Deck 14: Choice of Business Entity - Operations and Distributions

Question 1

Although nontaxable income and nondeductible expenditures are not included in the computation of taxable income,they do affect the shareholder's basis in their S corporation stock.

Answer 1

True

Question 2

A sole proprietor may deduct investment interest and investment expense without limitations if investments are made in the name of the business.

Answer 2

False

Question 3

Withdrawals of cash by a partner are taxable.

Answer 3

False

Question 4

A partner's basis is increased by the amount of deductible loss that flows through from the partnership.

Question 5

Since Wisher,Inc.owns 80% of Patriot,Inc.(a U.S.corporation)the dividend received deduction rate is 100%.

Question 6

With the exception of personal service and closely-held corporations,regular corporations are not subject to the passive activity rules.

Question 7

Match the term with the entity to which it applies.
a.Sole Proprietorship.
b.Partnership.
c.Corporation.
d.S Corporation.
Dividends-received deduction

Question 8

Match the term with the entity to which it applies.
a.Sole Proprietorship.
b.Partnership.
c.Corporation.
d.S Corporation.
Not a separate entity

Question 9

Corporations that sell depreciable real property are not subject to depreciation recapture rules

Question 10

When a partnership distributes property that has a fair market value greater than its basis,the partnership must recognize the income as if it sold the property.

Question 11

Sales of property between a partner who owns more than 50% of a partnership's interest and the partnership are subject to the related party rules.

Question 12

Match the term with the entity to which it applies.
a.Sole Proprietorship.
b.Partnership.
c.Corporation.
d.S Corporation.
Double taxation

Question 13

The amount of the dividend on a nonliquidating corporate distribution of property is the fair falue of the property.

Question 14

A corporation may reduce trade or business income by a charitable contributions made by the corporation,but the deduction is limited to 10% of taxable income,as adjusted..

Question 15

If a sole proprietorship has a net operating loss for the current period,the loss can only be used to offset other business income in the current year.Any current loss can be carried back three years and forward five years and used to offset business income in those years.

Question 16

Match the term with the entity to which it applies.
a.Sole Proprietorship.
b.Partnership.
c.Corporation.
d.S Corporation.
Separate entity that never pays income taxes

Question 17

Match the term with the entity to which it applies.
a.Sole Proprietorship.
b.Partnership.
c.Corporation.
d.S Corporation.
Losses flow-through limited to basis plus the amount of any direct loans

Question 18

When a corporation pays a dividend,it is nontaxable if it is in excess of earnings and profits.

Question 19

Match the term with the entity to which it applies.
a.Sole Proprietorship.
b.Partnership.
c.Corporation.
d.S Corporation.
Owner basis adjusted for liabilities

Question 20

When a partner receives a cash distribution from a partnership,the distribution is never taxable even if the amount of cash received is greater than the partner's basis in the partnership.

Question 21

At the beginning of the current year,Harrison's adjusted basis in FLM Partnership is $50,000.During the year,Harrison receives a cash distribution of $25,000.How much income must Harrison recognize because of the cash received?

A)$ - 0 -
B)$10,000
C)$15,000
D)$20,000
E)$25,000

Question 22

Olivia owns 40% of Addison Company,a partnership.Olivia's adjusted basis in the partnership is $22,000 at the beginning of the year.During the current year,Olivia receives a $10,000 cash distribution from the partnership.Addison Company reports a $100,000 operating loss for the current year.If Olivia is a material participant in Addison Company,how much of the partnership loss can she deduct on her income tax return?

