Question 1

Which of the following statements is correct?

Accepted Answer

A) An owner of a C corporation is taxed on his or her proportionate share of earnings. 
B) S shareholders are only taxed on distributions. 
C) S shareholders are taxed on their proportionate share of earnings that are distributed. 
D) S shareholders are taxed on their proportionate share of earnings whether or not distributed. 
A) An owner of a C corporation is taxed on his or her proportionate share of earnings. 
B) S shareholders are only taxed on distributions. 
C) S shareholders are taxed on their proportionate share of earnings that are distributed. 
D) S shareholders are taxed on their proportionate share of earnings whether or not distributed.

Question 2

Ralph and Yolanda purchased 20% of the initial offering of Major Corporation common stock for $150,000.Major Corporation is a qualifying small business corporation and the stock qualifies as Sec.1244 stock.Ten months later,Major Corporation files for bankruptcy and the shareholders are notified that the stock is worthless.Ralph and Yolanda,who are married and file a joint return,have a

Accepted Answer

A) $150,000 ordinary loss. 
B) $150,000 capital loss. 
C) $100,000 ordinary loss; $50,000 capital loss. 
D) $100,000 ordinary loss; $50,000 ordinary loss carryforward. 
A) $150,000 ordinary loss. 
B) $150,000 capital loss. 
C) $100,000 ordinary loss; $50,000 capital loss. 
D) $100,000 ordinary loss; $50,000 ordinary loss carryforward.

Question 3

Identify which of the following statements is true.

Accepted Answer

A) Under the check-the-box regulations,an LLC that has one member (owner)may be disregarded as an entity separate from its owner. 
B) An unincorporated business may not be taxed as a corporation. 
C) A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership)in its first year of operations.The entity is prohibited from changing its tax classification at any time in the future. 
D) All of the above are false. 
A) Under the check-the-box regulations,an LLC that has one member (owner)may be disregarded as an entity separate from its owner. 
B) An unincorporated business may not be taxed as a corporation. 
C) A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership)in its first year of operations.The entity is prohibited from changing its tax classification at any time in the future. 
D) All of the above are false.

Question 4

Silvia transfers to Leaf Corporation a machine she had purchased a year ago for $50,000.The machine has a $40,000 adjusted basis and a $55,000 FMV on the transfer date.$10,000 in depreciation was claimed by Silvia prior to the transfer.Silvia receives all 1,000 shares of Leaf Corporation stock worth $50,000 and a two-year note with a $5,000 FMV.What is the amount and character of the recognized gain or loss?

Accepted Answer

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

Question 5

S corporations must allocate income to shareholders based on their proportionate stock ownership.

Accepted Answer

A) True 
 B)False

Question 6

Carmen and Marc form Apple Corporation.Carmen transfers land that is Sec.1231 property,with an adjusted basis of $18,000 and an FMV of $20,000 in exchange for one-half of the Apple Corporation stock.Marc transfers equipment that originally costs $28,000 on which he has taken $5,000 in depreciation deductions.The equipment has an FMV of $25,000 and he receives one-half of the stock and a $5,000 short-term note.The transaction meets the requirements of Sec.351.Which statement below is correct?

Accepted Answer

A) There is no recognized gain or loss. 
B) Carmen recognizes a $2,000 Sec.1231 gain and Marc recognizes $5,000 as ordinary income. 
C) Carmen recognizes a $2,000 Sec.1231 gain and Marc recognizes a $5,000 Sec.1231 gain. 
D) Carmen recognizes no gain and Marc recognizes $2,000 as ordinary income. 
A) There is no recognized gain or loss. 
B) Carmen recognizes a $2,000 Sec.1231 gain and Marc recognizes $5,000 as ordinary income. 
C) Carmen recognizes a $2,000 Sec.1231 gain and Marc recognizes a $5,000 Sec.1231 gain. 
D) Carmen recognizes no gain and Marc recognizes $2,000 as ordinary income.

