Deck 13: Choice of Business Entity-General Tax and Nontax Factorsformation

Question 1

There must be at least one member of a Limited Liability Company who is personally liable for the debts of the business.

Answer 1

False

Question 2

S corporation status is attained when a qualifying corporation elects this status.

Answer 2

True

Question 3

A sole proprietor
I)Can be an employee of the business.
II)Has limited liability for the debts of the business.
​

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

Answer 3

D

Question 4

Start-up and organizational costs can be expensed or capitalized and amortized over 60 months based on the election of the taxpayer.

Question 5

General partners
I)Are liable for all debts of the partnership.
II)Are taxed on distributions received from the partnership.
​

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

Question 6

Partnership debts assumed by a partner is deemed to be a cash contribution and increases the partner's basis in the partnership.

Question 7

Owners of a specified service business can take the Qualified Business Income deduction only if their income is below certain levels.

Question 8

Sole proprietors are allowed to deduct owner-employee salaries and fringe benefits.

Question 9

The shareholder of an S corporation can reduce income taxes by passing income to the owner-employee as a dividend rather than paying salary.

Question 10

Limited liability refers to

A)whether the entity ceases to exist with a change in ownership.
B)who manages the entity.
C)whether the owners are risking any more than they invested in the firm.
D)the ease with which ownership can be transferred.

Question 11

As a limited partner in Technonics, Ltd., Dave is allowed to participate in the management of the business.

Question 12

Corporations generally are required to use the accrual method of accounting.

Question 13

A guaranteed payment is a payment made to a partner for specific services performed by the partner and is made without regard to the partnership's income.

Question 14

Partners have extensive flexibility in choosing their tax year-end for their partnership.

Question 15

Continuity of life refers to whether an entity continues to operate or technically dissolves and ceases to exist in its present form when a change occurs in the ownership structure.

Question 16

A limited partner
I)Can lose any or all of their investment in the partnership.
II)Can participate in the management of the partnership.
​

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

Question 17

Once a corporation is formed, an exchange of the corporation's stock for property is always a nontaxable event.

Question 18

Corporations can use a 52- to 53-week fiscal year end, but the year must end on Saturday each year.

Question 19

Paris is a CPA and a partner in a small firm. To limit her liability from the negligence or misconduct of her partners, they can form the firm as a Limited Liability Partnership.

Question 20

Nontax characteristics that should be considered in choosing an entity form include which of the following?
I)Number of owners.
II)Limited liability for owners.
III)Ability to participate in management.
IV)Transferability of ownership interests.
​

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

Question 21

Danube Corporation operates a theatrical costume shop. Taxable income for the current year is $1,000,000. What is Danube's income tax liability?

A)$- 0 -
B)$210,000
C)$370,000
D)$390,000

Question 22

Which of the following facts would prevent an S Corporation election?
I)Magnificent Corporation has 125 shareholders.
II)Simms Corporation, incorporated in Kansas, has only one class of common stock issued and outstanding.
​

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

Question 23

Rockhill Corporation operates a women's clothing boutique. Taxable income for the current year is $60,000. What is Rockhill's income tax liability?

A)$- 0 -
B)$6,000
C)$9,000
D)$12,600
E)$15,000

Question 24

Claudia owns 10% of the stock of Fitness Design Corporation, an S corporation. She is also its controller. Fitness Design reports taxable income of $70,000 and pays $60,000 in dividends to shareholders before considering Claudia's salary. Claudia receives a $75,000 salary. What is Claudia's income from Fitness Design?

A)$6,000
B)$74,500
C)$75,000
D)$81,000
E)$82,000

Question 25

Assume a corporation's status as an S corporation is revoked or terminated. How many years must the corporation wait before making a new S corporation election, in absence of IRS consent to an earlier election?

A)1
B)3
C)5
D)7
E)A new election is not permitted.

