Exam 14: Choice of Business Entity-Operations and Distributions

At the beginning of the current year, Harrison's adjusted basis in FLM Partnership is $50,000. During the year, Harrison receives a cash distribution of $25,000. How much income must Harrison recognize because of the cash received?

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?

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. ​

Advantages of hiring one's own children to work in her/his business enterprise include which of the following? I.The corporation can deduct wages paid to the children for work performed. II.The corporation is required to pay Social Security taxes on the children's earnings. ​

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?

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

Generally, regular corporations are not subject to the passive activity rules.

Posey Corporation distributes land with a fair market value of $20,000 and a basis of $12,000 to Brock, a shareholder. Posey's earnings and profits are $125,000. What must Brock report as income from the property distribution?

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. ​

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

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

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?

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. ​

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? Malcolm Blithe A) $\$-0- \quad \$-0-$ B) $\$(2,000) \quad \$(5,000)$ C) $\$(7,000) \quad \$-0-$ D) $\$(7,000) \quad \$(5,000)$ ?

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

The Serenity Corporation distributes $200,000 in cash to its shareholder during 2018. Accumulated earnings and profits are $80,000 as of January 1, 2018. Current earnings and profits for 2018 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?

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?

Laurie and Lodi are the owners of a toothbrush manufacturing corporation. Laurie owns 60% of the stock of DENT-LL's Corporation and Lodi owns 40%. During the current year, the toothbrush corporation has operating income of $15,000, interest income of $22,000 from investments, and losses from investments in limited partnerships of $24,000. The corporation pays $14,000 in dividends. What is DENT-LL's taxable income for the current year?

Sensor Corporation was formed and began operations in 2016. For that year, it had operating income of $50,000, long-term capital gains of $25,000 and short-term capital losses of $10,000. In 2017, the corporation had $5,000 of net long-term capital losses, and in 2018 the corporation had $20,000 of net long-term capital losses. How much capital loss is available to carry forward to 2019?

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?