Question 1

Randall owns 800 shares in Fabrication, Inc., an S corporation in Moss Hill, Texas. In 2014, the basis in his stock is
$30,000, before the adjustment for this year's losses. During 2014, Randall's share of the corporation's ordinary
Loss is $20,000, and his share of its capital loss is $15,000. How much can Randall deduct due to these losses?

Accepted Answer

Since Fabrication, Inc. is an S corporation, Randall can deduct his share of the corporation's losses (both ordinary and capital) on his personal tax return. First, he can deduct the $20,000 ordinary loss, up to the amount of his basis in the stock ($30,000). This leaves him with a basis of $10,000. Then, he can deduct his share of the capital loss, up to the amount of his remaining basis in the stock. This would be $10,000 for his share of the $15,000 capital loss. Therefore, Randall can deduct $17,143 ($20,000 - $2,857) as an ordinary loss and $12,857 ($15,000 - $2,857) as a capital loss.

Question 2

During 2014, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2013, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?

Accepted Answer

The answer of During 2014, Miles Nutt, the sole shareholder...

Question 3

During 2014, Oxen Corporation incurs the following transactions.
$\begin{array}{llr}
  \text {Net income from operations  } &\$100,000\
 \text { Interest income from savings account} &3,000\
 \text {  Long-term capital gain from sale of securities} &10,000\
 \text { Short-term canital loss from sale of securities } &4,000\
\end{array}$

Oxen maintains a valid S election and does not distribute any assets (cash or property) to its sole shareholder, Megan. As a result, Megan must recognize:

Accepted Answer

As an S corporation, Oxen's income and losses pass through to Megan. She must recognize $100,000 of ordinary income, $3,000 of interest income, a $10,000 long-term capital gain, and a $4,000 short-term capital loss.

Question 4

Pepper, Inc., an S corporation, holds a $1 million balance in accumulated E&P. It reports sales revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. What is Pepper's passive income penalty tax payable, if any?

Accepted Answer

Pepper's passive income is $380,000 (taxable interest), minus $140,000 (deductions), for a total of $240,000. Pepper's accumulated E&P is $1 million, so the penalty tax rate is 35%. Therefore, Pepper's penalty tax payable is $84,000 ($240,000 x 35%). However, this amount cannot exceed the corporation's taxable income for the year, which is $150,000 ($400,000 - $250,000). Therefore, the penalty tax payable is $40,895 ($150,000 x 35%).

Question 5

Mock Corporation converts to S corporation status in 2014. Mock used the LIFO inventory method in 2013 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election. How much tax must be added to Mock's 2013 corporate tax liability, assuming that Mock is subject to a 35% tax rate.

Accepted Answer

The answer of Mock Corporation converts to S corporation status...

Question 6

On January 2, 2013, Tim loans his S corporation $10,000. By the end of 2013, Tim's stock basis is zero, and the basis in his note has been reduced to $8,000. During 2014, the company's operating income is $10,000. The company makes 2014 distributions to Tim of $8,000. Tim reports a(n):

Accepted Answer

The answer of On January 2, 2013, Tim loans his...

Question 7

A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14. By the end of the year, $60,000 of these receivables are collected. Calculate any built-in gains tax, assuming that there is sufficient taxable income.

Accepted Answer

The answer of A cash basis calendar year C corporation...

Question 8

On January 2, 2013, David loans his S corporation $10,000. By the end of 2013 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2014, the company's operating income is $10,000. The company makes 2014 distributions to David of $11,000. David reports a(n):

Accepted Answer

The answer of On January 2, 2013, David loans his...

Question 9

Which, if any, of the following items decreases an S corporation's AAA?

Accepted Answer

The answer of Which, if any, of the following items...

Question 10

On January 1, Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight. The dirt company has a $60,000 loss for a non-leap year. On the 200th day of the year, Bobby sells his one-half of the stock to his son, Saul. How much of the $60,000 loss, if any, is allocated to Bobby?

