Question 1

A major benefit of the S corporation election is the general avoidance of double taxation.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not correct with respect to limited liability companies?

Accepted Answer

A) An advantage of an LLC when compared to a C corporation is the ability to pass tax attributes through to the owners. 
B) A disadvantage of a partnership when compared with an LLC is the inability of all the owners to have limited liability. 
C) An LLC has greater flexibility than does an S corporation in terms of the number of owners,types of owners,and capital structure. 
D) All of the above are correct. 
E) All of the above are incorrect. 
A) An advantage of an LLC when compared to a C corporation is the ability to pass tax attributes through to the owners. 
B) A disadvantage of a partnership when compared with an LLC is the inability of all the owners to have limited liability. 
C) An LLC has greater flexibility than does an S corporation in terms of the number of owners,types of owners,and capital structure. 
D) All of the above are correct. 
E) All of the above are incorrect.

Question 3

Marsha is going to contribute the following assets to a business entity in exchange for an ownership interest.
   What are the tax consequences of the contribution to Marsha if the business entity is a(n):

Accepted Answer

The answer of Marsha is going to contribute the following...

Question 4

Albert's sole proprietorship owns the following assets:   * Potential § 1245 recapture of $45,000.
** Straight-line depreciation was used.
Albert sells his sole proprietorship for $500,000.Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

Accepted Answer

A) $230,000 ordinary income. 
B) $230,000 capital gain. 
C) $115,000 ordinary income and $115,000 capital gain. 
D) $110,000 ordinary income and $120,000 capital gain. 
E) None of the above. 
A) $230,000 ordinary income. 
B) $230,000 capital gain. 
C) $115,000 ordinary income and $115,000 capital gain. 
D) $110,000 ordinary income and $120,000 capital gain. 
E) None of the above.

Question 5

C corporations and their shareholders are subject to double taxation.S corporations and their shareholders typically are subject to single taxation.Therefore,for any given amount of corporate taxable income,the combined tax liability of a C corporation and its shareholders will exceed that of an S corporation and its shareholders.

Accepted Answer

A) True 
 B)False

Question 6

Wren,Inc.is owned by Alfred (30%)and Mabel (70%).Alfred's marginal tax rate is 25% and Mabel's marginal tax rate is 33%.Wren's taxable income for 2012 is $400,000.

Accepted Answer

The answer of Wren,Inc.is owned by Alfred (30%)and Mabel (70%).Alfred's...

Question 7

If the IRS reclassifies debt as equity under § 385,the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

Accepted Answer

A) True 
 B)False

Question 8

Candace,who is in the 33% tax bracket,is establishing a business which could have potential environmental liability problems.Therefore,she is trying to decide between the C corporation form and the S corporation form.She projects that the business will generate earnings of about $75,000 each year.Advise Candace on the tax consequences of each tax form.

Accepted Answer

If the form selected is an S corporation

Question 9

Cory is going to purchase the assets of Kahlyn's sole proprietorship.The assets of Kahlyn's sole proprietorship have appreciated in value.From Cory's perspective,does it matter whether the purchase is structured as (1)the purchase of the individual assets or (2)the purchase of the sole proprietorship?

Accepted Answer

No.Regardless of the legal form of the p

Question 10

A corporation can avoid the accumulated earnings tax by demonstrating that it has plans to distribute earnings at a later date.

Accepted Answer

A) True 
 B)False

Question 11

Melinda's basis for her partnership interest is $250,000.If she receives a cash distribution of $290,000,her recognized gain is $40,000 and her basis for her partnership interest is reduced to $0.Melinda is still a partner after the distribution.

Accepted Answer

A) True 
 B)False

Question 12

With respect to special allocations,is the S corporation treated more like a partnership or a C corporation?

Accepted Answer

With respect to special allocations,an S

Question 13

Which of the following statements is correct?

Accepted Answer

A) An S corporation has a greater opportunity to raise capital than does an C corporation. 
B) A general partnership has a greater opportunity to raise capital than does a limited partnership. 
C) A partnership has a greater opportunity to raise capital than does a sole proprietorship. 
D) Only a.and b.are correct. 
E) a. ,b. ,and c.are correct. 
A) An S corporation has a greater opportunity to raise capital than does an C corporation. 
B) A general partnership has a greater opportunity to raise capital than does a limited partnership. 
C) A partnership has a greater opportunity to raise capital than does a sole proprietorship. 
D) Only a.and b.are correct. 
E) a. ,b. ,and c.are correct.

Question 14

Trolette contributes property with an adjusted basis of $80,000 and a fair market value of $100,000 to a newly formed business entity.If the entity is a C corporation and the transaction qualifies under § 351,the corporation's basis for the property and the shareholder's basis for the stock are: Asset Basis Stock Basis

Accepted Answer

A) $ 80,000 $100,000 
B) $100,000 $ 80,000 
C) $ 80,000 $ 80,000 
D) $100,000 $100,000 
E) None of the above. 
A) $ 80,000 $100,000 
B) $100,000 $ 80,000 
C) $ 80,000 $ 80,000 
D) $100,000 $100,000 
E) None of the above.

Question 15

In its first year of operations,a corporation projects losses of $125,000.Since losses are involved,the corporation definitely should elect S corporation status.

Accepted Answer

A) True 
 B)False

Question 16

An effective way for all C corporations to avoid double taxation is not to make dividend distributions.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following business entity forms are subject to single taxation on the profits and which are subject to double taxation?

Accepted Answer

a. ,b. ,c. ,d. ,e. ,and f.
The sole prop

Question 18

Nontax factors are less important than tax factors in making a business decision.

