Exam 11: Sole Proprietorships and Flow-Through Entities

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 a $2,000 charitable contribution and a $5,000 Section 179 deduction. CJ Partnership also paid $1,500 of doctor bills for Carol, What is the ordinary business income reported on line 1 of Carol's Schedule K-1?

Juan's interest in the Gonzalez Partnership is liquidated when his basis in the interest is $30,000. He receives a liquidating distribution of $20,000 cash and inventory with a basis of $8,000 and a fair market value of $30,000. Juan will recognize:

Which of the following does not affect the basis of S corporation stock?

An S election terminates

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:

To qualify for the real property business exception for rental activities

The basis limitation rules are applied before the at-risk and passive loss limitation rules.

A sole proprietor is considered a self-employed individual.

The passive activity loss rules apply

James and Jerry are equal partners in JJ partnership. James works full-time in the business and receives a $40,000 guaranteed salary from the partnership. Jerry is to receive the first $20,000 of profit before the remainder is divided equally between James and Jerry. If the accounting income before either of these payments is $30,000, what is the amount of income or loss allocated to Jerry?

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

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?

Sabrina is single and has taxable income of $195,700 of which $140,000 is attributable to her consulting sole proprietorship. She paid W-2 pages to her employees of $75,000. If the threshold amount for 2018 is $157,500, what is Sabrina's qualified business income deduction?

The AAA of the S corporation is a corporate-level account.

The owners of a limited liability company are called members.

To qualify for the limited deduction for rental real estate losses

An S corporation shareholder can only deduct losses of the S corporation to the extent he or she has positive stock basis.

Willy is involved in a number of businesses as a consultant. Below are the businesses and the hours of activity that Willy spent in each. Identify any activities that are passive and explain why the income or loss from the other activities is not passive income or loss. *F is Willy's sole proprietorship and he has no employees.

The S corporation income tax return includes all of the following except

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. -Owner's salary is subject to FICA taxes.