Exam 13: Comparative Forms of Doing Business

Tyrell is the sole shareholder of Topaz, Inc.Topaz's taxable income before the payment of Tyrell's salary is $250,000.Based on this, Tyrell has the corporation pay him a salary of $175,000 and a bonus of $75,000.A reasonable salary and bonus would be $200,000.Which of the following is correct?

Matthew contributes land with a fair market value of $350,000 and an adjusted basis of $300,000, and Harold contributes $350,000 cash to form Matthew & Harold, Inc, a C corporation.Matthew and Harold each own 50% of the stock.One year later, Matthew & Harold, Inc.sells the land for $400,000.How much gain is recognized by each shareholder?

A taxpayer contributes property with an adjusted basis of $35,000 and a fair market value of $60,000 to his business entity.If the entity is an S corporation and the trans?action qualifies under § 351, the S corporation's basis for the asset and the shareholder's basis for his stock are: Asset Basis Interest Basis a. \ 35,000 \ 60,000 b. \ 60,000 \ 35,000 c. \ 35,000 \ 35,000 d. \ 60,000 \ 60,000 e. None of the above.

Danny and Jasmine form a business entity with Danny contributing cash of $80,000 and Jasmine contributing land which has a basis of $65,000 and a fair market value of $80,000.At the end of the first year of operations, the business entity has earned a profit of $50,000 and has outstanding liabilities of $20,000.Which of the following statements are correct?

Pearl, Inc., has accumulated earnings and profits at the end of the year of $275,000.Pearl pays a salary and bonus of $125,000 to Keith, its CEO.Pearl's taxable income before the salary and bonus is $130,000.The IRS classifies $20,000 of the salary and bonus as unreasonable.Calculate Pearl's taxable income after the reclassification.

Adam contributes equipment with a fair market value of $300,000, an adjusted basis of $240,000, and subject to a $20,000 liability to form Onyx Partnership, a general partnership.Shayla contributes $280,000 cash.Adam and Shayla share equally in partnership profits and losses.What is Adam's and Shayla's basis for their partnership interests?

Special allocations of income and loss are not allowed for which of the following types of entities?

Ruby, Inc., has 2,000 shares of stock authorized and 1,000 shares outstanding.The shares are owned by Sophia (850 shares) and Joan (150 shares).Sophia's adjusted basis for her stock is $40,000 and Joan's adjusted basis for her stock is $35,000.Ruby's earnings and profits are $100,000.Ruby redeems 75 of Joan's shares for $50,000.Determine the amount of Joan's recognized gain (1) if she is Sophia's mother and (2) if they are unrelated.

Of the different forms of business entities, which form offers the most potential for raising capital.

A taxpayer contributes property with an adjusted basis of $35,000 and a fair market value of $50,000 to her business entity.If the entity is a partnership and the transaction qualifies under § 721, the partnership's basis for the asset and the partner's basis for her partnership interest are: Asset Basis Interest Basis a. \ 35,000 \ 50,000 b. \ 50,000 \ 35,000 c. \ 35,000 \ 35,000 d. \ 50,000 \ 50,000 e. None of the above.