Question 1

What kind of an entity is a limited liability company for the purpose of taxing its income?

Accepted Answer

A limited liability company may elect to be treated as a partnership or a corporation. If the limited liability company has only one member, however, it cannot be treated as a partnership. Unless it makes an election to be treated as a corporation, it will be treated as a sole proprietorship. If the single member of an LLC is a corporation, it will be treated as a branch of the corporation, unless it makes the election to also be treated as a separate corporation.

Question 2

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 C

Question 3

Which of the following statements does not apply to a qualifying S corporation?

Accepted Answer

A)  It may have 55 shareholders 
B)  It may have a resident alien shareholder 
C)  It may only have one class of stock outstanding 
D)  It is subject to the corporate income tax 
A)  It may have 55 shareholders 
B)  It may have a resident alien shareholder 
C)  It may only have one class of stock outstanding 
D)  It is subject to the corporate income tax D

Question 4

Calvin sells his 40 percent interest in a partnership with a $70,000 basis for $75,000. The partnership has two assets, inventory valued at $100,000 with a $50,000 basis and investments valued at $87,500 that have a basis of $125,000. How will Calvin report the sale of the partnership interest?

Accepted Answer

A)  $5,000 capital loss 
B)  $20,000 ordinary income 
C)  $20,000 ordinary income; $15,000 capital loss 
D)  $5,000 capital gain 
A)  $5,000 capital loss 
B)  $20,000 ordinary income 
C)  $20,000 ordinary income; $15,000 capital loss 
D)  $5,000 capital gain

Question 5

The LBJ Partnership has a March 31 year-end. It has three equal partners, L with a June 30 year-end, B with a January 31 year-end, and J with a December 31 year-end. What are the year-end dates for the tax returns of the partners that will include their shares of the partnership's income as of March 31, 2018?

Accepted Answer

L: June 30, 2018
B:

Question 6

Which of the following is not a characteristic of an S corporation?

Accepted Answer

A)  Must be formed under state law 
B)  The transfer of property for stock is always tax-free 
C)  A shareholder's share of ordinary income increases his or her stock basis 
D)  The shareholder never recognizes loss on a nonliquidating distribution 
A)  Must be formed under state law 
B)  The transfer of property for stock is always tax-free 
C)  A shareholder's share of ordinary income increases his or her stock basis 
D)  The shareholder never recognizes loss on a nonliquidating distribution

Question 7

Why are partnerships and S corporations called flow-through entities?

Accepted Answer

Partnerships and S corporations are call

Question 8

What is a sole proprietorship and how is this business entity taxed?

Accepted Answer

A sole proprietorship is a business that

Question 9

Amber has a tax basis of $67,000 in her partnership interest in Lightfoot Partnership, which consists of her $27,000 net contribution to partnership capital and her $40,000 share of partnership debt. Amber receives a distribution of land (a capital asset) with a tax basis of $39,000 and a fair market value of $106,000 in complete liquidation of her partnership interest. The property is not encumbered by any of the partnership's liabilities. What is Amber's tax basis for the distributed property?

Accepted Answer

A)  $27,000 
B)  $39,000 
C)  $67,000 
D)  $106,000 
A)  $27,000 
B)  $39,000 
C)  $67,000 
D)  $106,000

Question 10

S corporations never pay any income taxes.

Accepted Answer

A) True 
 B)False

Question 11

Michael was a partner in the M&M Partnership until November 1, when he received a liquidating distribution of investment property with a tax basis of $28,000 and a fair market value of $75,000. Prior to this distribution, his tax basis in his partnership interest was $40,000. What is his tax basis in the property received from the partnership?

Accepted Answer

A)  $75,000 
B)  $40,000 
C)  $28,000 
D)  0 
A)  $75,000 
B)  $40,000 
C)  $28,000 
D)  0

Question 12

How is an S election terminated?

Accepted Answer

An S election may terminate by a vote of

Question 13

A flow-through entity aggregates all its income and subtracts all expense items for reporting its net income.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Other Objective Questions
Indicate by a PRP if the characteristic applies to a sole proprietorship, an SC if it applies to an S corporation, and a PAR if it applies to a partnership, and N if it does not apply to any of the three businesses. A characteristic can apply to more than one entity; write a brief explanation if a characteristic may only apply under certain conditions.
-Loss recognized on entity liquidation.

Accepted Answer

SC; PAR only if the basis of t

Question 16

What tax year end must a partnership use?

