Question 1

A fiscal year can be
I.a period of 12 months ending on any day during the month other than a Sunday.
II.a period of 12 months ending on the last day of any month other than January

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I.a period of...

Question 2

Which of the following businesses must use the accrual method of accounting?
I.Champion Mortgage Corporation,which has annual gross receipts of $10,000,000.
II.The Happy Bookworm,a local bookstore with annual gross receipts of $950,000.

Accepted Answer

The answer of Which of the following businesses must use...

Question 3

Which of the following businesses can use the cash method?
I.The Donner Group,a partnership with 3 equal partners,of which one is The Garden Corporation.Average revenues for the Donner Group,a consulting firm,over the last three years are $4,000,000.
II.The Mongoose Corporation,a computer software consultant that has average annual fees from services over the last three years are $2,100,000.

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Question 4

Which of the following taxable years are allowable by a newly formed partnership without obtaining prior approval from the IRS?
I.A January 31 year-end if it is a retail enterprise with a natural business year ending January 31 and all of its principal partners are on a calendar year.
II.A calendar year if majority partners and principal partners have varied year-ends.
III.A taxable year that is the same as that of its majority partners.

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Question 5

Orville and Olivia are single taxpayers who own and operate Brimstone Company.Orville owns 60% and Olivia owns 40% of Brimstone.Orville receives a salary of $30,000 and Olivia receives a salary of $70,000.Brimstone Company's taxable income is $150,000 before considering the salary payments to the owners.Brimstone pays a $50,000 dividend during the current year.Orville's net taxable income from other sources is $40,000 and Olivia's net taxable income from other sources is $10,000.Determine the total income tax liability for each of the following entity forms.
a.Brimstone Company is a corporation.
b.Brimstone Company is an S corporation.

Accepted Answer

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Question 6

Doug,Kate,and Gabe own Refiner Group,Inc.,an electing S corporation.The shareholder's ownership percentages and fiscal year ends follow:
 $$\begin{array} { l c l } 
& \text { Ownership } &  { \text { Year End } } \
\text { Doug } & 60 \% & \text { January } 31 \
\text { Kate } & 20 \% & \text { May } 31 \
\text { Gabe } & 15 \% & \text { September } 30
\end{array}$$ Which of the following statements is (are)correct?
I.Refiner Group,Inc.must use a calendar year.
II.Refiner Group,Inc.may elect to use a fiscal year ending January 31.
a.Only statement I is correct.
b.Only statement II is correct.
c.Both statements are correct.
d.Neither statement is correct.

Accepted Answer

The answer of Doug,Kate,and Gabe own Refiner Group,Inc.,an electing S...

Question 7

Which of the following businesses can use the cash method?
I.The Hateris Group,a partnership with 3 equal partners,of which one is The Hillard Corporation.Average revenues for the Hateris Group,a financial planning firm,over the last three years are $4,000,000.
II.The Glidder Corporation,a clothing retailer that has average annual sales over the last three years are $2,100,000.

Accepted Answer

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Question 8

Franco and Melanie start a new business called F&M Delivery.Franco contributes $50,000 in cash and Melanie contributes a fleet of vans worth $80,000.The business assumes Melanie's $30,000 debt on the van.The business borrows $500,000 to purchase necessary buildings and for working capital.They anticipate that the business will suffer losses for at least three years before it becomes profitable.Which entity forms would be appropriate for Franco and Melanie's new business?

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Question 9

Which of the following statements regarding a partnership's tax year is/are correct?
I.A partnership formed on July 1 must adopt a tax year ending on June 30.
II.A valid business purpose can no longer be claimed as a reason for adoption of a tax year other than the generally required tax year.

Accepted Answer

Both statements are incorrect.

Statement I is incorrect because a partnership formed on July 1 may adopt any tax year as long as it is not longer than 12 months and ends on the last day of any month other than December.

Statement II is incorrect because a valid business purpose can still be claimed as a reason for adopting a tax year other than the generally required tax year. However, the IRS may review and evaluate the claimed business purpose to determine if it is valid.

Question 10

Kim and Martina are equal owners of Roundball Company.They agree to admit Darcy as an equal owner.Darcy will contribute $10,000 in cash and property worth $40,000 (adjusted basis of $25,000)for a 1/3 interest in Roundball.How much gain (loss)will Darcy recognize and what is her basis in Roundball Company if Roundball is organized as a
a.Partnership
b.Corporation

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Question 11

Terry and Elsa form Egret Company by contributing assets of their respective businesses.Terry contributes $5,000 cash and land with a fair market value of $35,000 (adjusted basis of $20,000)for a 40% interest.Elsa will contribute services in organizing the startup of the company worth $20,000 and contributes $15,000 cash and inventory worth $75,000 (adjusted basis of $80,000)for a 60% interest.Determine the amount of gain or loss recognized on the transfer of the assets,each owner's basis in the ownership interest,and Egret Company's basis in the assets received for each of the following entities.
a.Egret Company is a partnership.
b.Egret Company is a corporation.