Question 26

Which of the following will render a corporation ineligible for S corporation status?
I)The corporation has 95 stockholders.
II)One of the stockholders is a citizen- resident of Canada.
​

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

Question 27

Which of the following will render a corporation ineligible for S corporation status?
I)The corporation has 125 stockholders.
II)One of the stockholders is another corporation.
​

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

Question 28

Western Corporation began operations in 1999. Its fiscal year end is October 31. This date coincides with its natural business year. On June 2, 2018, Western elects S corporation status. All of the corporate shareholders consented to the election. The earliest date the corporation is recognized as an S corporation is

A)November 1, 2019.
B)January 1, 2018.
C)June 2, 2018.
D)November 1, 2018.
E)December 31, 2018.

Question 29

Tax characteristics of corporations include which of the following?
I)At higher income levels, the lower tax rates phase out by the use of a surtax.
II)The corporate tax rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%.
​

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

Question 30

Which of the following characteristics distinguish a corporation from other forms of businesses?
I)Centralization of management
II)Continuity of life
III)Free transferability of ownership interests
IV)Limited liability
V)Profit motive
​

A)All are distinguishing characteristics.
B)Statements I, II, III and IV are correct.
C)Only statement III is correct.
D)Statements IV and V are correct.
E)Statements I, II, IV, and V are correct.

Question 31

Carmen owns 10% of the stock of Fitness Design Corporation, and is its manager. Fitness Design reports taxable income of $70,000 and pays $60,000 in dividends to shareholders before considering payments to Carmen. Carmen receives a $50,000 salary. What is Carmen's income from Fitness Design?

A)$6,000
B)$7,000
C)$50,000
D)$56,000
E)$57,000

Question 32

Which of the following entities directly bear the burden of income taxes?
I)Limited Liability Company
II)Corporations
III)Partnerships
​

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

Question 33

Santana Corporation operates a golf shop. It properly elected Subchapter S status on March 1 of the current year. Taxable income for the current year is $120,000. What is Santana Corporation's income tax liability?

A)$- 0 -
B)$3,000
C)$18,000
D)$25,200
E)$40,800

Question 34

Which of the following is/are correct with respect to limited liability companies (LLCs)?
I)An advantage of an LLC when compared to a regular corporation is the ability to pass through tax attributes to owners.
II)A disadvantage of a general partnership when compared with an LLC is the inability of owners to have limited liability.
​

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

Question 35

Ricardo is the marketing manager and owns a 40% interest in the Fielder Partnership. Fielder's taxable income before considering payments to partners is $80,000. Ricardo withdraws $40,000 for his personal living expenses. How much income must Ricardo report from Fielder?

A)$32,000
B)$40,000
C)$56,000
D)$72,000

Question 36

A partner in a limited liability partnership (LLP)
I)Has no liability for acts of malfeasance of any of the other partners.
II)Has no liability for the debts of the partnership.
​

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

Question 37

Limited liability refers to an owner's liability for which of the following?
I)The amount invested in the entity.
II)The liabilities of the corporation that the owner has personally guaranteed.
III)All of the outstanding liabilities of the corporation.
IV)Only for the corporation's loans from financial institutions
​

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

Question 38

Marty owns 30% of the stock of Myron Corporation. Myron reports taxable income of $100,000 and pays $80,000 in dividends to shareholders. What is Marty's income from Myron Corporation?

A)$-0-
B)$24,000
C)$30,000
D)$54,000
E)$80,000

Question 39

Certain taxpayers are eligible for a deduction for Qualified Business Income (QBI). Which of the following taxpayers are eligible for the QBI deduction?
I)A single taxpayer with taxable income of $100,000 who owns 100% of the stock of a regular corporation that manufactures rustic furniture.
II)A single taxpayer with taxable income of $250,000 who is a 50% partner in an accounting firm.
III)A single taxpayer with taxable income of $100,000 that operates an accounting business as a sole proprietorship.
IV)A single taxpayer with taxable income of $125,000 who owns 100% of the stock of an S Corporation that produces oak tables.
​

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

Question 40

Julian and Tanya each contribute $50,000 cash to form the M&T Partnership on January 4, 2018. Julian and Tanya share profits and losses in the ratio of 60% and 40%, respectively. During 2018, the partnership generates ordinary income of $80,000. A cash distribution of $5,000 is made to Julian in December 2018. How much income must Julian recognize from the partnership in 2018?