Accepted Answer

A partnership must use: a. The tax year

Question 17

The accumulated adjustment account

Accepted Answer

A)  is a shareholder account. 
B)  can be reduced below zero by an excess distribution. 
C)  determines when there is a tax-free distribution during the post-termination period. 
D)  is important in applying loss limitation rules. 
A)  is a shareholder account. 
B)  can be reduced below zero by an excess distribution. 
C)  determines when there is a tax-free distribution during the post-termination period. 
D)  is important in applying loss limitation rules.

Question 18

Which of the following is not a characteristic of sole proprietorships?

Accepted Answer

A)  Owners pay self-employment taxes 
B)  Formation is always tax-free 
C)  Distributions of entity income are tax-free 
D)  Loss is recognized on liquidation 
A)  Owners pay self-employment taxes 
B)  Formation is always tax-free 
C)  Distributions of entity income are tax-free 
D)  Loss is recognized on liquidation

Question 19

Logan's basis in his partnership interest is $20,000 when he receives a pro rata nonliquidating distribution from the partnership of $22,000 cash and inventory with a basis of $2,000 and fair market value of $3,000). What is Logan's basis for the inventory he received?

Accepted Answer

A)  0 
B)  $1,000 
C)  $2,000 
D)  $3,000 
A)  0 
B)  $1,000 
C)  $2,000 
D)  $3,000

Question 20

What is Alexander's net gain or loss on the liquidation of his 100 percent interest in an S corporation if the corporation distributes the following three assets to him in exchange for his stock:   Prior to any distributions, Alexander's basis in his S corporation interest was $160,000.

Accepted Answer

A)  ($12,000) 
B)  ($22,000) 
C)  $10,000 
D)  $22,000 
A)  ($12,000) 
B)  ($22,000) 
C)  $10,000 
D)  $22,000

What kind of an entity is a limited liability company for the purpose of taxing its income?

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?

Which of the following statements does not apply to a qualifying S corporation?

Calvin sells his 40 percent interest in a partnership with a $70,000 basis for $75,000. The partnership has two assets, inventory valued at $100,000 with a $50,000 basis and investments valued at $87,500 that have a basis of $125,000. How will Calvin report the sale of the partnership interest?

Which of the following is not a characteristic of an S corporation?

Why are partnerships and S corporations called flow-through entities?

What is a sole proprietorship and how is this business entity taxed?

S corporations never pay any income taxes.

How is an S election terminated?

A flow-through entity aggregates all its income and subtracts all expense items for reporting its net income.

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

What tax year end must a partnership use?

The accumulated adjustment account

Which of the following is not a characteristic of sole proprietorships?

Logan's basis in his partnership interest is $20,000 when he receives a pro rata nonliquidating distribution from the partnership of $22,000 cash and inventory with a basis of $2,000 and fair market value of $3,000). What is Logan's basis for the inventory he received?

What is Alexander's net gain or loss on the liquidation of his 100 percent interest in an S corporation if the corporation distributes the following three assets to him in exchange for his stock: Prior to any distributions, Alexander's basis in his S corporation interest was $160,000.

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Estates, Gifts, and Trusts

Filters

Exam 11: Sole Proprietorships and Flow-Through Entities

What kind of an entity is a limited liability company for the purpose of taxing its income?

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?

Which of the following statements does not apply to a qualifying S corporation?

Calvin sells his 40 percent interest in a partnership with a $70,000 basis for $75,000. The partnership has two assets, inventory valued at $100,000 with a $50,000 basis and investments valued at $87,500 that have a basis of $125,000. How will Calvin report the sale of the partnership interest?

Which of the following is not a characteristic of an S corporation?

Why are partnerships and S corporations called flow-through entities?

What is a sole proprietorship and how is this business entity taxed?

S corporations never pay any income taxes.

How is an S election terminated?

A flow-through entity aggregates all its income and subtracts all expense items for reporting its net income.

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

What tax year end must a partnership use?

The accumulated adjustment account

Which of the following is not a characteristic of sole proprietorships?

Logan's basis in his partnership interest is $20,000 when he receives a pro rata nonliquidating distribution from the partnership of $22,000 cash and inventory with a basis of $2,000 and fair market value of $3,000). What is Logan's basis for the inventory he received?

What is Alexander's net gain or loss on the liquidation of his 100 percent interest in an S corporation if the corporation distributes the following three assets to him in exchange for his stock: Prior to any distributions, Alexander's basis in his S corporation interest was $160,000.

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Estates, Gifts, and Trusts

Filters