Question 1

All of the following are classified as flow-through entities for tax purposes except

Accepted Answer

B) A C corporation is a taxpaying entity.

Question 2

During the current tax year,Charlie Corporation generated gross income of $1,800,000 and had ordinary and necessary deductions of $1,300,000,resulting in taxable income of $500,000.If Charlie Corporation paid qualifying dividends of $200,000 to shareholders,all of whom are in the 25% marginal tax bracket,what is the total tax paid on both corporate income and the corporate dividends?

Accepted Answer

The answer of During the current tax year,Charlie Corporation generated...

Question 3

Brad and Angie had the following income and deductions during 2017:
  
Calculate Brad and Angie's tax liability due or refund,assuming that they have 2 personal exemptions.They file a joint tax return.

Accepted Answer

The answer of Brad and Angie had the following income...

Question 4

Flow-through entities do not have to file tax returns since they are not taxable entities.

Accepted Answer

S Corporations, partnerships and limited liability companies have to file an informational tax return each year.

Question 5

In a limited liability partnership,a partner is not liable for his partner's acts of negligence or misconduct.

Accepted Answer

A partner in an LLP is liable for his own acts of negligence or misconduct, but not those of his partners.

Question 6

Firefly Corporation is a C corporation.Freya owns all of the stock.During the current year Firefly earned taxable income of $500,000 and paid a $300,000 dividend to Freya.Which of the following statements is correct?

Accepted Answer

A) The C corporation pays tax on its own taxable income, and then a second layer of tax is paid by the shareholders when dividends are paid to them.

Question 7

Organizing a corporation as an S Corporation results in a single level of taxation.

Accepted Answer

S Corporations do not pay tax. Owners of the corporation pay tax on their share of the corporation's taxable income, but do not pay tax on the distributions received.

Question 8

Which of the following is not an advantage of a limited liability company (LLC)?

Accepted Answer

C) A business operated as an LLC is treated as a flow-through entity unless the LLC elects to be taxed as a corporation.

Question 9

What is an important aspect of a limited liability partnership?

Accepted Answer

B) A partner in an LLP remains responsible for his or her own actions, or those under his supervision, but is not liable for the actions of other partners.

Question 10

Doug and Frank form a partnership,D and F Advertising,each contributing $50,000 to start the business.During the first year of operations,D and F earns $80,000,which is allocated $40,000 each to Doug and Frank.At the beginning of the second year,Doug sells his interest to Marcus for $90,000.What is the amount of Doug's taxable gain on the sale?

Accepted Answer

The answer of Doug and Frank form a partnership,D and...

Question 11

Limited liability company members (owners) are responsible for the liabilities of their limited liability company.

Accepted Answer

Limited liability company members have protection from entity-level liability in a manner similar to that of shareholders of corporations.

Question 12

Chris,a single taxpayer,had the following income and deductions during 2017:
  
Calculate Chris's tax liability due or refund.

Accepted Answer

The answer of Chris,a single taxpayer,had the following income and...

Question 13

Which of the following is not a taxpaying entity?

Accepted Answer

B) A partnership is a flow-through entity.

Question 14

In an S corporation,shareholders

Accepted Answer

A) Similar to partners in a partnership, S corporation shareholders are taxed on their proportionate share of the income earned by the corporation, regardless of distribution payments.

Question 15

AB Partnership earns $500,000 in the current year.Partners A and B are equal partners who do not receive any distributions during the year.How much income does partner A report from the partnership?

Accepted Answer

B) $500,000 × .5 = $250,000

Question 16

Limited liability companies may elect to be taxed as corporations.

Accepted Answer

An LLC can affirmatively elect to be taxed as a corporation.

Question 17

Rocky and Charlie form RC Partnership as equal partners.Rocky contributes $100,000 into RC while Charlie contributes real estate with a cost and fair market value of $100,000.During the current year,RC earned net income of $600,000.The partnership distributes $200,000 to each partner.The amount that Rocky should report on his individual tax return is

Accepted Answer

D) Rocky must report 50% × $600,000 or $300,000, his share of partnership net income. The distribution of $200,000 is not taxable but rather nontaxable return of capital reducing Rocky's basis ($100,000 original investment + $300,000 share of income) by $200,000 to $200,000.

Question 18

Fireball Corporation is an S corporation.Leyla owns all of the stock.During the current year Fireball earned taxable income of $500,000 and paid a $300,000 distribution to Leyla.Which of the following statements is correct?

Accepted Answer

C) Similar to partners in a partnership, S corporation shareholders are taxed on their proportionate share of the income earned by the corporation, regardless of distribution payments.

Question 19

All of the following statements are true except

Accepted Answer

B) An S Corporation is a flow-through entity, not a taxable entity. The items of income/loss are allocated to each shareholder who pays tax on the items on his or her individual income tax return.

Question 20

During the current tax year,Frank Corporation generated gross income of $1,900,000 and had ordinary and necessary deductions of $1,400,000.What is the amount of Frank Corporation's corporate income tax for the year?

Accepted Answer

The answer of During the current tax year,Frank Corporation generated...

Quiz 1: An Introduction to Taxation