Exam 14: Choice of Business Entity-Operations and Distributions

Martin and Joe are equal partners in Ferrell Company. For the current year, Ferrell Company reports the following items of income and expense: ? Sales revenues \ 500,000 Long-term capital gains 14,000 Short-term capital losses (10,000) Trade and business expenses (200,000) Limited partnership loss (50,000) Taxable income \ 254,000 In addition to his Ferrell Company earnings, Martin has dividend income of $25,000 and a $10,000 loss from the sale of land held as an investment for 3 years. Martin's adjusted gross income is:

Anna owns 20% of Cross Co., an electing S corporation. Anna's adjusted basis in the stock is $32,000 at the beginning of the current year. During the current year, Cross pays a $50,000 cash dividend to its shareholders. Cross Co. reports a $200,000 operating loss for the current year. Which of the following statements is/are correct? I.If Anna is a material participant in Chris Co., she can deduct a $40,000 loss. II.Anna's maximum loss deduction is limited to $22,000. ​

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

Jane receives a nonliquidating distribution of land with a fair market value of $30,000 and a basis of $18,000 from Strickland Corporation, an S corporation. Jane's basis in the stock is $46,000. What must Jane and Strickland report as income from the property distribution? Jane Strickland A) $\$-0- \quad \$-0-$ B) $\$ 12,000 \quad \$-0-$ C) $\$-0-\quad \$ 12,000$ D) $\$ 12,000 \quad \$ 12,000$

On a nonliquidating distribution of cash from a partnership, the partner will recognize gain if I.the cash distributed exceeds his/her basis in the partnership. II.the cash distributed exceeds his/her share of the net income of the partnership for the year. ​

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

Hammond Inc., sells a building that it purchased in 2001 for $1,500,000. The building cost $1,000,000 and had an adjusted basis of $700,000 at the date of the sale. I.Hammond has an $800,000 Section 1231 gain on the sale. II.Hammond must report $300,000 of Unrecaptured Section 1250 gain. ​

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?

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?

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

Irvin's adjusted basis in the Gamma Partnership is zero at the beginning of the current year. He has a $15,000 suspended loss from the previous year. During the current year, Gamma's operating income is $30,000. Arvin is a 40% partner, and he receives a distribution of $10,000 cash this year. If Arvin materially participates in Gamma's operations, how much of the suspended loss can he deduct?

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?

Chance Corporation has a $20,000 deficit in earnings and profits as of January 1, 2018. During 2018, 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?

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

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

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

Which of the following items are included in the computation of the sole proprietorship's taxable income? I.Charitable contributions. II.Section 1231 gains and losses. III.Investment income and expenses. ​

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?

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

Craig Corporation realizes $150,000 from sales during the current year. Craig also receives $20,000 of dividends from a 3% owned corporation. Operating expenses totals $155,000. Craig's dividends-received deduction is