Question 7

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV.Henry's recognized gain is

Accepted Answer

A) $0. 
B) $5,000. 
C) $10,000. 
D) $20,000. 
A) $0. 
B) $5,000. 
C) $10,000. 
D) $20,000.

Question 8

If an individual transfers an ongoing business to a corporation in a Sec.351 exchange,the individual must recognize any realized gain

Accepted Answer

A) only if the adjusted basis of the property transferred is less than the FMV of the stock received. 
B) if the transferor receives property other than stock. 
C) if the FMV of the property exchanged exceeds the FMV of the stock received. 
D) both A and B above 
A) only if the adjusted basis of the property transferred is less than the FMV of the stock received. 
B) if the transferor receives property other than stock. 
C) if the FMV of the property exchanged exceeds the FMV of the stock received. 
D) both A and B above

Question 9

Bread Corporation is a C corporation with earnings of $100,000.It paid $20,000 in dividends to its sole shareholder,Gerald.Gerald also owns 100% of Butter Corporation,an S corporation.Butter had net taxable income of $80,000 and made a $15,000 distribution to Gerald.What income will Gerald report from Bread and Butter's activities?

Accepted Answer

A) $35,000 
B) $95,000 
C) $100,000 
D) $180,000 
A) $35,000 
B) $95,000 
C) $100,000 
D) $180,000

Question 10

Jeremy transfers Sec.351 property acquired three years earlier having a $100,000 basis and a $160,000 FMV to Jeneva Corporation.Jeremy receives all 200 shares of Jeneva stock having a $140,000 FMV,and a $20,000 90-day Jeneva note.What is Jeremy's recognized gain?

Accepted Answer

A) $0 
B) $60,000 
C) $20,000 
D) $160,000 
A) $0 
B) $60,000 
C) $20,000 
D) $160,000

Question 11

Jermaine owns all 200 shares of Peach Corporation stock valued at $50,000.Kenya,a new shareholder,receives 200 newly issued shares from Peach Corporation in exchange for inventory with an adjusted basis of $40,000 and an FMV of $50,000.Which of the following statements is correct?

Accepted Answer

A) No gain will be recognized by Kenya. 
B) The transaction results in $10,000 of ordinary income for Kenya. 
C) The transaction results in $10,000 of capital gain for Kenya. 
D) Kenya may defer the recognition of any tax until the stock is sold. 
A) No gain will be recognized by Kenya. 
B) The transaction results in $10,000 of ordinary income for Kenya. 
C) The transaction results in $10,000 of capital gain for Kenya. 
D) Kenya may defer the recognition of any tax until the stock is sold.

Question 12

Henry transfers property with an adjusted basis of $95,000 and an FMV of $100,000 to a newly formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $85,000 and a short-term note with a $15,000 FMV.Henry's basis in the stock is

Accepted Answer

A) $100,000. 
B) $95,000. 
C) $90,000. 
D) $85,000. 
A) $100,000. 
B) $95,000. 
C) $90,000. 
D) $85,000.

Question 13

Business assets of a sole proprietorship are owned by

Accepted Answer

A) a member. 
B) an individual. 
C) a partner. 
D) a stockholder. 
A) a member. 
B) an individual. 
C) a partner. 
D) a stockholder.

Question 14

Identify which of the following statements is false.

Accepted Answer

A) The check-the-box regulations permit an LLC to be taxed as a C corporation. 
B) Under the check-the-box regulations,an LLC that has only two members (owners)must be taxed as a partnership. 
C) A business need not be incorporated under state or federal law to be taxed as a corporation. 
D) Once an election is made to change its classification,an entity cannot change again for 60 months. 
A) The check-the-box regulations permit an LLC to be taxed as a C corporation. 
B) Under the check-the-box regulations,an LLC that has only two members (owners)must be taxed as a partnership. 
C) A business need not be incorporated under state or federal law to be taxed as a corporation. 
D) Once an election is made to change its classification,an entity cannot change again for 60 months.

