Exam 14: Choice of Business Entity - Operations and Distributions

Hawkins Corporation has $50,000 of taxable income before special deductions.Taxable income includes an operating loss carryforward of $10,000 and $60,000 of dividend income received from other corporations in which Hawkins owns less than a 20% interest.What is Hawkins' taxable income?

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

Marian owns 40% of Addison Company,a partnership.Marian's adjusted basis in the partnership is $32,000 at the beginning of the year.During the current year,Marian receives a $10,000 cash distribution from the partnership.Addison Company reports a $100,000 operating loss for the current year.If Marian is not a material participant in Addison Company and has no other passive activities,how much of the partnership loss can she deduct on her income tax return?

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.

Lane Inc.,an electing S corporation,realizes $150,000 from sales during the current year.Lane also receives $20,000 of dividends from a 3% owned corporation.Operating expenses total $155,000.Lane's operating income is

Match the term with the entity to which it applies. -Not a separate entity

During the current year,Hope Corporation has the following items of income and expense: Sales \ 420,000 Expenses from operations 470,000 Dividends received 100,000 Hope owns 10% of the domestic corporation that distributed the dividends to Hope.Determine Hope Corporation's net operating loss for the current year.

Match the term with the entity to which it applies. -Owner basis adjusted for liabilities

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: Inventory \ 20,000 \ 20,000 Building 60,000 105,000 Land 20,000 35,000 Equipment -0- 30,000 Goodwill Total Assets 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?

Calvin Corporation,has the following items of income and expense for the current year.Calculate (a)Calvin's taxable income and (b)income tax liability. Sales revenue \ 500,000 Cost of goods sold Gross profit \ 140,000 Other revenue: Dividends (less than 2 \% owner ship) \ 5,000 Interest received from municipal bonds 30,000 Expenses: Utilities \ 25,000 Insurance 15,000 Meals and entertainment 60,000 Charitable contributions 10,000 Net operating loss (from the previous year) \ 60,000

Howard is a partner in the Smithton Partnership with a basis of $20,000.During the current year,the partnership is liquidated and the partnership distributes cash of $22,000 and property with a basis of $8,000 and a fair market value of $15,000 to each partner.What amount must Howard report as a gain from the liquidation?

During the current year,Swallowtail Corporation receives dividend income of $40,000 from a 15%-owned domestic corporation.What is Swallowtail's maximum allowable dividend-received deduction for the current year?

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

Match the term with the entity to which it applies. -Separate entity that never pays income taxes

Malcolm receives a liquidating distribution of land with a fair market value of $14,000 and a basis of $19,000 from Blithe Corporation,an S corporation.Malcolm's basis in the stock is $21,000.What must Malcolm and Blithe report as income (loss)from the property distribution? $\quad$ Malcolm $\quad$ Blithe a. $\$ 0 -$$\quad$$\quad$ $\$ 0 -$ b. $\$ ( 2,000 ) \quad \$ ( 5,000 )$ c. $\$ ( 7,000 ) \quad \$ - 0 -$ d. $\$ ( 7,000 ) \quad \$ ( 5,000 )$

During the current year,Metcalf Corporation has the following items of income and expense: Sales \ 450,000 Cost of goods sold 320,000 Dividends received 20,000 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.

Micaela owns all the shares of the Madison Corporation that operates as an S corporation.Micaela's basis in the stock is $40,000.During the year she receives a cash distribution of $10,000 from Madison.What must Micaela and Madison report as income from the cash distribution? $\quad$ Micaela $\quad$ Madison a. $\$ - 0 - \quad \$ - 0 -$ b. $\$ 10,000 \quad \$ - 0 -$ c. $\$ - 0 - \quad \$ 10,000$ d. $\$ 10,000 \quad \$ 10,000$

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.

Fender Corporation makes a cash distribution of $40,000 to Gibson in complete liquidation of the corporation.Gibson's basis in Fender stock is $18,000.What must Gibson report as income from the cash distribution?

The Polaris S Corporation has operating income of $50,000.Andrew is the sole shareholder of the corporation that has had the S election in effect since its inception.At the beginning of the current year,Andrew's basis in his S corporation stock is $2,000.During the year Andrew receives cash distributions totaling $55,000.How much income must Andrew recognize for the current tax year?