MCQ-Corresponds to CLO 7(a) Who pays tax on the income of an S corporation?….

Corresponds to CLO 7(a)

Who pays tax on the income of an S corporation?

The S corporation

The shareholders

The customers

There is no tax imposed on S
corporation income

Question 2

Corresponds to CLO 7(b)

To become an S corporation, a corporation must:

have
once been a C corporation.

elect to be treated as such.

have
at least 100 shareholders.

Only c
and b.

All of
the above.

Question 3

Corresponds to CLO 5(a)

Which of the following corporations is an includible corporation for purposes
of filing a consolidated tax return?

insurance
companies

S
corporations

car manufacturing corporation

foreign
corporations

Question 4

Corresponds to CLO 9(b)

Tammie contributes $50,000 cash in exchange for a 25% interest in the profi ts
and capital of the XYZ Partnership. The partnership has $300,000 of recourse
debt and $100,000 of nonqualifi ed nonrecourse debt. The partnership has a loss
of $800,000 for the year. How much of the loss will Tammie be able to deduct,
assuming she is allocated 25% of the liabilities and the partnership is not a
passive activity?

$0.

$50,000.

$125,000.

$150,000.

$200,000

Question 5

Corresponds to CLO 7(d)

A calendar year corporation wishes to elect to be taxed as an S corporation.
What is the last day that the corporation can file an election to be effective
for 2011?

December
31, 2010.

March 15, 2011.

April
15, 2011.

December
31, 2011.

Question 6

Corresponds to CLO 7(b)

S corporation will be treated as having one class of stock if:

all of its outstanding shares of stock confer identical
rights to distribution and liquidation proceeds.

there
is no differences in voting rights.

there
is no differences in the timing of distributions.

All of
the above

Question 7

Corresponds to CLO 5(b)

Cardinal and Bluebird Corporations both use a calendar year as their tax year.
At the close of business on June 30, Cardinal Corporation buys all of Bluebird
Corporation’s stock. If the two corporations file a consolidated return and
both corporations earn their income evenly throughout the year, what portion of
Cardinal’s income will be included in the consolidated return ? (Assume all months
have 30 days.)

100%

50%

0%

none
of the above

Question 8

Corresponds to CLO 3(b)

Rachael and Ray form an equal partnership, R&R, on January 1, 20X1. Rachael
contributes $100,000 in exchange for her one-half interest; Ray contributes land worth $100,000.Ray’s adjusted basis
in the land is $30,000. Which of the following statements is accurate with
respect to this exchange?

Neither Rachael, Ray, nor R&R recognize any gain or
loss on the transfer.

Ray
recognizes $70,000 gain on the transfer.

R&R
recognizes $70,000 gain on the transfer.

b. and
c.

Question 9

Corresponds to CLO 1(d)

Which of the following entities may select any tax period (calendar or fiscal)?

sole
partnership

partnership

S corporations

trusts

corporations other than S corporations.

Question 10

Corresponds to CLO 2(c)

Comic Books Corporation, a calendar year corporation, had a net operating loss
of $50,000 for 2011. Comic Books made a proper election to forgo the carryback
period. For 2012, Comic Books correctly deducted $40,000 of the 2011 loss.
Comic Books will lose the remaining $10,000 if it cannot be deducted by the end
of which tax year?

2018

2021

2026

2031

Question 11

Corresponds to CLO 6(a)

Tugboats Corporation, a calendar year corporation that began doing business on
January 1, 2005, had $35,000 in accumulated earnings and profits on January 1,
2011. Tugboats had an operating loss of $60,000 for the fi rst six months of
2011, but had $10,000 in earnings for the entire year. Tugboats made a
distribution of $25,000 cash to its stockholders on April 1, 2011. What is the
amount of Tugboat’s accumulated earnings and profits on January 1, 2012?

$0

$10,000

$20,000

$45,000

Question 12

Corresponds to CLO 3(b)

Rachael and Ray form an equal partnership, R&R, on January 1, 20X1. Rachael
contributes $100,000 in exchange for her one-half interest; Ray contributes
land worth $170,000, which is subject to a $70,000 debt, which R&R assumes.
Ray’s adjusted basis in the land is $30,000. Which of the following statements
is accurate with respect to this exchange?

Ray
does not recognize any gain or loss on the exchange and his tax basis in
R&R is $30,000.

