Exam 14: Choice of Business Entity-Operations and Distributions

A corporation's calculation of the maximum allowable deduction for charitable contributions includes using what percentage limitation of the appropriate taxable income amount?

Dorothy operates a pet store as a sole proprietorship. During the year she sells the business to Florian for $200,000. The assets sold and the allocation of the purchase price are as follows: Dorothy acquired the building in 1997 for $100,000 of which $20,000 was allocated to the land. She paid $40,000 for the equipment in the same year. What are the tax consequences of the liquidation for Dorothy?

Byron is a partner in the Dowdy Group. At the close of the current year, Byron's basis in the partnership is $34,000. At that time, the partnership distributes cash of $8,000 and property with a basis of $9,000 and a fair market value of $13,000 to each partner. What is Byron's basis in the partnership after the distribution?

Discuss two tax-planning techniques that can be used by a 100% owner-employee to reduce his/her tax liability.

The Serenity Corporation distributes $200,000 in cash to its shareholder during 2014. Accumulated earnings and profits are $80,000 as of January 1, 2014. Current earnings and profits for 2014 are $84,000. Jonas, the sole shareholder of Serenity Corporation, has a basis of $48,000 in his stock. What is the tax effect of the distribution for Jonas?

Boston Company, an electing S corporation, has an operating loss of $400,000 for the current year. Hank owns a 40% interest in the company and is a material participant. At the beginning of the year, Hank's adjusted basis in the stock is $30,000. During the year the company borrows $100,000 with a recourse note. How much of the loss can Hank deduct on his current-year income tax return?

During the current year the Newport Partnership is liquidated. Which of the following statements is correct concerning the liquidation of the partnership? I. If only cash is distributed by the partnership, the partners must recognize a gain but cannot recognize a loss. II. Gain is recognized only if the amount of cash and property distributed exceeds the partner's basis in the partnership.

A corporation may reduce trade or business income by a charitable contributions made by the corporation, but the deduction is limited to 10% of taxable income, as adjusted..

Corporations that sell depreciable real property are not subject to depreciation recapture rules

Meritt is a partner in the McPherson Partnership. At the close of the current year, Meritt's basis in the partnership is $25,000. I. If the partnership distributes cash of $7,500 to Meritt, she must report the cash as income. II. If the partnership distributes property with a basis of $12,000 and a fair market value of $15,000, Meritt must report $3,000 as income.

On a nonliquidating distribution of cash from a partnership, the partner will recognize gain if I. the cash distributed exceeds his/her basis in the partnership. II. the cash distributed exceeds his/her share of the net income of the partnership for the year.

During the current year, Metcalf Corporation has the following items of income and expense: Metcalf owns 37% of the corporation that distributed the dividend to Metcalf. Determine the amount reported as income before special deductions for the current year.

Abaco Corp. has gross income of $230,000 and taxable income of $50,000. The company did not include any special deductions in the calculation of taxable income. While reviewing the tax return, Abaco's accountant finds $20,000 of charitable contributions improperly classified as advertising and promotion expense. He sends the return back to the tax department for correction. What is Abaco's corrected taxable income?

Valmont owns 98% of the stock of Barnes Corporation, a manufacturer. During the current year, Barnes has operating income of $64,000, interest income of $10,000 from investments, and passive losses from investments in limited partnerships of $20,000. Barnes Corporation pays $12,000 in dividends. What is Barnes' taxable income for the current year?

Global Corporation distributes property with a basis of $22,000 and a fair market value of $30,000 to Arturo in complete liquidation of the corporation. Arturo's basis in the stock is $14,000. What must Arturo and Global report as income upon the liquidation of Global? Arturo Global

Sean Corporation's operating income totals $200,000 for the current year, including a deduction of $30,000 for actual charitable contributions. Dividend income of $10,000 was received from unaffiliated corporations and is not included in the $200,000. The related dividend received deduction has yet to be determined. To calculate the maximum allowable deduction for contributions, Sean should apply the percentage limitation to the base amount of

Salem Inc. is an electing S corporation with current year operating income of $300,000. The $300,000 does not include the amount it realized on the sale of a building for $330,000. The building was purchased in 2004 for $250,000 and $20,000 in straight-line depreciation had been taken on the building up to the date of its sale. How should Salem Inc. report these results to its shareholders?

During the current year, Mars Corporation receives dividend income of $20,000 from an 85%-owned domestic corporation. What is Mars' maximum allowable dividend-received deduction for the current year?

Rayburn owns all the shares of Newcastle Corporation that operates as an S corporation. Rayburn's basis in the stock is $15,000. During the year he receives a cash distribution of $22,000 from Newcastle. What must Rayburn and Newcastle report as income from the cash distribution?

Lavery Corporation has two equal shareholders, and has been an electing S corporation since its inception. In the current year, Lavery has taxable income of $60,000. This amount includes $50,000 from operations and $10,000 from investment interest income. Because of these events, each shareholder's adjusted basis in the stock will increase by