Accepted Answer

Since Bobby sold his one-half of the stock on the 200th day of the year, he is considered to have owned his share of the corporation for 200/365 (approximately 54.8%) of the year. Therefore, his share of the loss for the year is 54.8% of $60,000, which is $32,877 rounded to the nearest dollar. However, since Bobby sold his share before the end of the year, he is not allowed to deduct any of the loss on his tax return. So the loss is allocated entirely to Alice, and Bobby has no tax benefit from it. Therefore, the correct answer is B) $13,562, which is Alice's share of the loss.

Question 11

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M­2?

Accepted Answer

The answer of Which transaction affects the Other Adjustments Account...

Question 12

On January 1, 2014, Kinney, Inc., an electing S corporation, holds $5,000 of AEP and $9,000 in AAA. Kinney has two shareholders, Eric and Maria, each of whom owns 500 shares of Kinney's stock. Kinney's 2014 taxable income is $6,000. Kinney distributes $6,000 to each shareholder on February 1, 2014, and distributes another $3,000 to each shareholder on September 1. How is Erin taxed on the distribution?

Accepted Answer

The distribution on February 1, 2014, is a non-taxable return of capital up to Eric's $5,000 basis in his Kinney stock. The amount in excess of his basis is treated as a dividend. Therefore, Eric has $1,000 ($6,000 distribution - $5,000 basis) in dividend income. 
The distribution on September 1, 2014, is also a non-taxable return of capital up to Eric's remaining $3,000 basis in his Kinney stock. The amount in excess of his basis is treated as a dividend. Therefore, Eric has an additional $500 ($3,000 distribution - $2,500 remaining basis) in dividend income. 
Eric's total dividend income for 2014 is $1,500 ($1,000 + $500), which is option C.

Question 13

Claude Bergeron sold 1,000 shares of Ditta, Inc., an S corporation, for $12,000. He had owned the stock for three years and had a stock basis of $111,000 in the shares. Claude is single, and he is the original owner of the § 1244 stock shares. Calculate the appropriate tax treatment.

Accepted Answer

Since Claude is the original owner of the § 1244 stock shares, he can treat the loss on sale as an ordinary loss up to $50,000 ($100,000 for joint filers). The remaining loss of $49,000 is treated as a long-term capital loss. Therefore, Claude can take a $50,000 ordinary deduction and a $49,000 LTCL. He does not have no gain or loss, nor does he have a $99,000 long-term capital loss.

Question 14

Yates Corporation elects S status, effective for calendar year 2014. Yates' only asset has a basis of $50,200 and a fair market value of $110,400 as of January 1, 2014. The asset is sold at the end of 2014 for $130,800. What amount must Mark Farris, a 60% owner and subject to a 15% income tax rate, pay, if any?

Accepted Answer

The answer of Yates Corporation elects S status, effective for...

Question 15

A calendar year C corporation reports a $41,000 NOL in 2013, but it elects S status for 2014 and generates an NOL of $30,000 in that year. At all times during 2014, the stock of the corporation was owned by the same 10 shareholders, each of whom owned 10% of the stock. Kris, one of the 10 shareholders, holds an S stock basis of
$2,300 at the beginning of 2014. How much of the 2014 loss, if any, is deductible by Kris?

Accepted Answer

The answer of A calendar year C corporation reports a...

Question 16

Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama. At a time when his stock basis is
$20,000, the corporation distributes appreciated property worth $100,000 (basis of $20,000). Fred's taxable gain is:

Accepted Answer

When an S corporation distributes appreciated property to a shareholder, the gain is passed through to the shareholder and is taxable to the extent that the distribution exceeds the shareholder's stock basis. In this case, the distribution is $100,000 and Fred's stock basis is $20,000, so the taxable gain is $80,000 (Option C). Option A would be correct if the distribution was not appreciated property, but rather cash or property with a basis equal to its fair market value. Option B would be correct if the distribution was appreciated property with a basis equal to its fair market value. Option D is incorrect because the taxable gain is not the full amount of the distribution, but only the amount that exceeds the shareholder's stock basis.

Question 17

Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?

Accepted Answer

The answer of Which, if any, of the following items...

