Question 1

Peter owns 30% of Bear Company,an electing S corporation.Peter's adjusted basis in the stock is $44,000 at the beginning of the current year.During the current year,Bear distributes a $60,000 dividend.Bear Company reports a $200,000 operating loss for the current year.If Peter is a material participant in Bear Company,how much of the loss can he deduct on his income tax return?

Accepted Answer

A) $ -0- 
B) $18,000 
C) $26,000 
D) $44,000 
E) $60,000

Question 2

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

Question 3

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

Question 4

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

Accepted Answer

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

Question 5

A corporation may reduce trade or business income by a charitable contributions made by the corporation,but the deduction is limited to 10% of taxable income,as adjusted..

Accepted Answer

A) True 
 B)False

Question 6

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.

Question 7

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 8

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

Question 9

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?

Accepted Answer

A) $ - 0 - 
B) $ 30,000 
C) $ 70,000 
D) $ 78,000 
E) $200,000

Question 10

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

Question 11

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

Question 12

William,a CPA,owns a 75% interest in Burglar Concrete Company (BCC).BCC is organized as a partnership.During the current year,William prepares BCC's tax return and receives his normal $300 fee for the preparation of the return.
I.BCC cannot deduct the $300 fee because of the related party rules.
II.William must recognize the $300 fee as income.

Accepted Answer

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

Question 13

Chance Corporation has a $20,000 deficit in earnings and profits as of January 1,2013.During 2013,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?

Accepted Answer

A) $ - 0 - 
B) $20,000 
C) $30,000 
D) $40,000 
E) $70,000

Question 14

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?

Accepted Answer

A) $12,000 
B) $46,000 
C) $54,000 
D) $74,000 
E) $76,000

Question 15

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.

Accepted Answer

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

Question 16

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?

Accepted Answer

A) Operating income of $320,000 and Section 1231 gain of $80,000. 
B) Operating income of $400,000. 
C) Operating income of $304,000 and Section 1231 gain of $96,000. 
D) Operating income of $380,000 and unrecaptured Section 1250 gain of $20,000. 
E) Operating income of $300,000 and Section 1231 gain of $80,000 and unrecaptured Section 1250 gain of $20,000.

Question 17

During the current year,Mars Corporation receives dividend income of $20,000 from an 85%-owned domestic corporation.What is Mars' maximum allowable dividend-received deduction for the current year?

Accepted Answer

A) $ - 0 - 
B) $14,000 
C) $16,000 
D) $18,000 
E) $20,000

Question 18

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?

Accepted Answer

A) $35,000 
B) $55,000 
C) $57,000 
D) $63,000 
E) $65,000

Exam 14: Choice of Business Entity - Operations and Distributions

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.

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

A corporation may reduce trade or business income by a charitable contributions made by the corporation,but the deduction is limited to 10% of taxable income,as adjusted..

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.

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

During the current year,Mars Corporation receives dividend income of $20,000 from an 85%-owned domestic corporation.What is Mars' maximum allowable dividend-received deduction for the current year?