on a nonliquidating distribution 
A) Must be formed under state law 
B) Formation is generally tax free except for services received for a partnership interest 
C) Distributions of entity income are tax-free 
D) Loss is never recognized on a nonliquidating distribution

Question 3

Klinger's AGI is $130,000 before the loss of $29,000 from a rental complex he owns and actively participates in.What is his AGI after this loss?

Accepted Answer

($130,000 - $100,000)x .5 = $1

Question 4

If a shareholder does not have sufficient stock basis to deduct his or her share of an S corporation's losses and deductible items,what are the tax consequences?

Accepted Answer

A) The excess losses and deductions may be carried back 3 years and then forward up to 5 years to offset other income items of identical character. 
B) The excess losses and deductions are suspended until the corporation's or shareholder's future activities generate sufficient new basis against which to deduct the losses 
C) The excess losses and deductions may not be deducted at any time and can never provide tax benefit. 
D) None of the above. 
A) The excess losses and deductions may be carried back 3 years and then forward up to 5 years to offset other income items of identical character. 
B) The excess losses and deductions are suspended until the corporation's or shareholder's future activities generate sufficient new basis against which to deduct the losses 
C) The excess losses and deductions may not be deducted at any time and can never provide tax benefit. 
D) None of the above.

Question 5

A sole proprietorship:

Accepted Answer

A) must be owned by an individual. 
B) provides basic liability protection for the owner. 
C) must use the cash method of accounting. 
D) can pay the owner a salary. 
A) must be owned by an individual. 
B) provides basic liability protection for the owner. 
C) must use the cash method of accounting. 
D) can pay the owner a salary.

Question 6

Carol owns 40 percent of CJ Partnership.The partnership reports $170,000 of revenue,$60,000 cost of goods sold,and $70,000 of other expenses that include $1,500 of doctor bills paid for Carol,a $2,000 charitable contribution,and a $5,000 Section 179 deduction.What is the bottom line net income reported on Carol's Schedule K-1?

Accepted Answer

A) $48,500 
B) $40,000 
C) $19,400 
D) $16,000 
A) $48,500 
B) $40,000 
C) $19,400 
D) $16,000

Question 7

At the beginning of the year,Jill's basis in her 40 percent limited partnership interest was $10,000.During the year,the partnership reported a loss of $90,000 and the partnership obtained a $40,000 recourse loan on some machinery.How much loss may Jill deduct if she has $40,000 of passive income?

Accepted Answer

A) $10,000 
B) $16,000 
C) $26,000 
D) $36,000 
A) $10,000 
B) $16,000 
C) $26,000 
D) $36,000

Question 8

Briefly explain the difference between the entity and the aggregate concepts as related to partnership taxation.

Accepted Answer

The entity concept views the partnership

Question 9

Which of the following is not a requirement to make an S election?

Accepted Answer

A) Maximum 100 shareholders 
B) One class of stock 
C) Shareholders must be U.S.citizens 
D) It must be a domestic corporation 
A) Maximum 100 shareholders 
B) One class of stock 
C) Shareholders must be U.S.citizens 
D) It must be a domestic corporation

Question 10

An S election terminates

Accepted Answer

A) when a shareholder dies. 
B) when there is a nonresident alien shareholder 
C) when the S corporation invests in a C corporation 
D) when an S corporation has excess passive income 
A) when a shareholder dies. 
B) when there is a nonresident alien shareholder 
C) when the S corporation invests in a C corporation 
D) when an S corporation has excess passive income

Question 11

Quincy received a liquidating distribution of $5,000 cash and inventory valued at $10,000 with a basis of $6,000 for his partnership interest with a basis of $20,000.What is Quincy's basis in the inventory? Does Quincy recognize any gain or loss on this distribution?

Accepted Answer

Basis in inventory = $6,000.(B

Question 12

Which of the following is not an acceptable partnership tax year?

Accepted Answer

A) The tax year used by any principal partner 
B) The tax year used by the partners who own a majority interest 
C) A tax year that results in only a 2-month deferral of income for the partners 
D) C's tax year if C owns more than 50 percent of the partnership 
A) The tax year used by any principal partner 
B) The tax year used by the partners who own a majority interest 
C) A tax year that results in only a 2-month deferral of income for the partners 
D) C's tax year if C owns more than 50 percent of the partnership

Question 13

Briefly explain the three loss limitation rules applicable to partners.

Accepted Answer

A partner cannot deduct a loss unless th

Question 14

Active participation requires a higher level of activity than material participation.

Accepted Answer

A) True 
 B)False

Question 15

Ray,Ronnie and Joe are partners in a limited partnership.Ray and Ronnie,the limited partners,each own 45 percent of the partnership and Joe,the general partner,owns the other 10 percent.The partnership incurs $50,000 of nonrecourse debt and $100,000 of recourse debt.What is the effect on Joe's basis for these debts?

Accepted Answer

A) Increases by $155,000 
B) Increases by $105,000 
C) Increases by $100,000 
D) Increases by $15,000 
A) Increases by $155,000 
B) Increases by $105,000 
C) Increases by $100,000 
D) Increases by $15,000

Question 16

What restrictions are placed on an S corporation to be able to make a valid S election?

Accepted Answer

To elect S status,a corporation must be

Question 17

A sole proprietorship must use the cash method of accounting.