A)$5,000
B)$32,000
C)$45,000
D)$48,000
E)$53,000

Question 41

Moses is a 20% partner in an auto parts store where he works full-time. His share of the partnership income is $70,000, which is also his net-self-employment income.
I)Moses must pay self-employment tax at the rate of 15.3% on 92.35% of the partnership income.
II)Moses is allowed a deduction for AGI for 50% of the self-employment tax he pays during the year.
​

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

Question 42

Leonor is the financial vice-president and owns 60% of Ruston Co. Ruston is an S corporation and reports taxable income of $200,000, before Leonor's salary. Leonor receives a $50,000 salary. What is Leonor's income from Ruston?

A)$50,000
B)$120,000
C)$140,000
D)$170,000

Question 43

Susan is a single taxpayer who is a 50% partner in a law firm. During the current tax year, the law firm has income of $200,000 that is effectively connected to the operation of the law firm. Susan has interest and dividends from her investment portfolio of $25,000. What is her Qualified Business Income (QBI) deduction for the current year?

A)$ 0
B)$20,000
C)$25,000
D)$40,000

Question 44

The Brooks Corporation, an S corporation, has a company health-care plan for all employees. Lars, an employee, owns 20% of the corporate stock. Dorothy, also an employee, owns 1%. The cost to the company of Lars' health plan is $2,800 and Dorothy's is $3,000. What amount of the health plan must Lars and Dorothy report as income?
?
$\begin{array}{llcc} &\text {Lars } & \text { Dorothy} \\\end{array}$

A) $\$-0-\quad \$-0-$
B) $\$ - 0 - \quad\$ 200$
C) $\$ 2,800\quad \$ 200$
D) $\$ 2,800 \quad\$ - 0-$
E) $\$ 2,800\quad \$ 3,000$

Question 45

June is a 20% owner-employee in the Woodbourne Corporation, an S corporation. She is not paid a salary and her share of the corporation's income is $57,000.
I)June must pay self-employment tax at the rate of 15.3% on her share of the S corporation's income.
II)June must pay Social Security at a rate of 7.65% on her share of the S corporation income.
​

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

Question 46

Jack owns a 50% interest in the Westhaven Partnership. Jack receives a distribution of $100,000 from Westhaven and is provided with medical insurance and a $50,000 group-term life insurance policy that costs the company $4,000. Westhaven's taxable income before considering the payments to and on behalf of Jack is $180,000. How much income does Jack have from Westhaven?

A)$4,000
B)$90,000
C)$92,000
D)$94,000
E)$100,000

Question 47

Chase, Marty and Barry form a partnership. Barry will contribute a building worth $240,000 (adjusted basis of $110,000), inventory worth $55,000 (adjusted basis of $30,000) and $15,000 in cash for a 25% interest in the partnership. How much gain will Barry have to recognize from the exchange of his property for the partnership interest?

A)$-0-
B)$125,000 ordinary gain.
C)$130,000 long-term capital gain.
D)$5,000 ordinary gain.
E)$130,000 long-term capital gain and $5,000 ordinary loss.

Question 48

During 2018, Jimmy incorporates his data processing business. Jimmy is the sole shareholder. The following assets are transferred to the corporation:
$$\begin{array}{l}\begin{array} { l c } \text { Cash } & \$ 2,000 \\\text { Computer Equipment: } & \\\text { Fair market value } & 20,000 \\\text { Adjusted basis } & 12,000 \\\text { Original cost } & 24,000 \\\text { Furniture: } & \\\text { Fair market value } & 20,000 \\\text { Adjusted basis } & 32,000 \\\text { Original cost } & 64,000\end{array}\\\end{array}$$

$\text { What will be the basis of the assets to the corporation after the transfer? }$

$\begin{array} { c c c } \text { Computer Equipment } & \text { Furniture } \\\end{array}$

A) $\begin{array} { c c c } &&\$ 20,000 & &&&& \$ 20,000 \\\end{array}$
B) $\begin{array} { c c c } &&\$ 12,000 &&&& & \$ 20,000 \\\end{array}$
C) $\begin{array} { c c c } &&\$ 20,000 &&&&& \$ 32,000 \\\end{array}$
D) $\begin{array} { c c c }&& \$ 12,000 &&&&& \$ 32,000\end{array}$

Question 49

Gomer is admitted to the Mouton Partnership on July 1, 2018. Gomer contributes ABC common stock purchased in 1991 for $20,000 with a fair market value of $100,000 on July 1, 2018, for a 25% interest in the partnership. After Gomer's admission to the partnership, Mouton's net asset fair market value is $400,000. What is Gomer's taxable gain or income due to the exchange of ABC stock for the Mouton Partnership interest?

A)$- 0 -
B)$80,000 long-term capital gain.
C)$80,000 ordinary income.
D)$80,000 short-term capital loss.
E)$100,000 ordinary income.

Question 50

Pomeroy Corporation has a company health-care plan for all employees. Albert, an employee, owns 15% of the stock. Philip, also an employee, owns 1% of the stock. The cost to the company of Albert's health plan is $3,000 and Philip's is $2,100. What amount of the health plan must Albert and Philip report as income?
?
$\begin{array}{llcc} \text { Albert} & \text { Philip } \\\end{array}$

A) $\$-0-\quad \$-0-$
B) $\$ 3,000 \quad \$ 2,100$
C) $\$ 3,000 \quad \$ - 0$
D) $\$ - 0 - \quad \$ 2.100$

Question 51

During 2018, Jimmy incorporates his data processing business. Jimmy is the sole shareholder. The following assets are transferred to the corporation:
$$\begin{array} { lc } \text { Cash } & \$ 2,000 \\\text { Computer Equipment: } & \\\text { Fair market value } & 20,000 \\\text { Adjusted basis } & 12,000 \\\text { Original cost } & 24,000 \\\text { Furniture: } & \\\text { Fair market value } & 20,000 \\\text { Adjusted basis } & 32,000 \\\text { Original cost } & 64,000\end{array}$$
?
How much gain (loss) will Jimmy recognize from the transfer of the assets to the corporation?

A) $-0-
B) $(4,000)
C) $8,000
D) $20,000
E) $(12,000)

Question 52

Carlos is the contoller for Rooney Corporation. Carlos owns a 20% interest in Rooney. He receives a salary of $60,000 and fringe benefits costing $6,000. Rooney's taxable income before considering the payments to and on behalf of Carlos is $250,000. Rooney distributes a $50,000 dividend to its shareholders. How much income does Carlos have from Rooney?

A)$60,000
B)$70,000
C)$76,000
D)$96,800
E)$102,800

Question 53

Sergio and Chris agree to combine their sole proprietorships and form a corporation. Sergio will contribute cash of $20,000 and business property worth $120,000 (adjusted basis of $50,000) for a 25% interest. Chris will contribute cash of $200,000 and business property worth $220,000 (adjusted basis of $200,000) for a 75% interest. Which of the following statements concerning the tax treatment of Sergio and Chris's exchange of assets is/are correct?
I)Because neither owner owns more than 80% of the stock in the corporation, the transfers do not qualify for tax-free treatment.
II)Based on the wherewithal-to-pay concept, each owner is taxed on the cash they contributed to the corporation.
III)Sergio will recognize a $70,000 gain and Chris will recognize a $20,000 gain.
IV)No gain or loss is recognized on the exchange.
​

A)Only statement IV is correct.
B)Statements I and III are correct.
C)Only statement II is correct.
D)Only statement III is correct.
E)None of the statements are correct.

Question 54

Foster owns 27% of the Baxter Corporation, whose ordinary income is $100,000. His salary for the year is $50,000. What amount must Foster pay in Social Security taxes if Baxter is a(n)
?
$\begin{array} { c l } \text { Corporation } & \text { S Corporation } \\\end{array}$

A) $\begin{array} { c l } \$ - 0 - &&&& \$ 3,825 \\\end{array}$
B) $\begin{array} { c l } \$ 3,825 &&&& \$ - 0 - \\\end{array}$
C) $\begin{array} { c l } \$ 3,825 &&&& \$ 3,825 \\\end{array}$
D) $\begin{array} { c l } \$ 3,825 &&&& \$ 7,650 \\\end{array}$
E) $\begin{array} { c l } \$ 3,825 &&&& \$ 11,475\end{array}$

Question 55

Maria owns 30% of the stock of Marshmallow Inc., an electing S corporation. Marshmallow reports taxable income of $100,000 and pays $80,000 in dividends to shareholders. What is Maria's income from Marshmallow?

A)$-0-
B)$24,000
C)$30,000
D)$54,000
E)$80,000

Question 56

Bison Financial Group has a health-care plan for all employees. Dan, an employee, is single and owns 10% of Bison Financial. In 2018, the company paid $2,000 for Dan's health plan. Which of the following are correct statements?
I)If Bison Financial Group is an S corporation, Dan must report the $2,000 as income and can deduct the $2,000 as an itemized medical expense deduction.
II)If Bison Financial Group is a partnership, Dan must report the $2,000 as income and can deduct $2,000 as a deduction for AGI.​

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

Question 57

Carlotta is the director of golf for Birck Enterprises, an electing S corporation. Carlotta owns a 20% interest in Birck. She receives a salary of $60,000 and fringe benefits costing $6,000. Birck's taxable income before considering the payments to and on behalf of Carlotta is $250,000. Birck's distributes a $50,000 dividend to its shareholders. How much income does Carlotta have from Birck?

A)$66,000
B)$70,000
C)$96,800
D)$98,000
E)$102,800

Question 58

Rosen Group has a company health-care plan for all employees. Will, an employee, owns 10% of Rosen. The cost to Rosen for Will's health plan is $2,500. What amount must Will report as income if Rosen is a
?
$\begin{array} { l l } \text { Regular } \\\text { Corporation } & \text { Partnership } \\\end{array}$

A) $\begin{array} { l l } \$ 2,500 &&&& \$ 2,500 \\\end{array}$
B) $\begin{array} { l l } \$ - 0 - &&&& \$ - 0 - \\\end{array}$
C) $\begin{array} { l l } \$ - 0 - &&&& \$ 2,500 \\\end{array}$
D) $\begin{array} { l l } \$ 2,500 &&&& \$ - 0 -\end{array}$

Question 59

Which of the following entities can provide fringe benefits to owner/employees that are not taxable to the owner/employee?
I)Sole proprietorships
II)S corporations
III)Partnerships
IV)Corporations
​

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

Question 60

"Double taxation" occurs

A)because corporate tax rates are double that of individual taxpayers for the same amount of taxable income.
B)when corporations pay taxable dividends to shareholders.
C)because corporations receive a deduction for the distribution of dividends to shareholders.
D)when individual taxpayers pay for their shares of corporate stock.

Question 61

Nick and Rodrigo form the NRC Partnership by combining the assets of their respective businesses. Nick contributes $10,000 and assets worth $90,000 (adjusted basis of $60,000) for a 1/3 interest. Rodrigo contributes $90,000 and assets worth $270,000 (adjusted basis of $150,000) for a 2/3 interest. NRC also assumes $60,000 of debt on Rodrigo's assets. What is Rodrigo's basis in his partnership interest?

A)$180,000
B)$220,000
C)$240,000
D)$300,000
E)$360,000

Question 62

Which of the following taxable years are allowable by a newly formed partnership without obtaining prior approval from the IRS?
I)A January 31 year-end if it is a retail enterprise with a natural business year ending January 31 and all of its principal partners are on a calendar year.
II)A calendar year if majority partners and principal partners have varied year-ends.
III)A taxable year that is the same as that of its majority partners.
​

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

Question 63

Nick and Rodrigo form the NRC Partnership by combining the assets of their respective businesses. Nick contributes $10,000 and assets worth $90,000 (adjusted basis of $60,000) for a 1/3 interest. Rodrigo contributes $90,000 and assets worth $270,000 (adjusted basis of $150,000) for a 2/3 interest. NRC also assumes $60,000 of debt on Rodrigo's assets. What is Nick's basis in his partnership interest?

A)$70,000
B)$90,000
C)$100,000
D)$120,000
E)$160,000

Question 64

Clark Exploration Corporation was organized and began operations on October 1, 2018. It incurs $41,000 in legal fees to obtain the corporate charter. The corporation elects to expense its organizational costs over the shortest allowable period. What amount will Clark report for organizational expenses for 2018?

A)$2,050
B)$4,100
C)$5,000
D)$5,600
E)$41,000

Question 65

On January 5, 2018, Mike acquires a 50% interest in Precision Tools Partnership by contributing property with an adjusted basis of $20,000 and a fair market value of $24,000, subject to a mortgage of $16,000. What is Mike's basis in Precision Tools Partnership as of January 5, 2018?

A)$- 0 -
B)$10,000
C)$12,000
D)$16,000
E)$20,000

Question 66

Nigel and Frank form NFS, Inc. an electing S corporation, by combining the assets of their respective businesses. Nigel contributes $10,000 and assets worth $90,000 (adjusted basis of $60,000) for a 1/3 interest. Frank contributes $90,000 and assets worth $270,000 (adjusted basis of $150,000) for a 2/3 interest. NFS also assumes $60,000 of debt on Frank's assets. What is Nigel's basis in his stock?

A)$70,000
B)$90,000
C)$100,000
D)$120,000
E)$160,000

Question 67

Zeppo and Harpo are equal owners of the Marx Corporation. During the current year, they agree to admit Groucho as a shareholder. Groucho will contribute $35,000 in cash and property worth $75,000 (adjusted basis of $55,000) for 40% of Marx Corporation's stock. How much gain will Groucho recognize from the transfer of the assets to the corporation?

A)$-0-
B)$20,000
C)$35,000
D)$55,000
E)$75,000

Question 68

Which of the following statements regarding a partnership's tax year is/are correct?
I)A partnership formed on July 1 must adopt a tax year ending on June 30.
II)A valid business purpose can no longer be claimed as a reason for adoption of a tax year other than the generally required tax year.
​

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

Question 69

Winston is the sole shareholder of Winston Inc, an S corporation. In 2017, he paid $50,000 for his shares of stock. During the current year, he contributes a building and land to the corporation. No additional shares of stock are issued. The basis of this property is $75,000, and its fair market value is $200,000. What is Winston's basis in his Winston stock at the end of 2018?

A)$50,000
B)$75,000
C)$125,000
D)$150,000
E)$225,000

Question 70

Doug, Kate, and Gabe own Refiner Group, Inc., an electing S corporation. The shareholder's ownership percentages and fiscal year ends follow:
Which of the following statements is (are) correct?
$$\begin{array} { l l l } & \text { Ownership } & \text { Year End } \\\text { Doug } & 60 \% & \text { January } 31 \\\text { Kate } & 20 \% & \text { May } 31 \\\text { Gabe } & 15 \% & \text { September } 30\end{array}$$
I.Refiner Group, Inc. must use a calendar year.
II.Refiner Group, Inc. may elect to use a fiscal year ending January 31.
?

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

Question 71

Which of the following businesses must use the accrual method of accounting?
I)Pryor and Ransom, a local law firm with annual gross receipts of $650,000.
II)Mayson Manufacturing, which has annual gross receipts of $30,000,000.
​

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

Question 72

Snoopy Corporation, Garfield Corporation, and Dogbert Corporation are partners in Comic Partnership. The partners' fiscal year ends and ownership interests follow:
?
$$\begin{array} { l l l } \text { Snoopy Corporation } & \text { March 31 FYE } & 15 \% \text { Interest } \\\text { Garfield Corporation } & \text { May 31 FYE } & 30 \% \text { Interest } \\\text { Dogbert Corporation } & \text { October 31 FYE } & 55 \% \text { Interest }\end{array}$$
I.Comic Partnership must use a calendar year end, unless the IRS approves an election for a different tax year.
II.Comic Partnership must use a October 31 fiscal year end.
?

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

Question 73

Which of the following businesses must use the accrual method of accounting?
I)Champion Mortgage Corporation, which has annual gross receipts of $30,000,000.
II)The Happy Bookworm, a chain of bookstores with annual gross receipts of $39,500,000.
​

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

Question 74

A fiscal year can be
I)a period of 12 months ending on any day during the month other than a Sunday.
II)a period of 12 months ending on the last day of any month other than January
​

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

Question 75

Nigel and Frank form NFS, Inc. an electing S corporation, by combining the assets of their respective businesses. Nigel contributes $10,000 and assets worth $90,000 (adjusted basis of $60,000) for a 1/3 interest. Frank contributes $90,000 and assets worth $270,000 (adjusted basis of $150,000) for a 2/3 interest. NFS also assumes $60,000 of debt on Frank's assets. What is Frank's basis in his stock?

A)$180,000
B)$220,000
C)$240,000
D)$300,000
E)$360,000

Question 76

Zeppo and Harpo are equal owners of the Marx Corporation. During the current year, they agree to admit Groucho as a shareholder. Groucho will contribute $25,000 in cash and property worth $50,000 (adjusted basis of $35,000) for 25% of Marx Corporation's stock. What is Groucho's basis in the Marx Corporation stock?

A)$45,000
B)$50,000
C)$60,000
D)$75,000
E)$90,000

Question 77

During 2018, Mercedes incorporates her accounting practice. Mercedes is the sole shareholder. The following assets are transferred to the corporation:
?
$$\begin{array} { l r } \text { Cash } & \$ 1,000 \\\text { Computer equipment: } & \\\text { Fair market value } & 10,000 \\\text { Adjusted basis } & 6,000 \\\text { Original cost } & 12,000\end{array}$$
What is the corporation's total basis in all of the transferred assets?

A)$6,000
B)$7,000
C)$10,000
D)$11,000
E)$13,000

Question 78

Milo contributes a building with a fair market value of $400,000 to a new partnership in exchange for a 25% interest. His adjusted basis in the building is $125,000, which is subject to a $100,000 mortgage. The partnership assumes the mortgage. What is Milo's basis in his partnership interest?

A)$50,000
B)$75,000
C)$100,000
D)$125,000
E)$400,000

Question 79

Dogg Corporation, Katt Corporation, and Rabitt Corporation are equal partners in Critter Partnership. The partner's fiscal year ends follow:
Which of the following statements is (are) correct?
$$\begin{array} { l l } \text { Dogg Corporation } & \text { February } 28 \\\text { Katt Corporation } & \text { May } 31 \\\text { Rabitt Corporation } & \text { August } 31\end{array}$$
I.Critter Partnership may elect to use any of the three dates that the partners use.
II.Critter Partnership must use the tax year of the partner that creates the least amount of deferral.
?

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

Question 80

A new corporation's choice for its annual accounting period
I)must be approved by the IRS.
II)must be the same as its majority shareholder.
​

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