Question 1

Tax characteristics of corporations include which of the following?
I.At higher income levels,the lower tax rates phase out by the use of a surtax.
II.The corporate tax rates are 10%,15%,25%,28%,33%,35% and 39.6%.

Accepted Answer

The answer of Tax characteristics of corporations include which of...

Question 2

General partners
I.Are liable for all debts of the partnership.
II.Are taxed on distributions received from the partnership.

Accepted Answer

General partners are personally liable for all debts and obligations of the partnership. They are also taxed on their share of the partnership's income and losses, but not on distributions received from the partnership. Statement II is incorrect.

Question 3

Which of the following entities directly bear the burden of income taxes?
I.Limited Liability Company
II.Corporations
III.Partnerships

Accepted Answer

Only corporations directly bear the burden of income taxes. Limited Liability Companies (LLCs) and partnerships are pass-through entities, meaning the income taxes are paid by the individual owners or members of the company.

Question 4

Corporations generally are required to use the accrual method of accounting.

Accepted Answer

Corporations are generally required to use the accrual method of accounting, which records revenue and expenses when they are earned or incurred, regardless of when the cash is received or paid. This is in contrast to the cash method, which records transactions when cash is received or paid. However, there are some exceptions to this requirement, such as certain small businesses and certain types of farming businesses, which may be able to use the cash method.

Question 5

A sole proprietor
I.Can be an employee of the business.
II.Has limited liability for the debts of the business.

Accepted Answer

A sole proprietor cannot be an employee of the business because they are the owner and directly responsible for all aspects of the business. They also have unlimited liability for the debts of the business, not limited liability.

Question 6

Western Corporation began operations in 1989.Its fiscal year end is October 31.This date coincides with its natural business year.On June 2,2013,Western elects S corporation status.All of the corporate shareholders consented to the election.The earliest date the corporation is recognized as an S corporation is

Accepted Answer

An S corporation election made after the start of the fiscal year but before the 15th day of the third month of the following fiscal year is effective at the start of the next fiscal year. Since the election was made on June 2, 2013, it becomes effective on November 1, 2013, the start of the next fiscal year.

Question 7

Which of the following is/are correct with respect to limited liability companies (LLCs)?
I.An advantage of an LLC when compared to a regular corporation is the ability to pass through tax attributes to owners.
II.A disadvantage of a general partnership when compared with an LLC is the inability of owners to have limited liability.

Accepted Answer

Statement I is correct as one of the advantages of LLCs is that they have pass-through taxation, meaning that the tax attributes of the business are passed through to the owners who report it on their individual tax returns. This avoids the issue of double taxation seen in regular corporations.

Statement II is also correct as one of the disadvantages of a general partnership is that the owners have unlimited liability, meaning that they are personally responsible for the debts and obligations of the business. In an LLC, owners have limited liability and are not personally responsible for these debts and obligations.

Question 8

Limited liability refers to

Accepted Answer

Limited liability refers to the protection of the owners' personal assets from the debts and liabilities of the business. This means that the owners are not risking any more than they invested in the firm, and their personal assets cannot be used to pay for business debts beyond their initial investment.

Question 9

A partner in a limited liability partnership (LLP)
I.Has no liability for acts of malfeasance of any of the other partners.
II.Has no liability for the debts of the partnership.

Accepted Answer

In an LLP, the partners have limited liability, which means they are not personally liable for the debts or obligations of the partnership, unless they engage in wrongful or unlawful acts. Therefore, statement II is correct. Additionally, in an LLP, each partner is only liable for their own acts of malfeasance, and not for the acts of other partners. Therefore, statement I is also correct.

Question 10

Assume a corporation's status as an S corporation is revoked or terminated.How many years must the corporation wait before making a new S corporation election,in absence of IRS consent to an earlier election?

Accepted Answer

If a corporation's S corporation status is revoked or terminated, it must wait five years before making a new S corporation election in the absence of IRS consent to an earlier election.

Question 11

Limited liability refers to an owner's liability for which of the following?
I.The amount invested in the entity.
II.The liabilities of the corporation that the owner has personally guaranteed.
III.All of the outstanding liabilities of the corporation.
IV.Only for the corporation's loans from financial institutions

Accepted Answer

Limited liability means an owner's financial liability is limited to the amount they have invested in the entity. They are not personally responsible for the corporation's liabilities beyond their investment, unless they have personally guaranteed specific liabilities.

Question 12

Julian and Tanya each contribute $50,000 cash to form the M&T Partnership on January 4,2013.Julian and Tanya share profits and losses in the ratio of 60% and 40%,respectively.During 2013,the partnership generates ordinary income of $80,000.A cash distribution of $5,000 is made to Julian in December 2013.How much income must Julian recognize from the partnership in 2013?

Accepted Answer

The answer of Julian and Tanya each contribute $50,000 cash...

Question 13

Rockhill Corporation operates a women's clothing boutique.Taxable income for the current year is $60,000.What is Rockhill's income tax liability?

Accepted Answer

The answer of Rockhill Corporation operates a women's clothing boutique.Taxable...

Question 14

Which of the following facts would prevent an S Corporation election?
I.Magnificent Corporation has125 shareholders.
II.Simms Corporation,incorporated in Kansas,has only one class of common stock issued and outstanding.

Accepted Answer

An S Corporation can have no more than 100 shareholders, and they must all be U.S. citizens or residents. Therefore, statement I is correct and would prevent an S Corporation election. Statement II is incorrect since having only one class of stock is a requirement for S Corporation status.