Ray
does not recognize gain on the exchange and his tax basis in R&R is
$100,000.
*. Ray recognizes $5,000 gain on the exchange and his
tax basis in R&R is $0.
d. Ray recognizes $70,000 gain on the exchange and his tax basis in R&R
is $100,000.

Question 13

Corresponds to CLO 8(a)

Which of the following would not increase the basis of a shareholder’s stock in
an S corporation:

All
separately stated income items of the S corporation, including tax- exempt
income.

Any
non=separately stated income of the S corporation.

Capital gains tax paid by the shareholder.

The
amount of deductions for depletion that is more than the basis of the
property being depleted.

Question 14

Corresponds to CLO 1(a)

Which of the following is an advantage of a sole proprietorship over other
business forms?

tax-exempt
treatment of fringe benefits

the
deduction for compensation paid to the owner

low
tax rates on dividends

ease of formation

Question 15

Corresponds to CLO 9(c)

Krause Corporation makes an S election, believing that it has no current or
accumulated E&P. However, after an IRS audit, Krause is found to have
failed the passive investment income test for three consecutive years and also
to have a Subchapter C E&P balance from its three pre-election tax years.
The IRS will

automatically
terminate the election and Krause cannot reelect for a 5-year time period.

retroactively
revoke the election to the first day on which it was effective and Krause
will not be able to reelect.

treat
the error as such and allow the election to continue unbroken.

likely treat the termination as inadvertent and will
probably approve a continued S election if the corporation distributes the
Subchapter C E&P.

Question 16

Corresponds to CLO 1(c)

The following entities are not subject to double taxation except:

partnership

sole
proprietorship

C corporation

S
corporation

all
are subject to double taxation

none
are subject to double taxation

Question 17

Corresponds to CLO 8(c)

An S corporation incurs an operating loss of $80,000 in 20X5 and makes no
distributions to its shareholders during the year. Before considering the
current year operating loss, Abe, a shareholder that owns 50 percent of the S
corporation stock, has a basis in his shares of S corporation stock of $30,000
and a $20,000 basis in a note from the corporation. How much of the $80,000
loss can he deduct on his 20X5 individual tax return?

$0.

$20,000.

$30,000.

$40,000.

Question 18

Corresponds to CLO 2(b)

Can Co.’s gross income from operations was $1,000,000 and its expenses from
operations were $1,500,000. It also received a $600,000 dividend from a
10%-owned corporation. What is Can Co.’s dividends-received deduction?

$0

$70,000

$320,000

$420,000

Question 19

Corresponds to CLO 4(b)

Ellen is a 25 percent partner in Heartland Partners. Her tax basis in her
partnership interest is $18,000. She received a non-liquidating distribution of
land with a tax basis of $23,000 and a fair market value of $45,000. The
partnership has no liabilities. What will be Ellen’s tax basis in the land
received in the non-liquidating distribution?

$18,000

$23,000

$45,000

zero

none
of the above

Question 20

Corresponds to CLO 9(b)

Phil Justin and Mark Tyme are equal partners in the Justin Tyme partership. On
December 15, 2010, Phil Justin transferred land with a fair market value of
$100,000 to the Justin Tyme partnership. Phil had a basis in the land of $70,000.
On June 1, 2011, Phil withdrew cash of $50,000 from the Justin Tyme
partnership. An IRS agent is currently reviewing Phil’s 2010 and 2011 income
tax returns.

Phil
should not be concerned because the contribution was a nontaxable event under
section 721 and the distribution is tax free since he has sufficient basis in
the partnership.

The IRS agent will likely assert that the transaction
was a disguised sale and that Phil should have reported $15,000 gain on the
sale.

The
IRS agent will be unable to assert the transaction was a disguised sale since
the transfer of the land and the distribution of the cash were in different
years.

The
IRS agent will be unable to assert the transaction was a disguised sale since
these rules do not apply to a partnership and a 50 percent or more partner

Question 21

Corresponds to CLO 6(b)

A tract of land is distributed to Martha Moore as a dividend. Its basis
immediately prior to the distribution was $40,000, its value is $80,000, and it
is subject to a mortgage of $55,000. The following statements concerning the
distribution are all false except:

E&P
is increased by $15,000 (liability less basis), decreased by $40,000 and
increased by the liability.

