Chat with AIExam 18: Comparative Forms of Doing Business
For which type of entity is an owner least likely to have an "wherewithal to pay" problem.Explain.Your explanation should briefly describe any wherewithal to pay issue for sole proprietorships, partnerships, S corporations and C corporations.
(23) 
VerifiedAn owner of a C corporation is least likely to have a
wherewithal to pay problem.The shareholder is not taxed on his/her distributive share of entity earnings.Instead, the shareholder would only be taxed on wages if an employee), dividends, or other payments, such as for rent or interest income.In each situation, assuming the transfer is in cash, the owner has funds to pay any tax on the income.
A sole proprietor may have a minor wherewithal to pay issue.A sole proprietor is taxed on the net earnings of the business.If the business uses the accrual method of accounting, and there are significant accounts receivable, it is possible that there is insufficient funds for the owner to pay taxes.
A partner must pay tax on his/her distributive share of partnership income even if none of the earnings or capital is distributed to the owner.This can present a severe wherewithal to pay problem for her.
An S corporation shareholder also must pay tax on his/her distributive share of corporate income.If the distribution is less than the tax on these earnings, the owner has a wherewithal to pay problem.However, unlike a partnership, the S corporation owner who also works for the entity is an employee and is to be paid reasonable wages.These wages also decrease the owner's distributive share of income.The receipt of wages allows the shareholder to pay tax on such income.
John wants to buy a business whose assets have appreciated in value.If the business is operated as a C corporation, it does not matter to John whether he purchases the assets or the stock.
(37) VerifiedFalse
A sole proprietorship files Schedule C of Form 1040, a partnership files Form 1065, a C corporation files Form 1120, and an S corporation files Form 1120S.
(44) VerifiedTrue
To which of the following entities does the AMT apply?
∙ Sole proprietorship.
∙ General partnership.
∙ Limited partnership.
∙ LLC.
∙ S corporation.
∙ C corporation.
(39) Molly transfers land with an adjusted basis of $28,000 and a fair market value of $65,000 to the Sand Partnership for a 30% ownership interest.The land is encumbered by a mortgage of $18,000 which the partnership assumes.Her basis for her ownership interest is $10,000 $28,000 - $18,000).
(43) All of the shareholders of an S corporation have limited liability with respect to their ownership interests in the corporation, whereas only limited partners in a limited partnership have such limited liability.
(31) Match the following statements.
-Technique for minimizing double taxation
(35) Abby is a limited partner in a limited partnership.Her basis in the partnership interest is $80,000, with an at-risk basis of $75,000.Abby's share of the partnership loss for the tax year is $90,000.She reports other income of $275,000 from her job as a controller.How much of the $90,000 can Abby offset against her other income of $275,000? What happens to any balance that cannot be deducted in the current tax year?
(39) From the viewpoint of the entity and the employee recipient, what is the ideal fringe benefit?
(36) A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation.
(38) Match the following attributes with the different forms.A particular attribute may apply to more than one entity form.
-Sole proprietorship
(38) Match the following attributes with the different forms.A particular attribute may apply to more than one entity form.
-General partnership
(42) Roger owns 40% of the stock of Gold, Inc.adjusted basis of $800,000).Silver redeems 60% of Roger's shares for
$900,000.If the stock redemption qualifies for return of capital treatment, Roger's recognized gain is $100,000.
(31) Khalid contributes land fair market value of $700,000; adjusted basis of $200,000) and Dan contributes $700,000 cash to form Teal Partnership.Khalid and Dan each own a 50% interest.One year later, Teal sells the land for $800,000.How much gain is recognized by each partner?
(35) If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable, the taxable income of a C corporation increases and the gross income of the shareholder increases.
(30) Ling owns a sole proprietorship for which the assets have appreciated in value.If Ling is going to sell the business to Abner, should Ling structure the sale as 1) a sale of the individual assets or 2) a sale of the sole proprietorship?
(26) A benefit of an S corporation when compared with a C corporation is that it is subject to Federal income tax only in limited circumstances.
(31) Alice contributes equipment fair market value of $82,000; adjusted basis of $20,000), subject to a $14,000 liability, to form Orange Partnership, a general partnership.Mary contributes $68,000 cash.Alice and Mary share equally in partnership profits and losses.What is Alice's and Mary's basis for their partnership interests?
(33) 
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