A)$ -0-
B)$10,000
C)$12,000
D)$40,000

Question 23

William,a CPA,owns a 75% interest in Burglar Concrete Company (BCC).BCC is organized as a partnership.During the current year,William prepares BCC's tax return and receives his normal $300 fee for the preparation of the return.
I)BCC cannot deduct the $300 fee because of the related party rules.
II)William must recognize the $300 fee as income.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 24

Roger owns 65% of Silver Trucking,a partnership.During the current year,Roger sells a truck with an adjusted basis of $30,000 to Silver for $20,000.
I)Silver's basis in the truck is $30,000.
II)Roger can deduct the $10,000 loss on the sale of the truck.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 25

Higlo Paints is a partnership that reports an operating income of $50,000 in the current year.Higlo also has a $20,000 Section 1231 gain from the sale of a building and $10,000 in nondeductible expenses.Bernice owns 20% of Higlo and withdraws $5,000 from the partnership during the current year.Bernice's basis will increase by:

A)$ 5,000
B)$ 7,000
C)$ 9,000
D)$10,000
E)$12,000

Question 26

Rinaldo owns 20% of Mahoney Company,a partnership.Rinaldo's adjusted basis in the partnership is $32,000 at the beginning of the current year.During the current year,Rinaldo receives a $10,000 cash distribution from the partnership.Mahoney Company reports a $200,000 operating loss for the current year.Which of the following statements is/are correct?
I)Rinaldo's maximum loss deduction is limited to $22,000.
II)If Rinaldo is a material participant in Mahoney,he can deduct a $40,000 loss.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 27

Sensor Corporation was formed and began operations in 2011.For that year,it had operating income of $50,000,long-term capital gains of $25,000 and short-term capital losses of $10,000.In 2012,the corporation had $5,000 of net long-term capital losses,and in 2013 the corporation had $20,000 of net long-term capital losses.How much capital loss is available to carry forward to 2014?

A)$ - 0 -
B)$10,000
C)$15,000
D)$20,000
E)$25,000

Question 28

Roger owns 25% of Silver Trucking,a partnership.During the current year,Roger sells a truck with an adjusted basis of $25,000 to Silver for $18,000.
I)Silver's basis in the truck is $25,000.
II)Roger can deduct the $7,000 loss on the sale of the truck.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 29

Ed's adjusted basis in his partnership interest at the beginning of the tax year is $35,000.The partnership has operating income of $20,000 for the current year.Ed is a 50% partner,and he receives a current distribution of $40,000 cash this year.What is (are)the tax effect of these events?
I)Ed recognizes $10,000 of ordinary income from the partnership for the year.
II)Ed recognizes $40,000 of ordinary income due to the distribution.
III)Ed's adjusted basis in his partnership interest at the close of the tax year is zero.

A)Statements II and III are correct.
B)Only statement I is correct.
C)Statements I, II, and III are correct.
D)Only statement III is correct.
E)Statements I and III are correct.

Question 30

A family entity combines the tax-planning aspects of the progressive tax rate structure with the use of the owner's family to minimize the overall tax liability of the entire family.

Question 31

The Gilpin Partnership has an operating loss of $400,000 for the current year.Hawkins is a general partner and owns a 40% interest in the partnership.At the beginning of the year,Hawkins' adjusted basis in the partnership interest is $30,000.During the year the partnership borrows $120,000 with a recourse note.How much of the partnership loss can Hawkins deduct on his current-year income tax return?

A)$ - 0 -
B)$ 30,000
C)$ 70,000
D)$ 78,000
E)$200,000

Question 32

Luisa,Lois,and Lucy operate a boutique named Mariabelle's Dreams.Based on advice from Luisa's sister,an accountant,the three form a partnership.Luisa owns 40% and Lois and Lucy each own 30%.For the year,Mariabelle's Dreams reports the following:
$\begin{array} { l } \text {Sales revenues }&\$300,000\\ \text { Short-term capital gains}&3,000\\ \text {Short-term capital losses }&7,000\\ \text { Trade and business expenses}&160,000\\ \text {Investment expenses }&1,000\\ \text { Taxable income}&135,000\\\end{array}$

What amount will Mariabelle's Dreams report to Luisa as her ordinary income from the partnership?