The
net adjustment to the E&P account is $40,000, the amount of the realized
gain.

The
distributing corporation’s realized gain of $40,000 is recognized to the
extent of the $15,000.

The shareholder’s basis in the land is $80,000, its
fair market value.

Question 22

Corresponds to CLO 5(c)

Blue and Gold Corporations are members of the Blue-Gold affiliated group, which
filed a consolidated tax return for last year, reporting a $200,000
consolidated NOL. Small taxable income amounts were reported by Blue and Gold
in separate tax returns filed in years prior to last year. Early in the current
year, 100% of Blue’s stock is purchased by Robert Martin who contributes
additional funds to Blue Corporation sufficient to acquire all of Green
Corporation’s stock. For the current year, the affiliated group reports the
following results (excluding the consolidated NOL deduction):
Blue Corp Taxable Income = $150,000; Gold Taxable Income = $(25,000); Green
(since acquisition) Taxable Income = $100,000.
Which of the following statements is correct?

Last
year’s NOL cannot be carried back.

The
portion of last year’s NOL that is not used as a carryback can be carried
over the current year but is only used against Blue’s taxable income.

The portion of last year’s NOL that is not used as a
carryback can be carried over against the current consolidated taxable
income, but is subject to the Sec. 382 limitation.

The
portion of last year’s NOL that is not used as a carryback can be carried
over, but is used only against the Blue’s and Gold’s taxable income.

Question 23

Corresponds to CLO 4(a)

Ten years ago, Lisa Bara acquired a one-third interest in Dee Associates, a
partnership. This year, when Lisa’s entire interest in the partnership was
liquidated, Dee’s assets consisted of the following: cash, $20,000; tangible
property with a basis of $46,000, and a fair market value of $40,000. Dee had
no liabilities. Lisa’s adjusted basis for her one-third interest was $22,000.
Lisa received cash of $20,000 in complete liquidation of her entire interest.
How much loss will Lisa recognize upon receipt of the liquidating distribution?

$0

$2,000
short-term capital loss

$2,000 long-term capital loss

$2,000
ordinary loss

Question 24

Corresponds to CLO 1(b)

When comparing corporate and individual taxation the following statements are true,
except:

Individuals
have exemptions and a standard deduction, corporations do not.

Both
types of taxpayers have percentage limitations on the charitable contribution
deduction, coupled
with a carryover of the excess contribution.

All taxpayers
may carry net operating losses back two years, forward 20.

Both corporate and individual taxpayers may have a
long-term capital loss carry-forward.

Question 25

Corresponds to CLO 3(a)

Which of the following do not decrease a partner’s basis in the partnership
interest?

A
decrease in the partner’s share of partnership liabilities.

A
distribution made by the partnership to the partner.

The
partner’s distributive share of nondeductible items that are not capital in
nature.

The partner’s
distributive share of partnership losses.

All of the above decrease a partner’s basis in the
partnership interest.

Question 26

Corresponds to CLO 9(c)

A C corporation was formed five years ago and is a fiscal-year taxpayer with a
June 30 year-end. The C corporation wants to make an S election for its tax
year beginning in the current year. The election must be made by ________
(assuming permission can be obtained to continue using the fiscal year from the
IRS).

June
30 of the current year

September 15 of the current year

June
30 of the next year

September
15 of the next year

Question 27

Corresponds to CLO 4(a)

Martin has a tax basis in his one-fi fth interest in Gateway Partners of
$45,000. The partnership has no liabilities and no hot assets. Martin receives
a distribution of $33,000 cash in complete liquidation of his interest in the
partnership. How much gain or loss will Martin recognize on receipt of the
liquidating cash distribution?

zero

$33,000
gain

($12,000) loss

$12,000
gain

none
of the above

Question 28

Corresponds to CLO 3(c)

The AB general partnership agreement provides for guaranteed payments for services
rendered of $50,000 and $80,000 for Andrew and Brenda, respectively. The
services rendered are of a nature that the amount is deductible by AB in
computing its ordinary income. After the guaranteed payments are deducted, the
partnership agreement calls for sharing of profits and losses as follows:
Andrew 45 percent; Brenda 55 percent. If AB’s ordinary income before taking the
guaranteed payments into consideration is $200,000, what amount of total
ordinary income from the partnership should each partner report on his or her
individual income tax return?