Question 15

Which of the following statements about a partnership is true?

Accepted Answer

A) A partnership is a taxpaying entity. 
B) Partners are taxed on distributions from a partnership. 
C) Partners are taxed on their allocable share of income whether it is distributed or not. 
D) Partners are considered employees of the partnership. 
A) A partnership is a taxpaying entity. 
B) Partners are taxed on distributions from a partnership. 
C) Partners are taxed on their allocable share of income whether it is distributed or not. 
D) Partners are considered employees of the partnership.

Question 16

A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Sec.351 exchange.

Accepted Answer

A) True 
 B)False

Question 17

Identify which of the following statements is true.

Accepted Answer

A) The exchange of stock for services rendered is not a taxable transaction. 
B) The repeal of Sec.351 would result in more existing businesses being incorporated. 
C) Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences. 
D) All of the above are false. 
A) The exchange of stock for services rendered is not a taxable transaction. 
B) The repeal of Sec.351 would result in more existing businesses being incorporated. 
C) Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences. 
D) All of the above are false.

Question 18

Identify which of the following statements is true.

Accepted Answer

A) To qualify for Sec.351 treatment,control is defined as more than 50% ownership of the voting stock,and more than 50% of all other classes of stock. 
B) If a shareholder receives stock with an FMV greater than the FMV of the property exchanged in a Sec.351 transaction,the excess FMV may be considered a gift from one shareholder to another shareholder. 
C) Only transfers to newly created corporations qualify for Sec.351 treatment. 
D) All of the above are false. 
A) To qualify for Sec.351 treatment,control is defined as more than 50% ownership of the voting stock,and more than 50% of all other classes of stock. 
B) If a shareholder receives stock with an FMV greater than the FMV of the property exchanged in a Sec.351 transaction,the excess FMV may be considered a gift from one shareholder to another shareholder. 
C) Only transfers to newly created corporations qualify for Sec.351 treatment. 
D) All of the above are false.

Question 19

The transferee corporation's basis in property received in a Sec.351 exchange is

Accepted Answer

A) the FMV of the property received. 
B) the transferee corporation's basis in the stock exchanged. 
C) the transferor's basis for the property plus gain recognized by the transferor. 
D) the transferor's basis for the property plus gain recognized by the transferee corporation. 
A) the FMV of the property received. 
B) the transferee corporation's basis in the stock exchanged. 
C) the transferor's basis for the property plus gain recognized by the transferor. 
D) the transferor's basis for the property plus gain recognized by the transferee corporation.

Exam 2: Corporate Formations and Capital Structure

Which of the following statements is correct?

Identify which of the following statements is true.

S corporations must allocate income to shareholders based on their proportionate stock ownership.

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV.Henry's recognized gain is

If an individual transfers an ongoing business to a corporation in a Sec.351 exchange,the individual must recognize any realized gain

Jeremy transfers Sec.351 property acquired three years earlier having a $100,000 basis and a $160,000 FMV to Jeneva Corporation.Jeremy receives all 200 shares of Jeneva stock having a $140,000 FMV,and a $20,000 90-day Jeneva note.What is Jeremy's recognized gain?

Jermaine owns all 200 shares of Peach Corporation stock valued at $50,000.Kenya,a new shareholder,receives 200 newly issued shares from Peach Corporation in exchange for inventory with an adjusted basis of $40,000 and an FMV of $50,000.Which of the following statements is correct?

Henry transfers property with an adjusted basis of $95,000 and an FMV of $100,000 to a newly formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $85,000 and a short-term note with a $15,000 FMV.Henry's basis in the stock is

Business assets of a sole proprietorship are owned by

Identify which of the following statements is false.

Which of the following statements about a partnership is true?

A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Sec.351 exchange.

Identify which of the following statements is true.

Identify which of the following statements is true.

The transferee corporation's basis in property received in a Sec.351 exchange is

Tax Research

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