A)$ 54,000
B)$ 54,400
C)$ 54,800
D)$ 55,600
E)$ 56,000

Question 33

Martin and Joe are equal partners in Ferrell Company.For the current year,Ferrell Company reports the following items of income and expense:
$\begin{array}{lr}\text { Sales revenues } & \$ 500,000 \\\text { Long-term capital gains } & 14,000 \\\text { Short-term capital losses } & (10,000) \\\text { Trade and business expenses } & (200,000) \\\text { Limited partnership loss } & (50,000) \\\text { Taxable income } & \$ 254,000\end{array}$
In addition to his Ferrell Company earnings,Martin has other income of $35,000.Included in the $35,000 is a $10,000 loss from the sale of land held as an investment.Martin's adjusted gross income is:

A)$162,000
B)$167,000
C)$172,000
D)$187,000
E)$192,000

Question 34

Joline operates Adventure Tours as a sole proprietorship.For the year,Adventure Tours has the following income and expense items:
$\begin{array}{lr}\text { Sales revenues } & \$ 325,000 \\\text { Short-term capital gains } & 5,000 \\\text { Short-term capital losses } & (9,000) \\\text { Trade and business expenses } & (185,000) \\\text { Taxable income } & \$ 136,000\end{array}$
If Joline has other income of $6,000,what is her adjusted gross income?

A)$141,000
B)$142,000
C)$143,000
D)$146,000

Question 35

Toliver Corporation incurs a long-term capital loss of $38,000 and a short-term capital gain of $33,000.Also,Toliver has operating income of $175,000.What is Toliver's taxable income?

A)$ 45,000
B)$170,000
C)$172,000
D)$175,000
E)$208,000

Question 36

Arvin's adjusted basis in the Gamma Partnership is zero at the beginning of the current year.He has a $15,000 suspended loss from the previous year.During the current year,Gamma's operating income is $30,000.Arvin is a 40% partner,and he receives a distribution of $10,000 cash this year.If Arvin materially participates in Gamma's operations,how much of the suspended loss can he deduct?

A)$ -0-
B)$ 2,000
C)$ 9,000
D)$10,000
E)$12,000

Question 37

Regarding a partnership,which of the following statements is/are always correct?
I)If a partnership is an active trade or business and it has a $65,000 loss from its business operations that is passed-through as an active loss to its partners,each active partner can deduct his full share of loss for the year to the extent they have basis that is at-risk.
II)Salaries and bonuses paid to partner-employees (other than guaranteed payments)are a deductible business expense.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 38

Marian owns 40% of Addison Company,a partnership.Marian's adjusted basis in the partnership is $32,000 at the beginning of the year.During the current year,Marian receives a $10,000 cash distribution from the partnership.Addison Company reports a $100,000 operating loss for the current year.If Marian is not a material participant in Addison Company and has no other passive activities,how much of the partnership loss can she deduct on her income tax return?

A)$ -0-
B)$10,000
C)$22,000
D)$40,000

Question 39

Which of the following items are included in the computation of the sole proprietorship's taxable income?
I)Charitable contributions.
II)Section 1231 gains and losses.
III)Investment income and expenses.

A)Only statement I is correct.
B)Only statement II is correct.
C)Statements I, II, and III are correct.
D)Only statement III is correct.
E)None are correct.

Question 40

Cornell and Joe are equal partners in Jones Company.For the current year,Jones reports the following items of income and expense:
$\begin{array}{lr}\text { Sales revenues } & \$ 500,000 \\\text { Long-term capital gains } & 14,000 \\\text { Short-term capital losses } & (30,000) \\\text { Trade and business expenses } & (200,000) \\\text { Limited partnership loss } & (50,000) \\\text { Taxable income } & \$ 234,000\end{array}$
In addition to his Jones earnings,Joe has other net taxable income of $45,000.Included in the $45,000 is $10,000 in income from a passive activity.Joe's income is:

A)$152,000
B)$157,000
C)$162,000
D)$167,000
E)$182,000

Question 41

Craig Corporation realizes $150,000 from sales during the current year.Craig also receives $20,000 of dividends from a 3% owned corporation.Operating expenses totals $155,000.Craig's dividends-received deduction is

A)$10,500
B)$12,000
C)$14,000
D)$16,000
E)$20,000

Question 42

During the current year,Metcalf Corporation has the following items of income and expense:
$\begin{array}{lr}\text { Sales } & \$ 450,000 \\\text { Cost of goods sold } & 320,000 \\\text { Dividends received } & 20,000\end{array}$
Metcalf owns 37% of the corporation that distributed the dividend to Metcalf.Determine the amount reported as income before special deductions for the current year.