Question 18

Which of the following reduces a shareholder's S corporation stock basis?

Accepted Answer

The answer of Which of the following reduces a shareholder's...

Question 19

Samantha owned 1,000 shares in Evita, Inc., an S corporation, that uses the calendar year. On October 11, 2014, Samantha sells all of her Evita stock. Her basis at the beginning of 2014 was $60,000. Her share of the corporate income for 2014 was $22,000, and she receives a distribution of $35,000 between January 1 and October 11, 2014. Her stock basis at the time of the sale is:

Accepted Answer

To calculate Samantha's basis at the time of sale, we start with her beginning basis ($60,000) and add her share of corporate income ($22,000) and subtract her distributions ($35,000).

$60,000 + $22,000 - $35,000 = $47,000

Therefore, the correct answer is choice D.

Question 20

An S corporation reports a recognized built-in gain of $110,000 and taxable income of $98,000. The company carries an $8,000 NOL carryforward from a C corporation year, and a $7,000 business credit carryforward from a C corporation year. The built-in gains tax liability is:

Accepted Answer

The answer of An S corporation reports a recognized built-in...

Quiz 22: S Corporations

During 2014, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2013, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?

On January 2, 2013, Tim loans his S corporation $10,000. By the end of 2013, Tim's stock basis is zero, and the basis in his note has been reduced to $8,000. During 2014, the company's operating income is $10,000. The company makes 2014 distributions to Tim of $8,000. Tim reports a(n) :

A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14. By the end of the year, $60,000 of these receivables are collected. Calculate any built-in gains tax, assuming that there is sufficient taxable income.

On January 2, 2013, David loans his S corporation $10,000. By the end of 2013 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2014, the company's operating income is $10,000. The company makes 2014 distributions to David of $11,000. David reports a(n) :

Which, if any, of the following items decreases an S corporation's AAA?

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M2?

Claude Bergeron sold 1,000 shares of Ditta, Inc., an S corporation, for $12,000. He had owned the stock for three years and had a stock basis of $111,000 in the shares. Claude is single, and he is the original owner of the § 1244 stock shares. Calculate the appropriate tax treatment.

Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama. At a time when his stock basis is $20,000, the corporation distributes appreciated property worth $100,000 (basis of $20,000) . Fred's taxable gain is:

Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?

Which of the following reduces a shareholder's S corporation stock basis?

An S corporation reports a recognized built-in gain of $110,000 and taxable income of $98,000. The company carries an $8,000 NOL carryforward from a C corporation year, and a $7,000 business credit carryforward from a C corporation year. The built-in gains tax liability is:

Quiz 22: S Corporations

During 2014, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2013, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?

On January 2, 2013, Tim loans his S corporation $10,000. By the end of 2013, Tim's stock basis is zero, and the basis in his note has been reduced to $8,000. During 2014, the company's operating income is $10,000. The company makes 2014 distributions to Tim of $8,000. Tim reports a(n) :

A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14. By the end of the year, $60,000 of these receivables are collected. Calculate any built-in gains tax, assuming that there is sufficient taxable income.

On January 2, 2013, David loans his S corporation $10,000. By the end of 2013 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2014, the company's operating income is $10,000. The company makes 2014 distributions to David of $11,000. David reports a(n) :

Which, if any, of the following items decreases an S corporation's AAA?

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M­2?

Claude Bergeron sold 1,000 shares of Ditta, Inc., an S corporation, for $12,000. He had owned the stock for three years and had a stock basis of $111,000 in the shares. Claude is single, and he is the original owner of the § 1244 stock shares. Calculate the appropriate tax treatment.

Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama. At a time when his stock basis is $20,000, the corporation distributes appreciated property worth $100,000 (basis of $20,000) . Fred's taxable gain is:

Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?

Which of the following reduces a shareholder's S corporation stock basis?

An S corporation reports a recognized built-in gain of $110,000 and taxable income of $98,000. The company carries an $8,000 NOL carryforward from a C corporation year, and a $7,000 business credit carryforward from a C corporation year. The built-in gains tax liability is:

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M2?