Accepted Answer

A) True 
 B)False

Question 19

Malcomb and Sandra (shareholders)each loan Crow Corporation $50,000 at the market rate of 6% interest.Which of the following statements are false?

Accepted Answer

A) Crow may deduct the interest expense,and the interest income is taxable to Malcomb and Sandra. 
B) When the note principal is repaid,neither Malcomb nor Sandra recognizes gross income from the repayment. 
C) If the IRS were successful in reclassifying the notes as equity,the interest payments would not be deductible by Crow,and Malcomb and Sandra would still recognize income. 
D) If the IRS were successful in reclassifying the notes as equity,repayment of the note principal to Malcomb and Sandra would not qualify for return of capital treatment and would most likely result in dividend income treatment for Malcomb and Sandra. 
E) All of the above are true. 
A) Crow may deduct the interest expense,and the interest income is taxable to Malcomb and Sandra. 
B) When the note principal is repaid,neither Malcomb nor Sandra recognizes gross income from the repayment. 
C) If the IRS were successful in reclassifying the notes as equity,the interest payments would not be deductible by Crow,and Malcomb and Sandra would still recognize income. 
D) If the IRS were successful in reclassifying the notes as equity,repayment of the note principal to Malcomb and Sandra would not qualify for return of capital treatment and would most likely result in dividend income treatment for Malcomb and Sandra. 
E) All of the above are true.

Question 20

Barb and Chuck each have a 50% ownership in Wren Partnership.Each partner has a partnership interest basis of $175,000.Wren's taxable income for the current year is $100,000,and it distributes $75,000 to each partner.Barb's basis in the partnership interest at the end of the year is:

Accepted Answer

A) $0. 
B) $100,000. 
C) $150,000. 
D) $175,000. 
E) None of the above. 
A) $0. 
B) $100,000. 
C) $150,000. 
D) $175,000. 
E) None of the above.

A major benefit of the S corporation election is the general avoidance of double taxation.

Which of the following is not correct with respect to limited liability companies?

Marsha is going to contribute the following assets to a business entity in exchange for an ownership interest. What are the tax consequences of the contribution to Marsha if the business entity is a(n):

Albert's sole proprietorship owns the following assets: * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Albert sells his sole proprietorship for $500,000.Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

Wren,Inc.is owned by Alfred (30%)and Mabel (70%).Alfred's marginal tax rate is 25% and Mabel's marginal tax rate is 33%.Wren's taxable income for 2012 is $400,000.

If the IRS reclassifies debt as equity under § 385,the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

A corporation can avoid the accumulated earnings tax by demonstrating that it has plans to distribute earnings at a later date.

Melinda's basis for her partnership interest is $250,000.If she receives a cash distribution of $290,000,her recognized gain is $40,000 and her basis for her partnership interest is reduced to $0.Melinda is still a partner after the distribution.

With respect to special allocations,is the S corporation treated more like a partnership or a C corporation?

Which of the following statements is correct?

In its first year of operations,a corporation projects losses of $125,000.Since losses are involved,the corporation definitely should elect S corporation status.

An effective way for all C corporations to avoid double taxation is not to make dividend distributions.

Which of the following business entity forms are subject to single taxation on the profits and which are subject to double taxation?

Nontax factors are less important than tax factors in making a business decision.

Malcomb and Sandra (shareholders)each loan Crow Corporation $50,000 at the market rate of 6% interest.Which of the following statements are false?

Barb and Chuck each have a 50% ownership in Wren Partnership.Each partner has a partnership interest basis of $175,000.Wren's taxable income for the current year is $100,000,and it distributes $75,000 to each partner.Barb's basis in the partnership interest at the end of the year is:

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, operation, and Basis

Partnerships: Distributions, transfer of Interests, and Terminations

S: Corporations

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 13: Comparative Forms of Doing Business

A major benefit of the S corporation election is the general avoidance of double taxation.

Which of the following is not correct with respect to limited liability companies?

Marsha is going to contribute the following assets to a business entity in exchange for an ownership interest. What are the tax consequences of the contribution to Marsha if the business entity is a(n):

Albert's sole proprietorship owns the following assets: * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Albert sells his sole proprietorship for $500,000.Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

Wren,Inc.is owned by Alfred (30%)and Mabel (70%).Alfred's marginal tax rate is 25% and Mabel's marginal tax rate is 33%.Wren's taxable income for 2012 is $400,000.

If the IRS reclassifies debt as equity under § 385,the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

A corporation can avoid the accumulated earnings tax by demonstrating that it has plans to distribute earnings at a later date.

Melinda's basis for her partnership interest is $250,000.If she receives a cash distribution of $290,000,her recognized gain is $40,000 and her basis for her partnership interest is reduced to $0.Melinda is still a partner after the distribution.

With respect to special allocations,is the S corporation treated more like a partnership or a C corporation?

Which of the following statements is correct?

In its first year of operations,a corporation projects losses of $125,000.Since losses are involved,the corporation definitely should elect S corporation status.

An effective way for all C corporations to avoid double taxation is not to make dividend distributions.

Which of the following business entity forms are subject to single taxation on the profits and which are subject to double taxation?

Nontax factors are less important than tax factors in making a business decision.

Malcomb and Sandra (shareholders)each loan Crow Corporation $50,000 at the market rate of 6% interest.Which of the following statements are false?

Barb and Chuck each have a 50% ownership in Wren Partnership.Each partner has a partnership interest basis of $175,000.Wren's taxable income for the current year is $100,000,and it distributes $75,000 to each partner.Barb's basis in the partnership interest at the end of the year is:

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, operation, and Basis

Partnerships: Distributions, transfer of Interests, and Terminations

S: Corporations

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters