Question 1

Which legal entity provides the least flexible legal arrangement for owners?

Accepted Answer

A) Corporation. 
B) LLC. 
C) Partnership. 
D) Sole proprietorship. 
A) Corporation. 
B) LLC. 
C) Partnership. 
D) Sole proprietorship.

Question 2

In certain circumstances,C corporation shareholders can elect to change the entity to a flow-through entity for tax purposes.

Accepted Answer

A) True 
 B)False

Question 3

Which legal entity is correctly paired with the party that bears the ultimate responsibility for paying the legal entity's liabilities?

Accepted Answer

A) LLC - LLC members. 
B) Corporation - Corporation. 
C) General partnership - Partnership. 
D) Limited partnership - General partner. 
E) Corporation - Corporation and Limited partnership - General partner. 
A) LLC - LLC members. 
B) Corporation - Corporation. 
C) General partnership - Partnership. 
D) Limited partnership - General partner. 
E) Corporation - Corporation and Limited partnership - General partner.

Question 4

What is the tax impact to a C corporation or an S corporation when it makes a (noncash)property distribution to a shareholder?

Accepted Answer

A) Recognizes either gain or loss. 
B) Does not recognize gain or loss. 
C) Recognizes gain but not loss. 
D) Recognizes loss only. 
A) Recognizes either gain or loss. 
B) Does not recognize gain or loss. 
C) Recognizes gain but not loss. 
D) Recognizes loss only.

Question 5

A single-member LLC is taxed as a partnership.

Accepted Answer

A) True 
 B)False

Question 6

In 2019,BYC Corporation (a C corporation)had an NOL carryover from 2017 in the amount of $40,000.How much tax will BYC pay in 2019 if it reports taxable income from operations of $35,000 in 2019 before the NOL deduction?

Accepted Answer

None.BYC's NOL of ($40,000)is available

Question 7

Stacy would like to have SST (a business entity)organized as either an LLC (taxed as a partnership)or as a corporation (taxed as a C corporation)generating a 10 percent annual before-tax return on a $600,000 investment.Stacy's marginal tax rate on ordinary income is 37 percent.Stacy's marginal tax rate on individual capital gains and dividends is 23.8 percent,including the net investment income tax.SST will pay out its after-tax earnings every year to either its members or its shareholders.If SST is taxed as a partnership,Stacy would be subject to a 2.9 percent self-employment tax rate and a .9 percent additional Medicare tax.Assume that SST's income is not qualified business income for purposes of the qualified business income deduction.How much would Stacy have after taxes if SST is organized as either an LLC or a C corporation?

Accepted Answer

The answer of Stacy would like to have SST (a...

Question 8

Roberto and Reagan are both 25-percent owner/managers for Bright Light Inc.Roberto runs the retail store in Sacramento,CA,and Reagan runs the retail store in San Francisco,CA.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?

Accepted Answer

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

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Jorge is a 60-percent owner of JJ LLC (taxed as a partnership).He is a passive investor in JJ (he doesn't perform any work for JJ)and his marginal ordinary tax rate is 37 percent.Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

Accepted Answer

A) Business income allocations are not subject to self-employment tax. 
B) Business income allocations are not subject to the net investment income tax. 
C) Business income allocations are subject to the additional Medicare tax. 
D) Business income allocations are taxed at a maximum 23.8 percent tax rate. 
A) Business income allocations are not subject to self-employment tax. 
B) Business income allocations are not subject to the net investment income tax. 
C) Business income allocations are subject to the additional Medicare tax. 
D) Business income allocations are taxed at a maximum 23.8 percent tax rate.

Question 11

On which tax form do LLCs with more than one owner generally report their income and losses?

Accepted Answer

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

Question 12

Assume you plan to start a new enterprise; you know the probability of having losses for the first three years of operations is almost 90 percent,and you know you will report a substantial amount of income from other sources during those same three years.From a tax perspective,which of the following entity choices would not allow you to offset the entity losses against your income from other sources?

