Question 1

Owners of which of the following entity types receive deductible compensation from the entity for working for the entity?

Accepted Answer

A) Sole proprietorship 
B) Entity taxed as a partnership 
C) S corporation 
D) Both Entity taxes as a partner and S corporation 
A) Sole proprietorship 
B) Entity taxed as a partnership 
C) S corporation 
D) Both Entity taxes as a partner and S corporation

Question 2

Both tax and nontax objectives should be considered when choosing the entity type for a new business.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following entity characteristics are generally key factors for small business owners in deciding which entity to choose?

Accepted Answer

A) Rate at which income from entity will be taxed. 
B) Required accounting period. 
C) Liability protection. 
D) Both the rate at which income from entity will be taxed and the required accounting period. 
E) Both the rate at which income from entity will be taxed and liability protection. 
A) Rate at which income from entity will be taxed. 
B) Required accounting period. 
C) Liability protection. 
D) Both the rate at which income from entity will be taxed and the required accounting period. 
E) Both the rate at which income from entity will be taxed and liability protection.

Question 4

In 2020, BYC Corporation (a C corporation)had an NOL carryover from 2017 in the amount of $40,000. How much tax will BYC pay in 2020 if it reports taxable income from operations of $35,000 in 2020 before the NOL deduction?

Accepted Answer

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

Question 5

When an employee/shareholder receives a business income allocation from an S corporation, what taxes apply to the business income allocation?

Accepted Answer

A) FICA tax only. 
B) Self-employment tax only. 
C) FICA  and self-employment tax. 
D) Income tax. 
E) None of the choices are correct. 
A) FICA tax only. 
B) Self-employment tax only. 
C) FICA  and self-employment tax. 
D) Income tax. 
E) None of the choices are correct.

Question 6

What is the maximum number of unrelated shareholders a C corporation can have, the maximum number of unrelated shareholders an S corporation can have, and the maximum number of partners a partnership may have, respectively?

Accepted Answer

A) 100; no limit; no limit 
B) no limit; 100; 2 
C) no limit; 100; no limit 
D) 100; 100; no limit 
A) 100; no limit; no limit 
B) no limit; 100; 2 
C) no limit; 100; no limit 
D) 100; 100; no limit

Question 7

What tax year-end must an unincorporated entity with only one owner adopt?

Accepted Answer

A) The entity is free to adopt any tax year-end. 
B) The entity must adopt the same year-end as its owner. 
C) The entity must adopt a calendar year-end. 
D) The entity may adopt any year-end except for a calendar year-end. 
A) The entity is free to adopt any tax year-end. 
B) The entity must adopt the same year-end as its owner. 
C) The entity must adopt a calendar year-end. 
D) The entity may adopt any year-end except for a calendar year-end.

Question 8

Losses from C corporations are never available to offset a shareholder's personal income.

Accepted Answer

A) True 
 B)False

Question 9

A single-member LLC is taxed as a partnership.

Accepted Answer

A) True 
 B)False

Question 10

Crocker and Company (CC)is a C corporation. For the year, CC reported taxable income of $550,000. At the end of the year, CC distributed all its after-tax earnings to Jimmy, the company's sole shareholder. Jimmy's marginal ordinary tax rate is 37 percent and his marginal tax rate on dividends is 23.8 percent, including the net investment income tax. What is the overall tax rate on Crocker and Company's pretax income?

Accepted Answer

A) 18.8% 
B) 23.8% 
C) 21% 
D) 39.8% 
E) 44.8% 
A) 18.8% 
B) 23.8% 
C) 21% 
D) 39.8% 
E) 44.8%

Question 11

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 12

If a C corporation incurred a net operating loss in 2017, it could carry the loss back two years and forward 20 years to offset income in those years. However, it may offset only 80 percent of the taxable income before the NOL deduction in those years.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Which of the following statements is true for a C corporation incurring a NOL for a tax year that begins in 2020?

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 is 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 is correct.

Question 15

Sole proprietorships that are not organized as LLCs  are not treated as legal entities separate from their individual owners.

Accepted Answer

A) True 
 B)False

Question 16

If individual taxpayers are the shareholders of PST Corporation and PST Corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pretax income potentially exposed to?

Accepted Answer

A) One. 
B) Two. 
C) Three. 
D) None. 
A) One. 
B) Two. 
C) Three. 
D) None.

Question 17

Which of the following statements is false for a C corporation that incurred a net operating loss for a tax year beginning before 2018?

Accepted Answer

A) If it carries back the NOL and/or carries it forward, it may offset up to 80 percent of the taxable income (before the NOL deduction)in those years. 
B) It may carry the NOL forward for up to 20 years and offset up to 100 percent of the taxable income (before the NOL deduction)in those years. 
C) It may carry the NOL back two years and offset up to 100 percent of the taxable income (before the NOL deduction)in those years. 
D) None of these (selecting this option means you believe all of the other responses are true). 
A) If it carries back the NOL and/or carries it forward, it may offset up to 80 percent of the taxable income (before the NOL deduction)in those years. 
B) It may carry the NOL forward for up to 20 years and offset up to 100 percent of the taxable income (before the NOL deduction)in those years. 
C) It may carry the NOL back two years and offset up to 100 percent of the taxable income (before the NOL deduction)in those years. 
D) None of these (selecting this option means you believe all of the other responses are true).

Question 18

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

Question 19

If an individual forms a sole proprietorship, which nontax factor will be of greatest benefit to the sole proprietor?

Accepted Answer

A) Liability protection. 
B) Legal flexibility in defining rights and responsibilities of owners. 
C) Facilitation of initial public offerings. 
D) Minimal time and cost to organize. 
A) Liability protection. 
B) Legal flexibility in defining rights and responsibilities of owners. 
C) Facilitation of initial public offerings. 
D) Minimal time and cost to organize.

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

Owners of which of the following entity types receive deductible compensation from the entity for working for the entity?

Both tax and nontax objectives should be considered when choosing the entity type for a new business.

Which of the following entity characteristics are generally key factors for small business owners in deciding which entity to choose?

In 2020, BYC Corporation (a C corporation)had an NOL carryover from 2017 in the amount of $40,000. How much tax will BYC pay in 2020 if it reports taxable income from operations of $35,000 in 2020 before the NOL deduction?

When an employee/shareholder receives a business income allocation from an S corporation, what taxes apply to the business income allocation?

What is the maximum number of unrelated shareholders a C corporation can have, the maximum number of unrelated shareholders an S corporation can have, and the maximum number of partners a partnership may have, respectively?

What tax year-end must an unincorporated entity with only one owner adopt?

Losses from C corporations are never available to offset a shareholder's personal income.

A single-member LLC is taxed as a partnership.

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

If a C corporation incurred a net operating loss in 2017, it could carry the loss back two years and forward 20 years to offset income in those years. However, it may offset only 80 percent of the taxable income before the NOL deduction in those years.

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

Which of the following statements is true for a C corporation incurring a NOL for a tax year that begins in 2020?

Sole proprietorships that are not organized as LLCs are not treated as legal entities separate from their individual owners.

If individual taxpayers are the shareholders of PST Corporation and PST Corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pretax income potentially exposed to?

Which of the following statements is false for a C corporation that incurred a net operating loss for a tax year beginning before 2018?

If an individual forms a sole proprietorship, which nontax factor will be of greatest benefit to the sole proprietor?

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 Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters