Question 1

S corporation status always avoids double taxation.

Accepted Answer

A) True 
 B)False

Question 2

Of the corporate types of entities, all are subject to double taxation on current earnings.

Accepted Answer

A) True 
 B)False

Question 3

For Federal income tax purposes, a business entity with two or more owners may be conducted as a partnership, C corporation, S corporation, or limited liability company.

Accepted Answer

A) True 
 B)False

Question 4

Arthur is the sole shareholder of Purple, Inc.Purple's taxable income before the payment of Arthur's salary is $300,000.Based on this information, Arthur has the corporation pay him a salary of $200,000 and a bonus of
$100,000.A reasonable salary and bonus would be $175,000.Which of the following is correct?

Accepted Answer

A) The taxable income of Purple, Inc., is $0 $300,000 - $300,000 salary and bonus). 
B) The taxable income of Purple, Inc., is $100,000 $300,000 - $200,000). 
C) Arthur has salary and bonus income of $300,000. 
D) Arthur has salary and bonus income of $175,000 and dividend income of $125,000.

Question 5

Match the following statements.
-S corporations

Accepted Answer

A) Usually subject to single taxation even if the entity is incorporated. 
B) Not making distributions to shareholders. 
C) Rate for a corporate taxpayer is 21%. 
D) Subject to double taxation. 
E) Eligible for special allocations.

Question 6

Transferring funds to shareholders, that are deductible by the C corporation, can reduce or eliminate double taxation.

Accepted Answer

A) True 
 B)False

Question 7

Match the following attributes with the different forms.A particular attribute may apply to more than one entity form.
-C corporation

Accepted Answer

A) Ability of all owners to have limited liability. 
B) Ability to pass tax attributes through to the owners. 
C) Right of all owners to participate in the management of the business. 
D) Number of owners is limited. 
E) Ability to have multiple owners.

Question 8

The at-risk provisions and the passive activity loss provisions decrease the tax attractiveness of investments in real estate for partnerships and for limited liability companies.

Accepted Answer

A) True 
 B)False

Question 9

Daniel, who is single, estimates that the profits of his business for the current tax year will be $200,000; Daniel has no other sources of gross income.Since the 21% corporate rate is less than Daniel's marginal rate of 32%, Daniel would save taxes operating the business as a C corporation.

Accepted Answer

A) True 
 B)False

Question 10

The passive activity loss rules apply to S corporations but not to C corporations.

Accepted Answer

A) True 
 B)False

Question 11

Match the following statements.
-Sale of an ownership interest by a partner.

Accepted Answer

A) Transaction in this form enables double taxation to be avoided. 
B) Gain or loss is calculated separately for each asset and is subject to single taxation. 
C) Subject to double taxation. 
D) The sale is treated as the sale of a capital asset under § 741, but subject to ordinary income potential under § 751. 
E) Not subject to double taxation on the sale of corporate stock.

Question 12

Corey is going to purchase the assets of Kahlyn's sole proprietorship.The assets of Kahlyn's sole proprietorship have appreciated in value.From Corey's perspective, does it matter whether the purchase is structured as 1) the purchase of the individual assets or 2) the purchase of the sole proprietorship?

Accepted Answer

The answer of Corey is going to purchase the assets...

Question 13

C corporations are not subject to AMT but individuals are.

Accepted Answer

A) True 
 B)False

Question 14

In the sale of a partnership, how does the way the sale is structured i.e., sale of the partnership interests versus the sale of the partnership assets) produce different tax consequences for the sellers?

Accepted Answer

The answer of In the sale of a partnership, how...

Question 15

Match the following statements.
-Sale of the individual assets of an unincorporated sole proprietorship by the owner.

Accepted Answer

A) Transaction in this form enables double taxation to be avoided. 
B) Gain or loss is calculated separately for each asset and is subject to single taxation. 
C) Subject to double taxation. 
D) The sale is treated as the sale of a capital asset under § 741, but subject to ordinary income potential under § 751. 
E) Not subject to double taxation on the sale of corporate stock.

Question 16

Albert's sole proprietorship owns the following assets.  Albert sells his sole proprietorship for $500,000.Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

Accepted Answer

A) $230,000 ordinary income. 
B) $230,000 capital gain. 
C) $115,000 ordinary income and $115,000 capital gain. 
D) $110,000 ordinary income and $120,000 capital gain.

Question 17

Match the following statements.
-C corporations

Accepted Answer

A) Usually subject to single taxation even if the entity is incorporated. 
B) Not making distributions to shareholders. 
C) Rate for a corporate taxpayer is 21%. 
D) Subject to double taxation. 
E) Eligible for special allocations.

Question 18

In the purchase of a partnership, how does the way the purchase is structured i.e., purchase of the partnership interests or purchase of the partnership assets) produce different tax consequences for the purchasers?

Accepted Answer

The answer of In the purchase of a partnership, how...

Question 19

Walter wants to sell his wholly-owned C corporation, Cream, Inc.The fair market value of his stock exceeds the corporation's adjusted basis for the assets.Should Walter sell his stock or have Cream sell its assets and make a liquidating distribution to him?

Accepted Answer

The answer of Walter wants to sell his wholly-owned C...

Question 20

An S corporation election for Federal income tax purposes also is effective for all states' income tax purposes.

Accepted Answer

A) True 
 B)False

Exam 18: Comparative Forms of Doing Business

S corporation status always avoids double taxation.

Of the corporate types of entities, all are subject to double taxation on current earnings.

For Federal income tax purposes, a business entity with two or more owners may be conducted as a partnership, C corporation, S corporation, or limited liability company.

Match the following statements. -S corporations

Transferring funds to shareholders, that are deductible by the C corporation, can reduce or eliminate double taxation.

Match the following attributes with the different forms.A particular attribute may apply to more than one entity form. -C corporation

The at-risk provisions and the passive activity loss provisions decrease the tax attractiveness of investments in real estate for partnerships and for limited liability companies.

Daniel, who is single, estimates that the profits of his business for the current tax year will be $200,000; Daniel has no other sources of gross income.Since the 21% corporate rate is less than Daniel's marginal rate of 32%, Daniel would save taxes operating the business as a C corporation.

The passive activity loss rules apply to S corporations but not to C corporations.

Match the following statements. -Sale of an ownership interest by a partner.

C corporations are not subject to AMT but individuals are.

In the sale of a partnership, how does the way the sale is structured i.e., sale of the partnership interests versus the sale of the partnership assets) produce different tax consequences for the sellers?

Match the following statements. -Sale of the individual assets of an unincorporated sole proprietorship by the owner.

Albert's sole proprietorship owns the following assets. Albert sells his sole proprietorship for $500,000.Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

Match the following statements. -C corporations

In the purchase of a partnership, how does the way the purchase is structured i.e., purchase of the partnership interests or purchase of the partnership assets) produce different tax consequences for the purchasers?

Walter wants to sell his wholly-owned C corporation, Cream, Inc.The fair market value of his stock exceeds the corporation's adjusted basis for the assets.Should Walter sell his stock or have Cream sell its assets and make a liquidating distribution to him?

An S corporation election for Federal income tax purposes also is effective for all states' income tax purposes.