Accepted Answer

A) C corporation. 
B) LLC. 
C) General partnership. 
D) S corporation. 
A) C corporation. 
B) LLC. 
C) General partnership. 
D) S corporation.

Question 13

Generally,which of the following flow-through entities can elect to be treated as a C corporation?

Accepted Answer

A) Limited partnership. 
B) Limited liability company. 
C) General partnership. 
D) All of these choices are correct. 
A) Limited partnership. 
B) Limited liability company. 
C) General partnership. 
D) All of these choices are correct.

Question 14

Which of the following statements is true for entity owners who pay the self-employment tax and the additional Medicare tax?

Accepted Answer

A) Both the self-employment tax and the additional Medicare tax are deductible for AGI in full. 
B) Half of the self-employment tax and all of the additional Medicare tax are deductible for AGI. 
C) Half of the self-employment tax and none of the additional Medicare tax are deductible for AGI. 
D) None of the self-employment tax and none of the additional Medicare tax are deductible for AGI. 
A) Both the self-employment tax and the additional Medicare tax are deductible for AGI in full. 
B) Half of the self-employment tax and all of the additional Medicare tax are deductible for AGI. 
C) Half of the self-employment tax and none of the additional Medicare tax are deductible for AGI. 
D) None of the self-employment tax and none of the additional Medicare tax are deductible for AGI.

Question 15

The deduction for qualified business income applies to owners of C corporations but not to flow-through entity owners.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

Jorge is a 100-percent owner of JJ LLC (taxed as an S corporation).He works full time for JJ and his marginal ordinary tax rate is 37 percent.Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

Accepted Answer

A) Business income allocations are subject to self-employment tax. 
B) Business income allocations are not subject to the net investment income tax. 
C) Business income allocations are subject to the additional Medicare tax. 
D) Business income allocations are taxed at a maximum 23.8 percent tax rate. 
A) Business income allocations are subject to self-employment tax. 
B) Business income allocations are not subject to the net investment income tax. 
C) Business income allocations are subject to the additional Medicare tax. 
D) Business income allocations are taxed at a maximum 23.8 percent tax rate.

Question 18

Limited partnerships are legally formed by filing a certificate of limited partnership with the state in which the partnership will be organized.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is true for a C corporation incurring a net operating loss (NOL)for a tax year that begins in 2019?

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 two years and carry the loss forward indefinitely. 
E) None of the choices are correct. 
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 two years and carry the loss forward indefinitely. 
E) None of the choices are correct.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 15: Entities Overview

Which legal entity provides the least flexible legal arrangement for owners?

In certain circumstances,C corporation shareholders can elect to change the entity to a flow-through entity for tax purposes.

Which legal entity is correctly paired with the party that bears the ultimate responsibility for paying the legal entity's liabilities?

What is the tax impact to a C corporation or an S corporation when it makes a (noncash)property distribution to a shareholder?

A single-member LLC is taxed as a partnership.

In 2019,BYC Corporation (a C corporation)had an NOL carryover from 2017 in the amount of $40,000.How much tax will BYC pay in 2019 if it reports taxable income from operations of $35,000 in 2019 before the NOL deduction?

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

Jorge is a 60-percent owner of JJ LLC (taxed as a partnership).He is a passive investor in JJ (he doesn't perform any work for JJ)and his marginal ordinary tax rate is 37 percent.Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

On which tax form do LLCs with more than one owner generally report their income and losses?

Generally,which of the following flow-through entities can elect to be treated as a C corporation?

Which of the following statements is true for entity owners who pay the self-employment tax and the additional Medicare tax?

The deduction for qualified business income applies to owners of C corporations but not to flow-through entity owners.

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

Jorge is a 100-percent owner of JJ LLC (taxed as an S corporation).He works full time for JJ and his marginal ordinary tax rate is 37 percent.Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

Limited partnerships are legally formed by filing a certificate of limited partnership with the state in which the partnership will be organized.

Which of the following statements is true for a C corporation incurring a net operating loss (NOL)for a tax year that begins in 2019?

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

An Introduction to Tax

Tax Compliance,the Irs,and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview,dependents,and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation,reorganization,and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters