Exam 14: Choice of Business Entity - Operations and Distributions

Peter owns 30% of Bear Company,an electing S corporation.Peter's adjusted basis in the stock is $44,000 at the beginning of the current year.During the current year,Bear distributes a $60,000 dividend.Bear Company reports a $200,000 operating loss for the current year.If Peter is a material participant in Bear Company,how much of the loss can he deduct on his income tax return?

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.

Higlo Paints is a partnership that reports an operating income of $50,000 in the current year.Higlo also has a $20,000 Section 1231 gain from the sale of a building and $10,000 in nondeductible expenses.Bernice owns 20% of Higlo and withdraws $5,000 from the partnership during the current year.Bernice's basis will increase by:

Match the term with the entity to which it applies. -Dividends-received deduction

A corporation may reduce trade or business income by a charitable contributions made by the corporation,but the deduction is limited to 10% of taxable income,as adjusted..

Roger owns 25% of Silver Trucking,a partnership.During the current year,Roger sells a truck with an adjusted basis of $25,000 to Silver for $18,000. I.Silver's basis in the truck is $25,000. II.Roger can deduct the $7,000 loss on the sale of the truck.

A partner's basis is increased by the amount of deductible loss that flows through from the partnership.

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

The Gilpin Partnership has an operating loss of $400,000 for the current year.Hawkins is a general partner and owns a 40% interest in the partnership.At the beginning of the year,Hawkins' adjusted basis in the partnership interest is $30,000.During the year the partnership borrows $120,000 with a recourse note.How much of the partnership loss can Hawkins deduct on his current-year income tax return?

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?

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

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.

Chance Corporation has a $20,000 deficit in earnings and profits as of January 1,2013.During 2013,the corporation has current earnings and profits of $40,000 and makes a $70,000 cash distribution to its shareholders.What part of the distribution is taxable as dividend income to Chance's shareholders?

Virginia is the sole shareholder in Barnes Inc.,an electing S corporation.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 Virginia's taxable income from Barnes for the current year?

Regarding a partnership,which of the following statements is/are always correct? I.If a partnership is an active trade or business and it has a $65,000 loss from its business operations that is passed-through as an active loss to its partners,each active partner can deduct his full share of loss for the year to the extent they have basis that is at-risk. II.Salaries and bonuses paid to partner-employees (other than guaranteed payments)are a deductible business expense.

Salem Inc.is an electing S corporation with current year operating income of $300,000.The $300,000 does not include the amount it realized on the sale of a building for $330,000.The building was purchased in 2004 for $250,000 and $20,000 in straight-line depreciation had been taken on the building up to the date of its sale.How should Salem Inc.report these results to its shareholders?

During the current year,Mars Corporation receives dividend income of $20,000 from an 85%-owned domestic corporation.What is Mars' maximum allowable dividend-received deduction for the current year?

Abaco Corp.has gross income of $230,000 and taxable income of $50,000.The company did not include any special deductions in the calculation of taxable income.While reviewing the tax return,Abaco's accountant finds $20,000 of charitable contributions improperly classified as advertising and promotion expense.He sends the return back to the tax department for correction.What is Abaco's corrected taxable income?