Question 1

Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns. This year, Waters recorded the following items of income and expense:  Waters distributed $25,000 to each of its shareholders during the year. If Mia has no other sources of income, what is her gross income for the year?

Accepted Answer

The answer of Waters Corporation is an S corporation with...

Question 2

Jackie contributed $60,000 in cash to a partnership for a 50% interest. This year, the partnership earned $200,000 ordinary business income, made a $20,000 contribution to the United Way, and distributed $25,000 cash to Jackie. Her tax basis in the partnership at year end is:

Accepted Answer

Jackie's initial tax basis is her initial contribution of $60,000. Her share of the partnership's ordinary business income ($200,000) increases her basis by $100,000 (50% of $200,000), and her share of the charitable contribution ($20,000) decreases her basis by $10,000 (50% of $20,000). The cash distribution of $25,000 decreases her basis by $25,000. Therefore, her ending tax basis is $60,000 + $100,000 - $10,000 - $25,000 = $125,000.

Question 3

Alan is a general partner in ADK Partnership. His partnership Schedule K-1 reports $50,000 ordinary business income, $22,000 guaranteed payment, $5,000 long-term capital gain, and $400 dividend income. Which of these items are subject to self-employment tax?

Accepted Answer

Only the ordinary business income and the guaranteed payment are subject to self-employment tax for a general partner. Long-term capital gains and dividend income are not subject to self-employment tax. Therefore, the correct choice is B.

Question 4

Alice is a partner in Axel Partnership. Her share of the partnership's 2012 ordinary business income was $100,000. She received a $60,000 cash distribution from the partnership on December 1, 2012. Assuming that Alice's marginal tax rate is 35%, calculate her after-tax cash flow from the partnership in 2012.

Accepted Answer

The answer of Alice is a partner in Axel Partnership....

Question 5

Cramer Corporation and Mr. Chips formed a partnership in which Cramer is the general partner and Mr. Chips is a limited partner. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. What is Cramer's tax basis in its partnership interest?

Accepted Answer

The answer of Cramer Corporation and Mr. Chips formed a...

Question 6

Bernard and Leon formed a partnership on January 1 with cash contributions of $600,000 and $200,000, respectively. The partners agree to share profits and losses in the ratio of their initial capital contributions. The partnership immediately borrowed $800,000. What is Bernard's tax basis in his partnership interest?

Accepted Answer

The answer of Bernard and Leon formed a partnership on...

Question 7

In 2012, Mike Elfred received a $165,000 salary from his employer and generated $39,000 net earnings from self-employment from his small business. Which of the following statements is true?

Accepted Answer

Mike's salary already covers the Social Security tax up to the base limit, so he only owes Medicare tax on his self-employment income.

Question 8

Martha Pim is a general partner in PLF Partnership. This year, Martha received a $48,000 guaranteed payment from PLF, and her distributive share of PLF's ordinary business income was $93,200. Which of the following is accurate?

Accepted Answer

The answer of Martha Pim is a general partner in...

Question 9

Which of the following statements about partnerships is false?

Accepted Answer

This statement is false because not only individuals, but also corporations, LLCs, and other types of organizations can be partners in a partnership.

Question 10

Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. What is Mr. Chips' tax basis in its partnership interest?

Accepted Answer

The answer of Cramer Corporation and Mr. Chips formed a...

Question 11

Debbie is a limited partner in ADK Partnership. Her partnership Schedule K-1 reports $19,000 ordinary business income, $2,000 long-term capital gain, and $830 dividend income. Which of these items are subject to self-employment tax?

Accepted Answer

Limited partners typically do not have to pay self-employment taxes on their share of partnership income. This is because limited partners are not actively involved in the day-to-day operations of the business. Therefore, the ordinary business income, long-term capital gain, and dividend income reported on Debbie's Schedule K-1 are not subject to self-employment tax.

Question 12

Hay, Straw and Clover formed the HSC Partnership, agreeing to share profits and losses equally. Clover will manage the business for which he will receive a guaranteed payment of $30,000 per year. Cash receipts and disbursements for the year were as follows:  What is Clover's share of the partnership's ordinary income and guaranteed payment?

Accepted Answer

The answer of Hay, Straw and Clover formed the HSC...

Question 13

Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. What is Cramer's tax basis in its partnership interest?

Accepted Answer

Cramer's initial tax basis is $500,000 for the cash contribution. However, the partnership also assumes a portion of Mr. Chips' $300,000 tax basis in the building he contributed. The amount of the tax basis assumed by the partnership is proportional to the value of the contribution - in this case, the building is worth $500,000 out of the total $1,000,000 contributed, so the partnership assumes $150,000 of Mr. Chips' tax basis ($300,000 x 50%). Therefore, Cramer's initial tax basis in the partnership is $650,000 ($500,000 + $150,000). When the partnership borrows $700,000, this debt becomes a shared liability of the partners. Since Cramer is a general partner in the partnership, it is personally liable for the full amount of the recourse debt. Thus, Cramer's tax basis in its partnership interest is increased by its share of the recourse debt, which is $350,000 ($700,000 x 50%). Therefore, Cramer's final tax basis in its partnership interest is $1,000,000 ($650,000 + $350,000).