A)$130,000
B)$134,000
C)$150,000
D)$454,000
E)$470,000

Question 43

Henritta is the sole shareholder of Quaker Corporation.Quaker's income from operations for the current year is $600,000.Included in the $600,000 amount are dividends of $10,000 from the stock of a 4%-owned corporation.Also included in the $600,000 is a $4,000 long-term loss realized on the sale of a stock investment in an unaffiliated corporation.To compute taxable income for the current year,Henritta should deduct a capital loss of

A)$ - 0 -
B)$4,000
C)$3,000
D)$2,000
E)$1,000

Question 44

Hammond Inc.,sells a building that it purchased in 1993 for $1,500,000.The building cost $1,000,000 and had an adjusted basis of $700,000 at the date of the sale.
I)Hammond has an $800,000 Section 1231 gain on the sale.
II)Hammond must report $300,000 of Unrecaptured Section 1250 gain.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 45

During the current year,Mars Corporation receives dividend income of $20,000 from an 85%-owned domestic corporation.What is Mars' maximum allowable dividend-received deduction for the current year?

A)$ - 0 -
B)$14,000
C)$16,000
D)$18,000
E)$20,000

Question 46

A corporation's calculation of the maximum allowable deduction for charitable contributions includes using what percentage limitation of the appropriate taxable income amount?

A)0%
B)3%
C)10%
D)30%
E)50%

Question 47

Abaco Corp.has gross income of $230,000 and taxable income of $50,000.The company did not include any special deductions in the calculation of taxable income.While reviewing the tax return,Abaco's accountant finds $20,000 of charitable contributions improperly classified as advertising and promotion expense.He sends the return back to the tax department for correction.What is Abaco's corrected taxable income?

A)$35,000
B)$55,000
C)$57,000
D)$63,000
E)$65,000

Question 48

A corporation's excess charitable contributions over the amount deductible

A)May be carried back two years and forward 20 years.
B)May be carried back or forward for two years at the corporation's election.
C)May be carried forward for a maximum of five succeeding years.
D)Is not deductible in any future or prior year.

Question 49

Pluto Corporation contributes $30,000 to qualified charitable organizations during 2013.Pluto's 2013 taxable income before any charitable contribution deduction is $280,000.Included in that amount is a $10,000 dividend-received deduction amount.Pluto also has a carryover charitable contribution of $2,000 from 2012.What is the maximum amount Pluto Corporation can deduct as a charitable contribution for 2013?

A)$ - 0 -
B)$28,000
C)$29,000
D)$30,000
E)$35,000

Question 50

During the current year,Timepiece Corporation has operating income of $460,000 and dividend income of $70,000 from 45% owned domestic corporations.Total operating expenses for the year are $470,000.What is Timepiece's dividends-received deduction for the current year?

A)$ - 0 -
B)$48,000
C)$56,000
D)$60,000
E)$70,000

Question 51

Passive activity loss limitation rules do not apply to
I)Publicly-held corporations.
II)Personal service corporations.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 52

During the current year,Swallowtail Corporation receives dividend income of $40,000 from a 15%-owned domestic corporation.What is Swallowtail's maximum allowable dividend-received deduction for the current year?

