Question 1

Nick and Rodrigo form the NRC Partnership by combining the assets of their respective businesses. Nick contributes $10,000 and assets worth $90,000 adjusted basis of $60,000) for a 1/3 interest. Rodrigo contributes $90,000 and assets worth $270,000 adjusted basis of $150,000) for a 2/3 interest. NRC also assumes $60,000 of debt on Rodrigo's assets. What is Rodrigo's basis in his partnership interest?

Accepted Answer

Rodrigo's total contribution to the partnership is $360,000 ($90,000 cash + $270,000 adjusted basis of assets). Since he has a 2/3 interest in the partnership, his share of the total contribution is $240,000 (2/3 x $360,000). However, since the partnership is assuming $60,000 of debt on his assets, his adjusted basis in his partnership interest is $180,000 ($240,000 - $60,000).

Question 2

Winston is the sole shareholder of Winston Inc, an S corporation. In 2013, he paid $50,000 for his shares of stock. During the current year, he contributes a building and land to the corporation. No additional shares of stock are issued. The basis of this property is $75,000, and its fair market value is $200,000. What is Winston's basis in his Winston stock at the end of 2014?

Accepted Answer

Winston's basis in his stock is increased by the basis of the property contributed, not its fair market value. Therefore, his basis is the original $50,000 plus the $75,000 basis of the contributed property, totaling $125,000.

Question 3

Zeppo and Harpo are equal owners of the Marx Corporation. During the current year, they agree to admit Groucho as a shareholder. Groucho will contribute $35,000 in cash and property worth $75,000 adjusted basis of $55,000) for 40% of Marx Corporation's stock. How much gain will Groucho recognize from the transfer of the assets to the corporation?

Accepted Answer

Groucho's contribution includes cash of $35,000 and property worth $75,000, with an adjusted basis of $55,000. Thus, the gain on the transfer of property is $75,000 - $55,000 = $20,000. Since Groucho will own 40% of the corporation's stock, he will recognize 40% of the $20,000 gain, or $8,000. Therefore, the correct answer is B) $20,000.

Question 4

Dewey and Louie agree to combine their sole proprietorships into one business. They will be equal partners in the Dewlou Diner. Dewey will contribute a building worth $100,000 adjusted basis of $80,000), and $10,000 in cash. Louie will contribute inventory worth $80,000 adjusted basis of $85,000) and $30,000 cash. What are Dewey and Louie's basis in the partnership? Dewey Louie

Accepted Answer

The answer of Dewey and Louie agree to combine their...

Question 5

Dogg Corporation, Katt Corporation, and Rabitt Corporation are equal partners in Critter Partnership. The partner's fiscal year ends follow: Dogg Corporation February 28 Katt Corporation May 31 Rabitt Corporation August 31 Which of the following statements is are) correct? I. Critter Partnership may elect to use any of the three dates that the partners use. II. Critter Partnership must use the tax year of the partner that creates the least amount of deferral.

Accepted Answer

Critter Partnership must use the tax year of the partner that creates the least amount of deferral, which is the rule for partnerships with partners having different fiscal years.

Question 6

Nick and Rodrigo form the NRC Partnership by combining the assets of their respective businesses. Nick contributes $10,000 and assets worth $90,000 adjusted basis of $60,000) for a 1/3 interest. Rodrigo contributes $90,000 and assets worth $270,000 adjusted basis of $150,000) for a 2/3 interest. NRC also assumes $60,000 of debt on Rodrigo's assets. What is Nick's basis in his partnership interest?

Accepted Answer

Nick contributes $10,000 and assets worth $90,000, with an adjusted basis of $60,000. Therefore, his total contribution to the partnership is $100,000 ($10,000 + $90,000). Since he owns a 1/3 interest in the partnership, his share of the partnership's total contribution is $33,333 ($100,000 x 1/3).

Nick's basis in his partnership interest is equal to the sum of his cash contribution and his share of the partnership's adjusted basis in its assets. Therefore, Nick's basis is $93,333 ($10,000 + $60,000 + $33,333).

Note: The debt assumed by the partnership is not relevant for determining Nick's basis in his partnership interest.

Question 7

Clark Exploration Corporation was organized and began operations on October 1, 2014. It incurs $41,000 in legal fees to obtain the corporate charter. The corporation elects to expense its organizational costs over the shortest allowable period. What amount will Clark report for organizational expenses for 2014?

Accepted Answer

The answer of Clark Exploration Corporation was organized and began...

Question 8

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

Accepted Answer

The answer of A fiscal year can be I. a...

Question 9

A new corporation's choice for its annual accounting period I. must be approved by the IRS. II. must be the same as its majority shareholder.

Accepted Answer

The choice of annual accounting period for a new corporation is solely in the hands of the corporation, and it does not require approval from the IRS nor does it have to be the same as its majority shareholder. The corporation can select any accounting period that conforms to IRS guidelines.

Question 10

During 2014, Mercedes incorporates her accounting practice. Mercedes is the sole shareholder. The following assets are transferred to the corporation:  What is the corporation's total basis in all of the transferred assets?

Accepted Answer

The answer of During 2014, Mercedes incorporates her accounting practice....