Accepted Answer

A) True 
 B)False

Question 18

Samantha and Ashley form the MAS General Partnership.Samantha contributed $20,000 cash in exchange for her 50 percent partnership interest.During the first year of partnership operations,the partnership reported net taxable income of $10,000,Samantha withdrew $8,000 cash from the partnership,and the partnership took out an $18,000 loan on the last day of the year.Samantha's adjusted basis for her partnership interest at year end is:

Accepted Answer

A) $38,000 
B) $30,000 
C) $26,000 
D) $17,000 
A) $38,000 
B) $30,000 
C) $26,000 
D) $17,000

Question 19

Duet Co.is a calendar year S Corporation owned equally by Patricia and Scott.Duet Co.had taxable income of $40,000 for the current year.Patricia and Scott each received distributions from Duet Co.of $5,000.What is Patricia's taxable income from Duet Co.for the current year?

Accepted Answer

A) 0 
B) $5,000 
C) $20,000 
D) $25,000 
A) 0 
B) $5,000 
C) $20,000 
D) $25,000

Question 20

What is the effect on the AAA if an S corporation distributes a piece of property valued at $10,000 with a $5,000 basis to 50 percent shareholder and $10,000 cash to the other 50 percent shareholder in a nonliquidating distribution?

Accepted Answer

A) $10,000 net increase 
B) $5,000 net increase 
C) $15,000 net decrease 
D) $20,000 net decrease 
A) $10,000 net increase 
B) $5,000 net increase 
C) $15,000 net decrease 
D) $20,000 net decrease

A limited liability company that has only one member must be taxed as a sole proprietorship.

Which of the following is not a characteristic of a partnership?

Klinger's AGI is $130,000 before the loss of $29,000 from a rental complex he owns and actively participates in.What is his AGI after this loss?

If a shareholder does not have sufficient stock basis to deduct his or her share of an S corporation's losses and deductible items,what are the tax consequences?

A sole proprietorship:

At the beginning of the year,Jill's basis in her 40 percent limited partnership interest was $10,000.During the year,the partnership reported a loss of $90,000 and the partnership obtained a $40,000 recourse loan on some machinery.How much loss may Jill deduct if she has $40,000 of passive income?

Briefly explain the difference between the entity and the aggregate concepts as related to partnership taxation.

Which of the following is not a requirement to make an S election?

An S election terminates

Quincy received a liquidating distribution of $5,000 cash and inventory valued at $10,000 with a basis of $6,000 for his partnership interest with a basis of $20,000.What is Quincy's basis in the inventory? Does Quincy recognize any gain or loss on this distribution?

Which of the following is not an acceptable partnership tax year?

Briefly explain the three loss limitation rules applicable to partners.

Active participation requires a higher level of activity than material participation.

What restrictions are placed on an S corporation to be able to make a valid S election?

A sole proprietorship must use the cash method of accounting.

Duet Co.is a calendar year S Corporation owned equally by Patricia and Scott.Duet Co.had taxable income of $40,000 for the current year.Patricia and Scott each received distributions from Duet Co.of $5,000.What is Patricia's taxable income from Duet Co.for the current year?

What is the effect on the AAA if an S corporation distributes a piece of property valued at $10,000 with a $5,000 basis to 50 percent shareholder and $10,000 cash to the other 50 percent shareholder in a nonliquidating distribution?

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Income Taxation of Individuals

Wealth Transfer Taxes

Filters

Exam 10: Sole Proprietorships and Flow-Through Entities

A limited liability company that has only one member must be taxed as a sole proprietorship.

Which of the following is not a characteristic of a partnership?

Klinger's AGI is $130,000 before the loss of $29,000 from a rental complex he owns and actively participates in.What is his AGI after this loss?

If a shareholder does not have sufficient stock basis to deduct his or her share of an S corporation's losses and deductible items,what are the tax consequences?

A sole proprietorship:

At the beginning of the year,Jill's basis in her 40 percent limited partnership interest was $10,000.During the year,the partnership reported a loss of $90,000 and the partnership obtained a $40,000 recourse loan on some machinery.How much loss may Jill deduct if she has $40,000 of passive income?

Briefly explain the difference between the entity and the aggregate concepts as related to partnership taxation.

Which of the following is not a requirement to make an S election?

An S election terminates

Quincy received a liquidating distribution of $5,000 cash and inventory valued at $10,000 with a basis of $6,000 for his partnership interest with a basis of $20,000.What is Quincy's basis in the inventory? Does Quincy recognize any gain or loss on this distribution?

Which of the following is not an acceptable partnership tax year?

Briefly explain the three loss limitation rules applicable to partners.

Active participation requires a higher level of activity than material participation.

What restrictions are placed on an S corporation to be able to make a valid S election?

A sole proprietorship must use the cash method of accounting.

Duet Co.is a calendar year S Corporation owned equally by Patricia and Scott.Duet Co.had taxable income of $40,000 for the current year.Patricia and Scott each received distributions from Duet Co.of $5,000.What is Patricia's taxable income from Duet Co.for the current year?

What is the effect on the AAA if an S corporation distributes a piece of property valued at $10,000 with a $5,000 basis to 50 percent shareholder and $10,000 cash to the other 50 percent shareholder in a nonliquidating distribution?

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Income Taxation of Individuals

Wealth Transfer Taxes

Filters