A)$ - 0 -
B)$28,000
C)$32,000
D)$36,000
E)$40,000

Question 53

Laurie and Lodi are dentists who have incorporated their practice.Laurie owns 60% of the stock of DENT-LL's Corporation and Lodi owns 40%.During the current year,the dentistry corporation has operating income of $125,000,interest income of $22,000 from investments,and losses from investments in limited partnerships of $24,000.The corporation pays $14,000 in dividends.What is DENT-LL's taxable income for the current year?

A)$ 73,800
B)$ 88,200
C)$123,000
D)$133,000
E)$147,000

Question 54

Sean Corporation's operating income totals $200,000 for the current year,including a deduction of $30,000 for actual charitable contributions.Dividend income of $10,000 was received from unaffiliated corporations and is not included in the $200,000.The related dividend received deduction has yet to be determined.To calculate the maximum allowable deduction for contributions,Sean should apply the percentage limitation to the base amount of

A)$200,000
B)$220,000
C)$230,000
D)$240,000
E)$242,000

Question 55

During the current year,Campbell Corporation receives dividend income of $40,000 from a 5%-owned domestic corporation.What is Campbell's maximum allowable dividend-received deduction for the current year?

A)$ - 0 -
B)$28,000
C)$32,000
D)$36,000
E)$40,000

Question 56

Bronco Corporation realizes $270,000 from sales during the current year.Bronco also receives $20,000 of dividends from a 2% owned corporation.Operating expenses totals $275,000.Bronco's taxable income is

A)$(19,000)
B)$ (5,000)
C)$ 1,000
D)$ 4,500
E)$ 15,000

Question 57

Valmont owns 98% of the stock of Barnes Corporation,a manufacturer.During the current year,Barnes has operating income of $64,000,interest income of $10,000 from investments,and passive losses from investments in limited partnerships of $20,000.Barnes Corporation pays $12,000 in dividends.What is Barnes' taxable income for the current year?

A)$34,000
B)$48,600
C)$54,000
D)$62,000
E)$74,000

Question 58

Hawkins Corporation has $50,000 of taxable income before special deductions.Taxable income includes an operating loss carryforward of $10,000 and $60,000 of dividend income received from other corporations in which Hawkins owns less than a 20% interest.What is Hawkins' taxable income?

A)$ 8,000
B)$15,000
C)$18,000
D)$25,000
E)$50,000

Question 59

Harrison Corporation sells a building for $330,000 in the current year.Harrison purchased the building in 2004 for $250,000 and had taken $20,000 in depreciation on the building up to the date of its sale.How should Harrison report the gain on the sale of the building?

A)Section 1231 gain of $100,000.
B)Ordinary income of $100,000.
C)Section 1231 gain of $80,000 and ordinary income of $20,000.
D)Section 1231 gain of $96,000 and ordinary income of $4,000.
E)Ordinary income of $96,000 and Section 1231 gain of $4,000.

Question 60

During the current year,Hope Corporation has the following items of income and expense:
$\begin{array}{lr}\text { Sales } & \$ 420,000 \\\text { Expenses from operations } & 470,000 \\\text { Dividends received } & 100,000\end{array}$
Hope owns 10% of the domestic corporation that distributed the dividends to Hope.Determine Hope Corporation's net operating loss for the current year.

A)$(50,000)
B)$(70,000)
C)$(30,000)
D)$(20,000)
E)$(40,000)

Question 61

Anna owns 20% of Cross Co.,an electing S corporation.Anna's adjusted basis in the stock is $32,000 at the beginning of the current year.During the current year,Cross pays a $50,000 cash dividend to its shareholders.Cross Co.reports a $200,000 operating loss for the current year.Which of the following statements is/are correct?
I)If Anna is a material participant in Chris Co.,she can deduct a $40,000 loss.
II)Anna's maximum loss deduction is limited to $22,000.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 62

During the current year the Newport Partnership is liquidated.Which of the following statements is correct concerning the liquidation of the partnership?
I)If only cash is distributed by the partnership,the partners must recognize a gain but cannot recognize a loss.
II)Gain is recognized only if the amount of cash and property distributed exceeds the partner's basis in the partnership.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 63

Carlota owns 4% of Express Corporation and has a basis of $5,000 in her stock.During the year,Express distributes a $300,000 dividend.As a result of the dividend,Carlota has

A)$12,000 of dividend income.
B)$ 5,000 of dividend income and $7,000 of capital gain.
C)$ 7,000 of dividend income and a $5,000 tax-free return of capital.
D)$ 5,000 of dividend income, $5,000 tax-free return of capital, and a $2,000 capital gain.
E)$ 7,000 capital gain.

