Question 1

Match the term with the entity to which it applies.
-Losses flow-through limited to basis plus the amount of any direct loans

Accepted Answer

A) Sole Proprietorship. 
B) Partnership. 
C) Corporation. 
D) S Corporation. 
A) Sole Proprietorship. 
B) Partnership. 
C) Corporation. 
D) S Corporation.

Question 2

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.
​

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 3

Match the term with the entity to which it applies.
-Double taxation

Accepted Answer

A) Sole Proprietorship. 
B) Partnership. 
C) Corporation. 
D) S Corporation. 
A) Sole Proprietorship. 
B) Partnership. 
C) Corporation. 
D) S Corporation.

Question 4

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

Accepted Answer

A) $- 0 - 
B) $10,000 
C) $25,000 
D) $30,000 
E) $50,000 
A) $- 0 - 
B) $10,000 
C) $25,000 
D) $30,000 
E) $50,000

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Cornell and Joe are equal partners in Jones Company. For the current year, Jones reports the following items of income and expense:
?
$$\begin{array} { l r } 
\text { Sales revenues } & \$ 500,000 \
\text { Long-term capital gains } & 14,000 \
\text { Short-term capital losses } & ( 30,000 ) \
\text { Trade and business expenses } & ( 200,000 ) \
\text { Limited partnership loss } & ( 50,000 ) \
\text { Taxable income } & \$ 234,000
\end{array}$$
In addition to his Jones earnings, Joe has other net taxable income of $45,000. Included in the $45,000 is $10,000 in income from a passive activity. Joe's income is:

Accepted Answer

A) $152,000 
B) $157,000 
C) $162,000 
D) $167,000 
E) $182,000 
A) $152,000 
B) $157,000 
C) $162,000 
D) $167,000 
E) $182,000

Question 7

Harrison Corporation sells a building for $330,000 in the current year. Harrison purchased the building in 2008 for $250,000 and had taken $20,000 in depreciation on the building up to the date of its sale. How should Harrison report the gain on the sale of the building?

Accepted Answer

A) Section 1231 gain of $100,000. 
B) Ordinary income of $100,000. 
C) Section 1231 gain of $80,000 and ordinary income of $20,000. 
D) Section 1231 gain of $96,000 and ordinary income of $4,000. 
E) Ordinary income of $96,000 and Section 1231 gain of $4,000. 
A) Section 1231 gain of $100,000. 
B) Ordinary income of $100,000. 
C) Section 1231 gain of $80,000 and ordinary income of $20,000. 
D) Section 1231 gain of $96,000 and ordinary income of $4,000. 
E) Ordinary income of $96,000 and Section 1231 gain of $4,000.

Question 8

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?

Accepted Answer

A) $- 0 - 
B) $ 30,000 
C) $ 70,000 
D) $160,000 
E) $200,000 
A) $- 0 - 
B) $ 30,000 
C) $ 70,000 
D) $160,000 
E) $200,000

Question 9

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?

Accepted Answer

A) $- 0 - 
B) $18,000 
C) $22,000 
D) $40,000 
A) $- 0 - 
B) $18,000 
C) $22,000 
D) $40,000

Question 10

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

Accepted Answer

A) $200,000 
B) $220,000 
C) $230,000 
D) $240,000 
E) $242,000 
A) $200,000 
B) $220,000 
C) $230,000 
D) $240,000 
E) $242,000

Question 11

Ed's adjusted basis in his partnership interest at the beginning of the tax year is $35,000. The partnership has operating income of $20,000 for the current year. Ed is a 50% partner, and he receives a current distribution of $40,000 cash this year. What is (are) the tax effect of these events?
I.Ed recognizes $10,000 of ordinary income from the partnership for the year.
II.Ed recognizes $40,000 of ordinary income due to the distribution.
III.Ed's adjusted basis in his partnership interest at the close of the tax year is zero.
​

Accepted Answer

A) Statements II and III are correct. 
B) Only statement I is correct. 
C) Statements I, II, and III are correct. 
D) Only statement III is correct. 
E) Statements I and III are correct. 
A) Statements II and III are correct. 
B) Only statement I is correct. 
C) Statements I, II, and III are correct. 
D) Only statement III is correct. 
E) Statements I and III are correct.

Question 12

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:

Accepted Answer

A) $5,000 
B) $7,000 
C) $9,000 
D) $10,000 
E) $12,000 
A) $5,000 
B) $7,000 
C) $9,000 
D) $10,000 
E) $12,000

Question 13

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.

Accepted Answer

A) True 
 B)False

Match the term with the entity to which it applies. -Losses flow-through limited to basis plus the amount of any direct loans

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.

Match the term with the entity to which it applies. -Double taxation

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

Harrison Corporation sells a building for $330,000 in the current year. Harrison purchased the building in 2008 for $250,000 and had taken $20,000 in depreciation on the building up to the date of its sale. How should Harrison report the gain on the sale of the building?

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?

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.

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

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Other Considerations

Tax Research

Filters

Exam 14: Choice of Business Entity-Operations and Distributions

Match the term with the entity to which it applies. -Losses flow-through limited to basis plus the amount of any direct loans

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. ​

Match the term with the entity to which it applies. -Double taxation

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

Harrison Corporation sells a building for $330,000 in the current year. Harrison purchased the building in 2008 for $250,000 and had taken $20,000 in depreciation on the building up to the date of its sale. How should Harrison report the gain on the sale of the building?

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?

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.

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

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Other Considerations

Tax Research

Filters

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.