Andrew $81,500; Brenda $118,500.

Andrew
$69,500; Brenda $130,500.

Andrew
$50,000; Brenda $80,000.

Andrew
$140,000; Brenda $190,000.

Andrew
$119,500; Brenda $210,500.

Question 29

Corresponds to CLO 2(c)

The following statements about the corporate income tax computation are all
false, except:

Corporations
are subject to a fl at 34 percent tax on net capital gains, including net
Code Sec. 1231 gains.

The corporate tax rate on a long-term capital gain may
be as low as 15 percent.

A
corporation is subject to a 39 percent tax on all taxable income in excess of
$100,000.

The
AMT can never apply to personal service corporations taxed at a fl at 34
percent.

Question 30

Corresponds to CLO 8(d)

On January 1, 20X6, an S corporation has accumulated E&P of $55,000 from
its years as a C corporation and has a positive AAA balance of $15,000. The
corporation’s sole shareholder, Betty, has a basis in her S corporation stock
of $30,000. During 20X6, the corporation reports ordinary income of $10,000 and
a $20,000 long-term capital gain. During 20X6, the corporation distributes
$65,000 to Betty. The amount of the distribution that represents a taxable
dividend is:

$0.

$20,000.

$50,000.

$55,000.

Question 31

Corresponds to CLO 6(c)

In 2011, pursuant to a plan of complete liquidation, Woods Corp. distributed
all of its property to its shareholders. Among the property distributed was
cash of $200,000, and land that had been held as an investment that had a basis
of $100,000, and a fair market value of $160,000. The land was subject to a
mortgage of $170,000 which the shareholders assumed. What amount of gain must
Woods Corp. recognize as a result of its liquidating distributions?

$0

$10,000

$60,000

$70,000

Question 32

Corresponds to CLO 5(b)

Ajak Corporation owns 85% of the single class of Utech Corporation stock. Utech
Corporation owns 35% of Tech Corporation. Ajak Corporation also owns 50% of
Tech Corporation, and Tech Corporation owns 75% of Baxter Corporation.

Ajak, Tech, Utech, and Baxter Corporations are an
affiliated group.

Ajak,
Tech, and Baxter Corporations are an affiliated group.

Ajak,
Tech, and Utech Corporations are an affiliated group.

None
of the above are correct.

Question 33

Corresponds to CLO 3(c)

The partnership of Bond and Felton has been permitted to retain its fiscal year
ending March 31. John Bond files his tax return on a calendar year basis. The
partnership paid Bond a guaranteed salary of $1,000 per month during the
calendar year 2010 and $1,500 per month during the calendar year 2011. After
deducting this salary the partnership realized ordinary income of $80,000 for the
year ended March 31, 2011, and $90,000 for the year ended March 31, 2012.
Bond’s share of the profits is the salary paid to him plus 40 percent of the
ordinary income after deducting his salary. For 2011, what amount should Bond
report as his taxable income from the partnership?

$36,500

$44,000

$45,500

$50,0

Question 34

Corresponds to CLO 3(d)

Bob Barker contributed a building with an adjusted basis to Bob of $50,000 and
a fair market value of $150,000 subject to a mortgage of $120,000 in exchange
for a 30 percent interest in the Alpha Partnership. Alpha will assume the
mortgage on the building. What is Alpha’s basis in the building?

$0

$30,000

$50,000

$84,000

Question 35

Corresponds to CLO 5(c)

The Alto-Baxter affiliated group filed a consolidated return for the first time
last year. The group does not come under the “large” corporation
rules. For last year, the group reports a tax liability of $60,000. Cooper
Corporation has a $30,000 tax liability last year. This year, the Alto-Baxter
affiliated group purchased all of the Cooper stock. This year, the
Alto-Baxter-Cooper group reports an $110,000 consolidated tax liability. To
avoid penalties for the current year, the group must make timely estimated tax
payments of how much during the year?

$60,000

$90,000

$110,000

No
estimated tax payments are required.

Question 36

Corresponds to CLO 2(a)

Hoover, Inc. had gross receipts from operations of $230,000, operating and
other expenses of $310,000, and dividends received from a 45 percent-owned
domestic corporation of $120,000. Hoover’s tax position for the year is:

$8,000
taxable income

$56,000 net operating loss

$40,000
taxable income

$80,000
net operating loss