Question 64

On a nonliquidating distribution of cash from a partnership,the partner will recognize gain if
I)the cash distributed exceeds his/her basis in the partnership.
II)the cash distributed exceeds his/her share of the net income of the partnership for the year.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 65

Salem Inc.is an electing S corporation with current year operating income of $300,000.The $300,000 does not include the amount it realized on the sale of a building for $330,000.The building was purchased in 2004 for $250,000 and $20,000 in straight-line depreciation had been taken on the building up to the date of its sale.How should Salem Inc.report these results to its shareholders?

A)Operating income of $320,000 and Section 1231 gain of $80,000.
B)Operating income of $400,000.
C)Operating income of $304,000 and Section 1231 gain of $96,000.
D)Operating income of $380,000 and unrecaptured Section 1250 gain of $20,000.
E)Operating income of $300,000 and Section 1231 gain of $80,000 and unrecaptured Section 1250 gain of $20,000.

Question 66

Mariana is a partner in the Benson Partnership.At the close of the current year,Mariana's basis in the partnership is $23,000.At that time,the partnership distributes cash of $6,000 and property with a basis of $4,000 and a fair market value of $7,000 to each partner.What amount must Mariana report as income from the distribution in the current year?

A)$ - 0 -
B)$ 4,000
C)$ 6,000
D)$10,000
E)$13,000

Question 67

Meritt is a partner in the McPherson Partnership.At the close of the current year,Meritt's basis in the partnership is $25,000.
I)If the partnership distributes cash of $7,500 to Meritt,she must report the cash as income.
II)If the partnership distributes property with a basis of $12,000 and a fair market value of $15,000,Meritt must report $3,000 as income.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 68

Virginia is the sole shareholder in Barnes Inc.,an electing S corporation.During the current year,Barnes has operating income of $64,000,interest income of $10,000 from investments,and passive losses from investments in limited partnerships of $20,000.Barnes Corporation pays $12,000 in dividends.What is Virginia's taxable income from Barnes for the current year?

A)$12,000
B)$46,000
C)$54,000
D)$74,000
E)$76,000

Question 69

Lane Inc.,an electing S corporation,realizes $150,000 from sales during the current year.Lane also receives $20,000 of dividends from a 3% owned corporation.Operating expenses total $155,000.Lane's operating income is

A)$(19,000)
B)$ ( 5,000)
C)$ 1,000
D)$ 4,500
E)$ 15,000

Question 70

Pablo owns 30% of Cancun Company,an electing S corporation.Pablo's adjusted basis in the stock is $44,000 at the beginning of the current year.During the current year,Cancun distributes a $60,000 dividend.Cancun Company reports a $200,000 operating loss for the current year.If Pablo is not a material participant in Cancun Company,how much of the loss can he deduct on his income tax return?

A)$ -0-
B)$18,000
C)$26,000
D)$44,000
E)$60,000

Question 71

Chance Corporation has a $20,000 deficit in earnings and profits as of January 1,2013.During 2013,the corporation has current earnings and profits of $40,000 and makes a $70,000 cash distribution to its shareholders.What part of the distribution is taxable as dividend income to Chance's shareholders?

A)$ - 0 -
B)$20,000
C)$30,000
D)$40,000
E)$70,000

Question 72

The Polaris S Corporation has operating income of $50,000.Andrew is the sole shareholder of the corporation that has had the S election in effect since its inception.At the beginning of the current year,Andrew's basis in his S corporation stock is $2,000.During the year Andrew receives cash distributions totaling $55,000.How much income must Andrew recognize for the current tax year?

