Exam 14: Choice of Business Entity -- Operations and Distributions

Brooks Corporation distributes property with a basis of $20,000 and a fair market value of $25,000 to Caroline in complete liquidation of the corporation.Caroline's basis in the stock is $32,000.What must Caroline and Brooks report as income (loss)upon the liquidation of Brooks? ​ Caroline Brooks

When a partnership distributes property that has a fair market value greater than its basis,the partnership must recognize the income as if it sold the property.

Match the term with the entity to which it applies. -Double taxation

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. ​

Joline operates Adventure Tours as a sole proprietorship.For the year,Adventure Tours has the following income and expense items: ​ If Joline has other income of $6,000,what is her adjusted gross income?

William,a CPA,owns a 75% interest in Burglar Concrete Company (BCC).BCC is organized as a partnership.During the current year,William prepares BCC's tax return and receives his normal $300 fee for the preparation of the return. I.BCC cannot deduct the $300 fee because of the related party rules. II.William must recognize the $300 fee as income. ​

With the exception of personal service and closely-held corporations,regular corporations are not subject to the passive activity rules.

A sole proprietor may deduct investment interest and investment expense without limitations if investments are made in the name of the business.

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? Rayburn Newcastle

Irvin's adjusted basis in the Gamma Partnership is zero at the beginning of the current year.He has a $15,000 suspended loss from the previous year.During the current year,Gamma's operating income is $30,000.Arvin is a 40% partner,and he receives a distribution of $10,000 cash this year.If Arvin materially participates in Gamma's operations,how much of the suspended loss can he deduct?

Pablo owns 30% of Cancun Company,an electing S corporation.Pablo's adjusted basis in the stock is $44,000 at the beginning of the current year.During the current year,Cancun distributes a $60,000 dividend.Cancun Company reports a $200,000 operating loss for the current year.If Pablo is not a material participant in Cancun Company,how much of the loss can he deduct on his income tax return?

A corporation's excess charitable contributions over the amount deductible

Rinaldo owns 20% of Mahoney Company,a partnership.Rinaldo's adjusted basis in the partnership is $32,000 at the beginning of the current year.During the current year,Rinaldo receives a $10,000 cash distribution from the partnership.Mahoney Company reports a $200,000 operating loss for the current year.Which of the following statements is/are correct? I.Rinaldo's maximum loss deduction is limited to $22,000. II.If Rinaldo is a material participant in Mahoney,he can deduct a $40,000 loss. ​

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?

Mariana is a partner in the Benson Partnership.At the close of the current year,Mariana's basis in the partnership is $23,000.At that time,the partnership distributes cash of $6,000 and property with a basis of $4,000 and a fair market value of $7,000 to each partner.What amount must Mariana report as income from the distribution in the current year?

The Serenity Corporation distributes $200,000 in cash to its shareholder during 2017.Accumulated earnings and profits are $80,000 as of January 1,2017.Current earnings and profits for 2017 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?

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

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?

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.

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