Accepted Answer

The answer of Terry and Elsa form Egret Company by...

Question 12

Which of the following businesses must use the accrual method of accounting?
I.Pryor and Ransom,a local law firm with annual gross receipts of $650,000.
II.Mayson Manufacturing,which has annual gross receipts of $20,000,000.

Accepted Answer

The answer of Which of the following businesses must use...

Question 13

Martina,an unmarried individual with no dependents,owns and operates an office supply store as a sole proprietorship.The net income from the business is consistently $100,000 annually.Based solely on income taxes,consider whether the corporate form of business will produce tax savings.Assume Martina uses the standard deduction amount.

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Question 14

Monica acquires a 25% interest in Terrapin Partnership during 2012 by contributing land with a fair market value of $35,000,an adjusted basis of $18,000,and subject to a mortgage of $12,000.The partnership assumes the mortgage.What is Monica's adjusted basis in her partnership interest?
 Discuss how you arrived at that adjusted basis amount,and the underlying reasoning behind the rules you applied.

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Question 15

Discuss what limited liability means.What type of entity (or entities)offers this characteristic to its owners?
 What type(s)of entity (or entities)do not provide this characteristic?

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Question 16

Snoopy Corporation,Garfield Corporation,and Dogbert Corporation are partners in Comic Partnership.The partners' fiscal year ends and ownership interests follow:
$\begin{array}{lll}
\text { Snoopy Corporation } & \text { March 31 FYE } & 15 \% \text { Interest } \
\text { Garfield Corporation } & \text { May 31 FYE } & 30 \% \text { Interest } \
\text { Dogbert Corporation } & \text { October 31 FYE } & 55 \% \text { Interest }
\end{array}$
I.Comic Partnership must use a calendar year end,unless the IRS approves an election for a different tax year.
II.Comic Partnership must use a October 31 fiscal year end.

Accepted Answer

The answer of Snoopy Corporation,Garfield Corporation,and Dogbert Corporation are partners...

Question 17

Discuss the characteristics of a personal service corporation (PSC).

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Question 18

Determine the amount of income that Sarah would have from Micon Company in each of the following situations.Sarah is a 50% owner and receives a salary of $40,000 from Micon Company.The salaries are not included in the Micon Company's $250,000 taxable income.
a.Micon Company is a corporation and pays $50,000 in dividends.
b.Micon Company is an S corporation and pays $50,000 in dividends.
c.Micon Company is a partnership and it distributes $50,000 in cash to the partners. Sarah's salary is not a guaranteed payment.
d.Micon Company is a partnership and it distributes $50,000 in cash to the partners. Sarah's salary is a guaranteed payment.

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Question 19

Janine and Johnny are single taxpayers who own the Queen's Inn Tavern.Janine owns 70% and Johnny owns 30% of Crossbow.Janine receives a payment of $40,000 and Johnny receives a payment of $60,000.Crossbow's taxable income is $200,000 before considering the payments to Janine and Johnny.Janine's net taxable income from other sources is $30,000 and Johnny's net taxable income from other sources is $10,000.Determine the total income tax liability for each of the following entity forms.
a.Queen's Inn Tavern is organized as a partnership. The payments are guaranteed payments.
b.Queen's Inn Tavern is organized as a corporation. The payments are salaries.

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Question 20

Does the selection of a corporate entity ever make sense based on a desire for lower marginal tax rates?
 Discuss.

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

A fiscal year can be I.a period of 12 months ending on any day during the month other than a Sunday. II.a period of 12 months ending on the last day of any month other than January

Which of the following businesses must use the accrual method of accounting? I.Champion Mortgage Corporation,which has annual gross receipts of $10,000,000. II.The Happy Bookworm,a local bookstore with annual gross receipts of $950,000.

Which of the following statements regarding a partnership's tax year is/are correct? I.A partnership formed on July 1 must adopt a tax year ending on June 30. II.A valid business purpose can no longer be claimed as a reason for adoption of a tax year other than the generally required tax year.

Which of the following businesses must use the accrual method of accounting? I.Pryor and Ransom,a local law firm with annual gross receipts of $650,000. II.Mayson Manufacturing,which has annual gross receipts of $20,000,000.

Discuss what limited liability means.What type of entity (or entities)offers this characteristic to its owners? What type(s)of entity (or entities)do not provide this characteristic?

Discuss the characteristics of a personal service corporation (PSC).

Does the selection of a corporate entity ever make sense based on a desire for lower marginal tax rates? Discuss.