A)$50,000 ordinary income; $55,000 dividend income.
B)$50,000 ordinary income.
C)$50,000 ordinary income; $3,000 capital gain.
D)$55,000 dividend income; $3,000 capital gain.
E)$55,000 dividend income.

Question 73

Roy receives a nonliquidating distribution from Ageless Corporation.Which of the following statements concerning nonliquidating distributions from a corporation are correct?
I)A nonliquidating cash distribution is taxable if the distribution comes from the corporation's current or accumulated earnings and profits.
II)The amount of the dividend on a nonliquidating distribution of property is the basis of the property distributed.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 74

Howard is a partner in the Smithton Partnership with a basis of $20,000.During the current year,the partnership is liquidated and the partnership distributes cash of $22,000 and property with a basis of $8,000 and a fair market value of $15,000 to each partner.What amount must Howard report as a gain from the liquidation?

A)$ - 0 -
B)$ 2,000
C)$10,000
D)$15,000
E)$17,000

Question 75

Peter owns 30% of Bear Company,an electing S corporation.Peter's adjusted basis in the stock is $44,000 at the beginning of the current year.During the current year,Bear distributes a $60,000 dividend.Bear Company reports a $200,000 operating loss for the current year.If Peter is a material participant in Bear Company,how much of the loss can he deduct on his income tax return?

A)$ -0-
B)$18,000
C)$26,000
D)$44,000
E)$60,000

Question 76

Byron is a partner in the Dowdy Group.At the close of the current year,Byron's basis in the partnership is $34,000.At that time,the partnership distributes cash of $8,000 and property with a basis of $9,000 and a fair market value of $13,000 to each partner.What is Byron's basis in the partnership after the distribution?

A)$13,000
B)$17,000
C)$26,000
D)$34,000

Question 77

The Serenity Corporation distributes $200,000 in cash to its shareholder during 2013.Accumulated earnings and profits are $80,000 as of January 1,2013.Current earnings and profits for 2013 are $84,000.Jonas,the sole shareholder of Serenity Corporation,has a basis of $48,000 in his stock.What is the tax effect of the distribution for Jonas?

A)Jonas will recognize ordinary income of $164,000 and a capital gain of $36,000.
B)Jonas will recognize ordinary income of $84,000, capital gain of $80,000 and a tax-free recovery of capital of $36,000.
C)Jonas will recognize ordinary income of $164,000 and a tax-free return of capital of $36,000.
D)Jonas will recognize ordinary income of $164,000 and a capital loss of $12,000.
E)Jonas will recognize ordinary income of $200,000 and a capital loss of $12,000.

Question 78

Rona owns 3% of Theta Corporation and has a basis of $500 in her stock.During the year,Theta distributes a $40,000 taxable dividend and a $30,000 nontaxable dividend.As a result of the dividend,Rona has

A)$1,200 of dividend income and a $400 capital gain.
B)$ 300 of dividend income.
C)$1,200 of dividend income and a $900 tax free return of capital.
D)$1,200 of dividend income and no capital gain.
E)$ 500 capital gain.

Question 79

Boston Company,an electing S corporation,has an operating loss of $400,000 for the current year.Hank owns a 40% interest in the company and is a material participant.At the beginning of the year,Hank's adjusted basis in the stock is $30,000.During the year the company borrows $100,000 with a recourse note.How much of the loss can Hank deduct on his current-year income tax return?

A)$ - 0 -
B)$ 30,000
C)$ 70,000
D)$160,000
E)$200,000

Question 80

Lavery Corporation has two equal shareholders,and has been an electing S corporation since its inception.In the current year,Lavery has taxable income of $60,000.This amount includes $50,000 from operations and $10,000 from investment interest income.Because of these events,each shareholder's adjusted basis in the stock will increase by

A)$ - 0 -
B)$10,000
C)$25,000
D)$30,000
E)$50,000