Question 1

A guaranteed payment is a payment made to a partner for specific services performed by the partner and is made without regard to the partnership's income.

Accepted Answer

A guaranteed payment is a fixed amount of money paid to a partner for specific services rendered and is not dependent on the partnership's income or profits.

Question 2

Once a corporation is formed,an exchange of the corporation's stock for property is always a nontaxable event.

Accepted Answer

The exchange of the corporation's stock for property may or may not be a taxable event, depending on the circumstances such as the value of the property exchanged and whether it qualifies for a tax-free exchange under certain provisions of the tax code.

Question 3

A corporation in which the performance of personal activities is the principal pursuit,services are performed by owner-employees,and the owner-employees own 95% or more of the stock is taxed at a flat rate of 35%.

Accepted Answer

True

Question 4

As a limited partner in Technonics,Ltd.,Dave is allowed to participate in the management of the business.

Accepted Answer

A limited partner in a limited partnership is only allowed to contribute capital and share in profits, but not participate in the management of the business.

Question 5

Start-up and organizational costs can be expensed or capitalized and amortized over 60 months based on the election of the taxpayer.

Accepted Answer

The answer of Start-up and organizational costs can be expensed...

Question 6

Match each statement with the correct term below.
-Limited Liability Company

Accepted Answer

The answer of Match each statement with the correct term...

Question 7

Partnership debts assumed by a partner is deemed to be a cash contribution and increases the partner's basis in the partnership.

Accepted Answer

When a partner assumes partnership debts, it is deemed to be a cash contribution and increases the partner's basis in the partnership. This can have tax implications when it comes to distributions or when the partnership is dissolved.

Question 8

Match each statement with the correct term below.
-Corporation

Accepted Answer

The answer of Match each statement with the correct term...

Question 9

The shareholder of an S corporation can reduce income taxes by passing income to the owner-employee as a dividend rather than paying salary.

Accepted Answer

Shareholders in an S corporation must receive reasonable compensation for services rendered to the corporation, and that compensation must be paid as salary subject to employment taxes. Dividends are paid from the corporation's profits after taxes have been paid, so they do not reduce the shareholder's income tax liability.

Question 10

There must be at least one member of a Limited Liability Company who is personally liable for the debts of the business.

Accepted Answer

Limited Liability Company (LLC) is a type of business structure in which the owners are not personally liable for the company's debts or liabilities. This is one of the main advantages of forming an LLC. All members enjoy limited liability protection, meaning their personal assets are not at risk in the event of a lawsuit or bankruptcy. However, unlike partnerships, there is no requirement for at least one member to be personally liable for the debts of the LLC.

Question 11

Match each statement with the correct term below.
-S corporation

Accepted Answer

The answer of Match each statement with the correct term...

Question 12

Match each statement with the correct term below.
-Limited Partnership

Accepted Answer

A limited partnership is a type of partnership consisting of at least one general partner, who has unlimited liability, and at least one limited partner, whose liability is limited to the amount of their investment in the partnership.

Question 13

S corporation status is attained when a qualifying corporation elects this status.

Accepted Answer

S corporation status is not automatically granted to corporations, but rather it must be elected by the corporation and approved by the IRS.

Question 14

Corporations can use a 52- to 53-week fiscal year end,but the year must end on Saturday each year.

Accepted Answer

Corporations can use a 52- to 53-week fiscal year end, but the year does not have to end on a Saturday. It can end on any day that corresponds to the nearest end of the month.

Question 15

Sole proprietors are allowed to deduct owner-employee salaries and fringe benefits.

Accepted Answer

Sole proprietors cannot deduct salaries paid to themselves as they are not considered employees of their business. Instead, their income is directly reported on their personal income tax return.

Question 16

Match each statement with the correct term below.
-Partnership

Accepted Answer

The answer of Match each statement with the correct term...

Question 17

Partners have extensive flexibility in choosing their tax year-end for their partnership.

Accepted Answer

The IRS has specific rules that generally require partnerships to adopt a tax year-end based on the tax year-ends of their partners or a calendar year-end, limiting the flexibility in choosing any tax year-end.

Question 18

Continuity of life refers to whether an entity continues to operate or technically dissolves and ceases to exist in its present form when a change occurs in the ownership structure.

Accepted Answer

Continuity of life refers to whether an entity (such as a corporation or partnership) continues to operate as a separate legal entity, regardless of changes in ownership or management. This means that the entity can continue to exist and carry out its business activities, even if there are changes in the individuals who own or manage it. Therefore, continuity of life is an important characteristic of many types of businesses and entities.

Question 19

Paris is a CPA and a partner in a small firm.To limit her liability from the negligence or misconduct of her partners,they can form the firm as a Limited Liability Partnership.

Accepted Answer

A Limited Liability Partnership (LLP) allows partners to be protected from the negligence or misconduct of their fellow partners. This means that Paris can limit her personal liability for the actions of her partners in the firm.

Question 20

Match each statement with the correct term below.
-Limited Liability Partnership

Accepted Answer

The answer of Match each statement with the correct term...

Quiz 13: Choice of Business Entity - General Tax and Nontax Factorsformation

A guaranteed payment is a payment made to a partner for specific services performed by the partner and is made without regard to the partnership's income.

Once a corporation is formed,an exchange of the corporation's stock for property is always a nontaxable event.

A corporation in which the performance of personal activities is the principal pursuit,services are performed by owner-employees,and the owner-employees own 95% or more of the stock is taxed at a flat rate of 35%.

As a limited partner in Technonics,Ltd.,Dave is allowed to participate in the management of the business.

Start-up and organizational costs can be expensed or capitalized and amortized over 60 months based on the election of the taxpayer.

Match each statement with the correct term below. -Limited Liability Company

Partnership debts assumed by a partner is deemed to be a cash contribution and increases the partner's basis in the partnership.

Match each statement with the correct term below. -Corporation

The shareholder of an S corporation can reduce income taxes by passing income to the owner-employee as a dividend rather than paying salary.

There must be at least one member of a Limited Liability Company who is personally liable for the debts of the business.

Match each statement with the correct term below. -S corporation

Match each statement with the correct term below. -Limited Partnership

S corporation status is attained when a qualifying corporation elects this status.

Corporations can use a 52- to 53-week fiscal year end,but the year must end on Saturday each year.

Sole proprietors are allowed to deduct owner-employee salaries and fringe benefits.

Match each statement with the correct term below. -Partnership

Partners have extensive flexibility in choosing their tax year-end for their partnership.

Continuity of life refers to whether an entity continues to operate or technically dissolves and ceases to exist in its present form when a change occurs in the ownership structure.

Paris is a CPA and a partner in a small firm.To limit her liability from the negligence or misconduct of her partners,they can form the firm as a Limited Liability Partnership.

Match each statement with the correct term below. -Limited Liability Partnership