Question 14

During 2012, Elena generated $24,500 of earnings on Schedule C. If Elena had no other earned income, how much self-employment tax will she owe on her Schedule C net profit?

Accepted Answer

The answer of During 2012, Elena generated $24,500 of earnings...

Question 15

Sue's 2012 net (take-home) pay was $23,805. Her only payroll deductions were for payroll taxes and federal income tax. Federal income tax withholdings totaled $4,500. What was the amount of her gross wages for the year?

Accepted Answer

The answer of Sue's 2012 net (take-home) pay was $23,805....

Question 16

Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns. This year, Waters recorded the following items of income and expense:  Waters distributed $25,000 to each of its shareholders during the year. Calculate the S corporation's ordinary (non-separately stated) income and indicate which items must be separately stated.

Accepted Answer

To calculate the S corporation's ordinary income, we need to add up the following items:
- Sales Revenue: $100,000
- Interest Income: $5,000 (separately stated)
- Cost of Goods Sold: $35,000
- Depreciation: $20,000
- Salaries and Wages: $50,000
- Rent Expense: $5,000
- Long-term Capital Gain: $15,000 (separately stated)

So the total ordinary income is $120,000. The interest income and long-term capital gain must be separately stated and reported to the shareholders on Schedule K-1. Therefore, option B is the correct answer.

Question 17

Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns. This year, Waters recorded the following items of income and expense:  Waters distributed $25,000 to each of its shareholders during the year. If Mia's adjusted tax basis in her partnership interest was $50,000 at the beginning of the year, compute her adjusted tax basis in her partnership interest at the end of the year.

Accepted Answer

The answer of Waters Corporation is an S corporation with...

Question 18

Cramer Corporation and Mr. Chips formed a partnership in which Cramer is the general partner and Mr. Chips is a limited partner. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. What is Mr. Chips' tax basis in its partnership interest?

Accepted Answer

The answer of Cramer Corporation and Mr. Chips formed a...

Question 19

William is a member of an LLC. His Schedule K-1 reported a $1,200 share of capital loss and a $3,000 share of Section 1231 gain. William recognized a $4,500 capital gain on the sale of marketable securities and a $15,000 Section 1231 loss on the sale of business equipment. What is the net effect of these gains and losses on William's taxable income?

Accepted Answer

To calculate the net effect on William's taxable income, we combine his personal gains and losses with those reported on Schedule K-1. For capital gains and losses: William's personal capital gain of $4,500 minus his share of capital loss from the LLC of $1,200 equals a net capital gain of $3,300. For Section 1231 gains and losses: William's personal Section 1231 loss of $15,000 plus his share of Section 1231 gain from the LLC of $3,000 equals a net Section 1231 loss of $12,000.

Question 20

Which of the following statements concerning partnerships is false?

Accepted Answer

A partner is taxed annually on his or her share of the partnership's taxable income, regardless of whether or not that income is actually distributed to the partner.

Quiz 10: Sole Proprietorships, Partnerships, Llcs, and S Corporations

Jackie contributed $60,000 in cash to a partnership for a 50% interest. This year, the partnership earned $200,000 ordinary business income, made a $20,000 contribution to the United Way, and distributed $25,000 cash to Jackie. Her tax basis in the partnership at year end is:

Alan is a general partner in ADK Partnership. His partnership Schedule K-1 reports $50,000 ordinary business income, $22,000 guaranteed payment, $5,000 long-term capital gain, and $400 dividend income. Which of these items are subject to self-employment tax?

In 2012, Mike Elfred received a $165,000 salary from his employer and generated $39,000 net earnings from self-employment from his small business. Which of the following statements is true?

Martha Pim is a general partner in PLF Partnership. This year, Martha received a $48,000 guaranteed payment from PLF, and her distributive share of PLF's ordinary business income was $93,200. Which of the following is accurate?

Which of the following statements about partnerships is false?

Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. What is Mr. Chips' tax basis in its partnership interest?

Debbie is a limited partner in ADK Partnership. Her partnership Schedule K-1 reports $19,000 ordinary business income, $2,000 long-term capital gain, and $830 dividend income. Which of these items are subject to self-employment tax?

Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. What is Cramer's tax basis in its partnership interest?

During 2012, Elena generated $24,500 of earnings on Schedule C. If Elena had no other earned income, how much self-employment tax will she owe on her Schedule C net profit?

Sue's 2012 net (take-home) pay was $23,805. Her only payroll deductions were for payroll taxes and federal income tax. Federal income tax withholdings totaled $4,500. What was the amount of her gross wages for the year?

Which of the following statements concerning partnerships is false?