Question 15

A limited partner
I.Can lose any or all of their investment in the partnership.
II.Can participate in the management of the partnership.

Accepted Answer

A limited partner is a partner who can lose any or all of their investment in the partnership, but they cannot participate in the management of the partnership. Their liability is limited to the amount of their investment. Therefore, statement I is correct and statement II is incorrect.

Question 16

Which of the following will render a corporation ineligible for S corporation status?
I.The corporation has 95 stockholders.
II.One of the stockholders is a citizen- resident of Canada.

Accepted Answer

The answer of Which of the following will render a...

Question 17

Ricardo is the marketing manager and owns a 40% interest in the Fielder Partnership.Fielder's taxable income before considering payments to partners is $80,000.Ricardo withdraws $40,000 for his personal living expenses.How much income must Ricardo report from Fielder?

Accepted Answer

Ricardo must report his share of the partnership's taxable income, not the amount he withdraws for personal expenses. His share is 40% of $80,000, which equals $32,000.

Question 18

Which of the following characteristics distinguish a corporation from other forms of businesses?
I.Centralization of management
II.Continuity of life
III.Free transferability of ownership interests
IV.Limited liability
V.Profit motive

Accepted Answer

I. Centralization of management is a characteristic of corporations in which the ultimate authority rests with a board of directors or a centralized management team, distinguishing it from other forms of businesses such as sole proprietorships or partnerships where management decision-making is decentralized.

II. Continuity of life is another distinguishing characteristic of corporations as they exist as separate legal entities from their shareholders and can continue to operate even if ownership or management changes. This is not the case for other forms of businesses such as sole proprietorships, partnerships, or limited liability companies.

III. Free transferability of ownership interests is a distinguishing characteristic of corporations as shares can be bought or sold without affecting the running of the business or management decisions. This is not the case for other forms of businesses such as sole proprietorships or partnerships where the transfer of ownership can be more complicated.

IV. Limited liability is a characteristic of corporations that distinguishes it from other forms of businesses as it limits the liability of shareholders and protects their personal assets in case of business failure or legal action. This is not the case for other forms of businesses such as sole proprietorships or partnerships where the owners are personally liable for the debts and obligations of the business.

V. Profit motive is not a distinguishing characteristic of corporations as it is a common characteristic of all forms of businesses.

Question 19

Which of the following will render a corporation ineligible for S corporation status?
I.The corporation has 125 stockholders.
II.One of the stockholders is another corporation.

Accepted Answer

Both statements are correct. According to the IRS, S corporations can have no more than 100 shareholders, and they must all be individuals, estates, or certain trusts. Additionally, another corporation cannot be a shareholder in an S corporation. Therefore, a corporation with 125 stockholders and one of them being another corporation would be ineligible for S corporation status.

Question 20

Nontax characteristics that should be considered in choosing an entity form include which of the following?
I.Number of owners.
II.Limited liability for owners.
III.Ability to participate in management.
IV.Transferability of ownership interests.

Accepted Answer

All of the statements are correct and should be considered when choosing an entity form. The number of owners, limited liability for owners, ability to participate in management, and transferability of ownership interests can all have significant impacts on the operations and success of the business. It is important to carefully consider all of these factors before making a decision on the appropriate entity form.

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

Tax characteristics of corporations include which of the following? I.At higher income levels,the lower tax rates phase out by the use of a surtax. II.The corporate tax rates are 10%,15%,25%,28%,33%,35% and 39.6%.

General partners I.Are liable for all debts of the partnership. II.Are taxed on distributions received from the partnership.

Which of the following entities directly bear the burden of income taxes? I.Limited Liability Company II.Corporations III.Partnerships

Corporations generally are required to use the accrual method of accounting.

A sole proprietor I.Can be an employee of the business. II.Has limited liability for the debts of the business.

Limited liability refers to

A partner in a limited liability partnership (LLP) I.Has no liability for acts of malfeasance of any of the other partners. II.Has no liability for the debts of the partnership.

Assume a corporation's status as an S corporation is revoked or terminated.How many years must the corporation wait before making a new S corporation election,in absence of IRS consent to an earlier election?

Rockhill Corporation operates a women's clothing boutique.Taxable income for the current year is $60,000.What is Rockhill's income tax liability?

Which of the following facts would prevent an S Corporation election? I.Magnificent Corporation has125 shareholders. II.Simms Corporation,incorporated in Kansas,has only one class of common stock issued and outstanding.

A limited partner I.Can lose any or all of their investment in the partnership. II.Can participate in the management of the partnership.

Which of the following will render a corporation ineligible for S corporation status? I.The corporation has 95 stockholders. II.One of the stockholders is a citizen- resident of Canada.

Ricardo is the marketing manager and owns a 40% interest in the Fielder Partnership.Fielder's taxable income before considering payments to partners is $80,000.Ricardo withdraws $40,000 for his personal living expenses.How much income must Ricardo report from Fielder?

Which of the following characteristics distinguish a corporation from other forms of businesses? I.Centralization of management II.Continuity of life III.Free transferability of ownership interests IV.Limited liability V.Profit motive

Which of the following will render a corporation ineligible for S corporation status? I.The corporation has 125 stockholders. II.One of the stockholders is another corporation.

Nontax characteristics that should be considered in choosing an entity form include which of the following? I.Number of owners. II.Limited liability for owners. III.Ability to participate in management. IV.Transferability of ownership interests.