Question 1

If an S corporation's beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance?

Accepted Answer

The answer of If an S corporation's beginning balance in...

Question 2

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

Kris can only deduct the loss up to the amount of his stock basis, which is $2,300.

Question 3

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, the shareholder's gain is equal to the property's fair market value minus the shareholder's stock basis. In this case, the fair market value is $100,000 and Fred's basis is $20,000, resulting in a taxable gain of $80,000. The other answer choices are incorrect as they do not take into account the appreciated property and/or the shareholder's stock basis.

Question 4

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 owned one-half of the stock, he is entitled to one-half of the S corporation's loss for the year before he sold his shares. Therefore, his share of the loss is $30,000.

However, when Bobby sold his shares on the 200th day of the year, he had already been allocated $100 per day of the loss, or $20,000. This means his share of the loss was reduced to $10,000.

When Saul acquired Bobby's shares, he acquired Bobby's share of the loss. Therefore, Saul takes over the remaining $10,000 of Bobby's share of the loss.

Alice, who still owns the other half of the stock, would be allocated the other half of the $60,000 loss, or $30,000, for a total loss allocation of $40,000.

Therefore, Bobby's allocated loss is $10,000, which is answer choice C.

Question 5

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 6

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 7

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 8

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 9

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 LIFO reserve is $115,000 ($550,000 - $435,000). The tax on the LIFO reserve is $40,250 ($115,000 x 35%).

Question 10

You are given the following facts about a 50% owner of an S corporation. Compute his ending stock basis.

Accepted Answer

The answer of You are given the following facts about...

Question 11

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

Nutt's stock basis increases by the $11,000 ordinary income, making it $15,000. The distribution of $16,000 exceeds his basis by $1,000, which is recognized as a long-term capital gain (LTCG).

Question 12

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

First, we need to calculate Randall's adjusted basis in the stock:

Beginning basis: $30,000
Plus: Share of ordinary loss: $20,000
Plus: Share of capital loss: $15,000
Adjusted Basis: $65,000

Randall can deduct the losses up to his adjusted basis in the stock, which is $65,000. Since the ordinary loss exceeds the adjusted basis, it is limited to the adjusted basis. The capital loss can be deducted in full.

Therefore, Randall can deduct:
- $17,143 of the ordinary loss ($20,000 limited to adjusted basis)
- $12,857 of the capital loss (full amount)

So, the answer is C) $17,143 ordinary loss; $12,857 capital loss.

Question 13

You are given the following facts about a 40% owner of an S corporation, and you are asked to prepare her ending stock basis.

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The answer of You are given the following facts about...

Question 14

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 15

During 2014, Oxen Corporation incurs the following transactions.  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

The answer of During 2014, Oxen Corporation incurs the following...

Question 16

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 17

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...

Question 18

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

David's stock basis is zero, and his loan basis is $8,000. The $10,000 operating income restores his loan basis to $10,000. The $11,000 distribution reduces his loan basis to zero and results in a $1,000 long-term capital gain (LTCG).

Question 19

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

Since Kinney is an electing S corporation, its taxable income flows through to the shareholders. In 2014, Kinney had taxable income of $6,000, which will also flow through to the shareholders, Eric and Maria.

The first distribution of $6,000 on February 1 will be taken out of the accumulated earnings and profits (AEP) first, up to the amount of AEP ($5,000 in this case), then the rest of the distribution ($1,000) will be considered a distribution of AAA. Therefore, each shareholder will have a $500 dividend income for that distribution.

The second distribution of $3,000 on September 1 will be considered a distribution of AAA since all of the AEP has been distributed in the first distribution. Therefore, each shareholder will have a $1,500 dividend income for that distribution.

So in total, Erin will have $2,000 ($500 + $1,500) of dividend income.

Question 20

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...

Quiz 12: S: Corporations

If an S corporation's beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance?

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 decreases an S corporation's AAA?

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

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

You are given the following facts about a 50% owner of an S corporation. Compute his ending stock basis.

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?

You are given the following facts about a 40% owner of an S corporation, and you are asked to prepare her ending stock basis.

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) :

During 2014, Oxen Corporation incurs the following transactions. 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:

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:

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) :

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.

Quiz 12: S: Corporations

If an S corporation's beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance?

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 decreases an S corporation's AAA?

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

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

You are given the following facts about a 50% owner of an S corporation. Compute his ending stock basis.

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?

You are given the following facts about a 40% owner of an S corporation, and you are asked to prepare her ending stock basis.

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) :

During 2014, Oxen Corporation incurs the following transactions. 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:

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:

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) :

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.

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