Question 1

Passive activity loss limitation rules do not apply to
I.Publicly-held corporations.
II.Personal service corporations.

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 2

Joline operates Adventure Tours as a sole proprietorship.For the year,Adventure Tours has the following income and expense items:
$\begin{array}{lr}
 \text {Sales revenues } &\$ 325,000 \
 \text { Short-term capital gains } &5,000 \
 \text { Short-term capital losses } &(9,000) \
 \text { Trade and business expenses } &\underline {(185,000)} \
 \text { Taxable income } &\$ 136,000
\end{array}$
If Joline has other income of $6,000,what is her adjusted gross income?

Accepted Answer

A) $141,000 
B) $142,000 
C) $143,000 
D) $146,000 
A) $141,000 
B) $142,000 
C) $143,000 
D) $146,000

Question 3

Since Wisher,Inc.owns 80% of Patriot,Inc.(a U.S.corporation)the dividend received deduction rate is 100%.

Accepted Answer

A) True 
 B)False

Question 4

The Serenity Corporation distributes $200,000 in cash to its shareholder during 2013.Accumulated earnings and profits are $80,000 as of January 1,2013.Current earnings and profits for 2013 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?

Accepted Answer

A) Jonas will recognize ordinary income of $164,000 and a capital gain of $36,000. 
B) Jonas will recognize ordinary income of $84,000, capital gain of $80,000 and a tax-free recovery of capital of $36,000. 
C) Jonas will recognize ordinary income of $164,000 and a tax-free return of capital of $36,000. 
D) Jonas will recognize ordinary income of $164,000 and a capital loss of $12,000. 
E) Jonas will recognize ordinary income of $200,000 and a capital loss of $12,000. 
A) Jonas will recognize ordinary income of $164,000 and a capital gain of $36,000. 
B) Jonas will recognize ordinary income of $84,000, capital gain of $80,000 and a tax-free recovery of capital of $36,000. 
C) Jonas will recognize ordinary income of $164,000 and a tax-free return of capital of $36,000. 
D) Jonas will recognize ordinary income of $164,000 and a capital loss of $12,000. 
E) Jonas will recognize ordinary income of $200,000 and a capital loss of $12,000.

Question 5

Bronco Corporation realizes $270,000 from sales during the current year.Bronco also receives $20,000 of dividends from a 2% owned corporation.Operating expenses totals $275,000.Bronco's taxable income is

Accepted Answer

A) $(19,000) 
B) $ (5,000) 
C) $ 1,000 
D) $ 4,500 
E) $ 15,000 
A) $(19,000) 
B) $ (5,000) 
C) $ 1,000 
D) $ 4,500 
E) $ 15,000

Question 6

Sales of property between a partner who owns more than 50% of a partnership's interest and the partnership are subject to the related party rules.

Accepted Answer

A) True 
 B)False

Question 7

Withdrawals of cash by a partner are taxable.

Accepted Answer

A) True 
 B)False

Question 8

The amount of the dividend on a nonliquidating corporate distribution of property is the fair falue of the property.

Accepted Answer

A) True 
 B)False

Question 9

Rona owns 3% of Theta Corporation and has a basis of $500 in her stock.During the year,Theta distributes a $40,000 taxable dividend and a $30,000 nontaxable dividend.As a result of the dividend,Rona has

Accepted Answer

A) $1,200 of dividend income and a $400 capital gain. 
B) $ 300 of dividend income. 
C) $1,200 of dividend income and a $900 tax free return of capital. 
D) $1,200 of dividend income and no capital gain. 
E) $ 500 capital gain. 
A) $1,200 of dividend income and a $400 capital gain. 
B) $ 300 of dividend income. 
C) $1,200 of dividend income and a $900 tax free return of capital. 
D) $1,200 of dividend income and no capital gain. 
E) $ 500 capital gain.

Question 10

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

Accepted Answer

One basic tax-planning strategy involves

Question 11

During the current year,Campbell Corporation receives dividend income of $40,000 from a 5%-owned domestic corporation.What is Campbell's maximum allowable dividend-received deduction for the current year?

Accepted Answer

A) $ - 0 - 
B) $28,000 
C) $32,000 
D) $36,000 
E) $40,000 
A) $ - 0 - 
B) $28,000 
C) $32,000 
D) $36,000 
E) $40,000

Question 12

Roy receives a nonliquidating distribution from Ageless Corporation.Which of the following statements concerning nonliquidating distributions from a corporation are correct?
I.A nonliquidating cash distribution is taxable if the distribution comes from the corporation's current or accumulated earnings and profits.
II.The amount of the dividend on a nonliquidating distribution of property is the basis of the property distributed.

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 13

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?