Question 11

Milo contributes a building with a fair market value of $400,000 to a new partnership in exchange for a 25% interest. His adjusted basis in the building is $125,000, which is subject to a $100,000 mortgage. The partnership assumes the mortgage. What is Milo's basis in his partnership interest?

Accepted Answer

The answer of Milo contributes a building with a fair...

Question 12

On January 5, 2014, Mike acquires a 50% interest in Precision Tools Partnership by contributing property with an adjusted basis of $20,000 and a fair market value of $24,000, subject to a mortgage of $16,000. What is Mike's basis in Precision Tools Partnership as of January 5, 2014?

Accepted Answer

Mike's basis is calculated as his adjusted basis in the contributed property ($20,000) minus the portion of the mortgage assumed by the other partner (50% of $16,000 = $8,000), resulting in a basis of $12,000.

Question 13

Nigel and Frank form NFS, Inc. an electing S corporation, by combining the assets of their respective businesses. Nigel contributes $10,000 and assets worth $90,000 adjusted basis of $60,000) for a 1/3 interest. Frank contributes $90,000 and assets worth $270,000 adjusted basis of $150,000) for a 2/3 interest. NFS also assumes $60,000 of debt on Frank's assets. What is Frank's basis in his stock?

Accepted Answer

The answer of Nigel and Frank form NFS, Inc. an...

Question 14

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.

Accepted Answer

The answer of Which of the following taxable years are...

Question 15

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. Partnerships generally have the flexibility to choose any tax year, subject to certain limitations. A partnership formed on July 1 may adopt any tax year ending on or before the following June 30, and a valid business purpose can still be claimed as a reason for adoption of a tax year other than the generally required tax year.

Question 16

Zeppo and Harpo are equal owners of the Marx Corporation. During the current year, they agree to admit Groucho as a shareholder. Groucho will contribute $25,000 in cash and property worth $50,000 adjusted basis of $35,000) for 25% of Marx Corporation's stock. What is Groucho's basis in the Marx Corporation stock?

Accepted Answer

Groucho's basis in the Marx Corporation stock is the sum of the cash contributed ($25,000) and the adjusted basis of the property contributed ($35,000), totaling $60,000. However, since Groucho is receiving 25% of the corporation's stock in exchange for these contributions, the value of the stock received is actually based on the fair market value of the contributions, which is $75,000 ($25,000 in cash + $50,000 in property value). Therefore, Groucho's basis in the Marx Corporation stock is $75,000.

Question 17

Doug, Kate, and Gabe own Refiner Group, Inc., an electing S corporation. The shareholder's ownership percentages and fiscal year ends follow: Ownership Year End Doug 60% January 31 Kate 20% May 31 Gabe 15% September 30 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.

Accepted Answer

Refiner Group, Inc. may elect to use a fiscal year ending January 31 because Doug, the majority shareholder, has a January 31 year end.

Question 18

Snoopy Corporation, Garfield Corporation, and Dogbert Corporation are partners in Comic Partnership. The partners' fiscal year ends and ownership interests follow:  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...

Question 19

Dewey and Louie agree to combine their sole proprietorships into one business. They will be equal partners in the Dewlou Diner. Dewey will contribute a building worth $100,000 adjusted basis of $80,000), and $10,000 in cash. Louie will contribute inventory worth $80,000 adjusted basis of $85,000) and $30,000 cash. What is Dewlou's basis in the assets?

Accepted Answer

The answer of Dewey and Louie agree to combine their...

Question 20

Nigel and Frank form NFS, Inc. an electing S corporation, by combining the assets of their respective businesses. Nigel contributes $10,000 and assets worth $90,000 adjusted basis of $60,000) for a 1/3 interest. Frank contributes $90,000 and assets worth $270,000 adjusted basis of $150,000) for a 2/3 interest. NFS also assumes $60,000 of debt on Frank's assets. What is Nigel's basis in his stock?

Accepted Answer

To determine Nigel's basis in his stock, we need to first calculate the total value of the assets contributed by both Nigel and Frank:

Nigel's assets contributed = $90,000 - $60,000 (adjusted basis) + $10,000 cash contribution = $40,000 + $10,000 = $50,000

Frank's assets contributed = $270,000 - $150,000 (adjusted basis) = $120,000

Total assets contributed by both = $50,000 + $120,000 = $170,000

Since Nigel's 1/3 interest represents $170,000/3 = $56,666, then his basis in his stock is $56,666 + $13,333 (his cash contribution) = $70,000.

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

A new corporation's choice for its annual accounting period I. must be approved by the IRS. II. must be the same as its majority shareholder.

During 2014, Mercedes incorporates her accounting practice. Mercedes is the sole shareholder. The following assets are transferred to the corporation: What is the corporation's total basis in all of the transferred assets?

Milo contributes a building with a fair market value of $400,000 to a new partnership in exchange for a 25% interest. His adjusted basis in the building is $125,000, which is subject to a $100,000 mortgage. The partnership assumes the mortgage. What is Milo's basis in his partnership interest?

On January 5, 2014, Mike acquires a 50% interest in Precision Tools Partnership by contributing property with an adjusted basis of $20,000 and a fair market value of $24,000, subject to a mortgage of $16,000. What is Mike's basis in Precision Tools Partnership as of January 5, 2014?

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.