Accepted Answer

A) $ -0- 
B) $18,000 
C) $26,000 
D) $44,000 
E) $60,000 
A) $ -0- 
B) $18,000 
C) $26,000 
D) $44,000 
E) $60,000

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Henritta is the sole shareholder of Quaker Corporation.Quaker's income from operations for the current year is $600,000.Included in the $600,000 amount are dividends of $10,000 from the stock of a 4%-owned corporation.Also included in the $600,000 is a $4,000 long-term loss realized on the sale of a stock investment in an unaffiliated corporation.To compute taxable income for the current year,Henritta should deduct a capital loss of

Accepted Answer

A) $ - 0 - 
B) $4,000 
C) $3,000 
D) $2,000 
E) $1,000 
A) $ - 0 - 
B) $4,000 
C) $3,000 
D) $2,000 
E) $1,000

Question 16

When a partner receives a cash distribution from a partnership,the distribution is never taxable even if the amount of cash received is greater than the partner's basis in the partnership.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

A) $13,000 
B) $17,000 
C) $26,000 
D) $34,000 
A) $13,000 
B) $17,000 
C) $26,000 
D) $34,000

Question 18

Carlota owns 4% of Express Corporation and has a basis of $5,000 in her stock.During the year,Express distributes a $300,000 dividend.As a result of the dividend,Carlota has

Accepted Answer

A) $12,000 of dividend income. 
B) $ 5,000 of dividend income and $7,000 of capital gain. 
C) $ 7,000 of dividend income and a $5,000 tax-free return of capital. 
D) $ 5,000 of dividend income, $5,000 tax-free return of capital, and a $2,000 capital gain. 
E) $ 7,000 capital gain. 
A) $12,000 of dividend income. 
B) $ 5,000 of dividend income and $7,000 of capital gain. 
C) $ 7,000 of dividend income and a $5,000 tax-free return of capital. 
D) $ 5,000 of dividend income, $5,000 tax-free return of capital, and a $2,000 capital gain. 
E) $ 7,000 capital gain.

Question 19

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.

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 20

When a corporation pays a dividend,it is nontaxable if it is in excess of earnings and profits.

Accepted Answer

A) True 
 B)False

Passive activity loss limitation rules do not apply to I.Publicly-held corporations. II.Personal service corporations.

Since Wisher,Inc.owns 80% of Patriot,Inc.(a U.S.corporation)the dividend received deduction rate is 100%.

Bronco Corporation realizes $270,000 from sales during the current year.Bronco also receives $20,000 of dividends from a 2% owned corporation.Operating expenses totals $275,000.Bronco's taxable income is

Sales of property between a partner who owns more than 50% of a partnership's interest and the partnership are subject to the related party rules.

Withdrawals of cash by a partner are taxable.

The amount of the dividend on a nonliquidating corporate distribution of property is the fair falue of the property.

Rona owns 3% of Theta Corporation and has a basis of $500 in her stock.During the year,Theta distributes a $40,000 taxable dividend and a $30,000 nontaxable dividend.As a result of the dividend,Rona has

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

During the current year,Campbell Corporation receives dividend income of $40,000 from a 5%-owned domestic corporation.What is Campbell's maximum allowable dividend-received deduction for the current year?

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

When a partner receives a cash distribution from a partnership,the distribution is never taxable even if the amount of cash received is greater than the partner's basis in the partnership.

Carlota owns 4% of Express Corporation and has a basis of $5,000 in her stock.During the year,Express distributes a $300,000 dividend.As a result of the dividend,Carlota has

When a corporation pays a dividend,it is nontaxable if it is in excess of earnings and profits.

Federal Income Taxation - an Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Losses: Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Nonrecognition Transactions

Choice of Business Entity - General Tax and Nontax Factorsformation

Choice of Business Entity - Other Considerations

Tax Research

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Exam 14: Choice of Business Entity - Operations and Distributions

Passive activity loss limitation rules do not apply to I.Publicly-held corporations. II.Personal service corporations.

Since Wisher,Inc.owns 80% of Patriot,Inc.(a U.S.corporation)the dividend received deduction rate is 100%.

Bronco Corporation realizes $270,000 from sales during the current year.Bronco also receives $20,000 of dividends from a 2% owned corporation.Operating expenses totals $275,000.Bronco's taxable income is

Sales of property between a partner who owns more than 50% of a partnership's interest and the partnership are subject to the related party rules.

Withdrawals of cash by a partner are taxable.

The amount of the dividend on a nonliquidating corporate distribution of property is the fair falue of the property.

Rona owns 3% of Theta Corporation and has a basis of $500 in her stock.During the year,Theta distributes a $40,000 taxable dividend and a $30,000 nontaxable dividend.As a result of the dividend,Rona has

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

During the current year,Campbell Corporation receives dividend income of $40,000 from a 5%-owned domestic corporation.What is Campbell's maximum allowable dividend-received deduction for the current year?

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

When a partner receives a cash distribution from a partnership,the distribution is never taxable even if the amount of cash received is greater than the partner's basis in the partnership.

Carlota owns 4% of Express Corporation and has a basis of $5,000 in her stock.During the year,Express distributes a $300,000 dividend.As a result of the dividend,Carlota has

When a corporation pays a dividend,it is nontaxable if it is in excess of earnings and profits.

Federal Income Taxation - an Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Losses: Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Nonrecognition Transactions

Choice of Business Entity - General Tax and Nontax Factorsformation

Choice of Business Entity - Other Considerations

Tax Research

Filters