Question 1

Jerry is the sole shareholder of Bluejay Corporation, a calendar year C corporation. As of January 1, 2017, Bluejay has a deficit of $50,000 in accumulated E & P. During 2017, it has current E & P of $300,000 and distributes a cash dividend of $400,000 to its shareholder. As of January 1, 2017, Jerry's basis in the Bluejay stock is $75,000. One result of these transactions is:

Accepted Answer

The $400,000 dividend exceeds the current E & P of $300,000, so it is classified as a dividend out of accumulated E & P. The amount of the dividend equals the accumulated E & P of $50,000 plus the excess distribution of $350,000. The dividend income to Jerry is the amount of the distribution in excess of his basis in the stock, which is $225,000 ($400,000 - $75,000). Therefore, Choice B is correct.Choices A, C, and D are incorrect because they do not reflect the correct tax treatment of the transaction.

Question 2

Laurie is a 70% shareholder in Martin Ltd., a calendar year S corporation. As of January 1, 2017, Laurie's basis in her stock investment was $400,000. During 2017, she made an additional capital contribution to Martin of $90,000 and also loaned the corporation $80,000. During 2017, Martin Ltd. had an operating loss of $900,000. One of the results of these transactions as to 2017 is that:

Accepted Answer

The answer of Laurie is a 70% shareholder in Martin...

Question 3

During the current year, Scarlet had taxable income of $150,000 and the following capital asset transactions:
​
  How are these transactions handled if Scarlet is: 
a.An individual?
b.A C corporation?

Accepted Answer

The answer of During the current year, Scarlet had taxable...

Question 4

Camilla and Dean form Grouse Corporation with the following investment: ​
 Camilla and Dean each receive 300 shares of stock in Grouse Corporation and, in addition, Dean receives $30,000 in cash. As a result of the transfer, Dean's basis in the stock and Grouse's basis in the property will be:

Accepted Answer

The answer of Camilla and Dean form Grouse Corporation with...

Question 5

Elijah contributes land (basis of $80,000; fair market value of $400,000) for a 20% interest in a partnership. The land is subject to a mortgage of $50,000 which the partnership assumes. As a result of the transfer, Elijah:

Accepted Answer

The answer of Elijah contributes land (basis of $80,000; fair...

Question 6

Silver Corporation has held an S election since its formation five years ago. Which, if any, of the following will cause Silver to lose its election?

Accepted Answer

The answer of Silver Corporation has held an S election...

Question 7

In December 2017, Swallow Company's board authorizes a cash donation of $60,000 to the Hamilton County School District. The amount authorized is paid to the county in two $30,000 amounts in January and May 2018. Presuming a calendar year and accrual method taxpayer, when is the charitable contribution deduction available if Swallow Company is a:
a.Partnership?
b.C (regular) corporation?

Accepted Answer

The answer of In December 2017, Swallow Company's board authorizes...

Question 8

Mel, Fred, and Mary form Canary Corporation. Mel and Fred each contribute cash of $250,000, while Mary contributes land (basis of $100,000; fair market value of $300,000). Each transferor receives one-third of Canary's shares, and Mary also receives $50,000 in cash. Which, if any, of the following choices is a correct result of the incorporation?

Accepted Answer

When Mary contributes land to the corporation, her basis in the stock she receives is determined by the lesser of:
(1) the adjusted basis of the property contributed, or
(2) the amount of liabilities assumed by the corporation.

In this case, there are no liabilities assumed by the corporation, so Mary's basis in the stock is the adjusted basis of the land she contributed, which is $100,000.

Canary Corporation's overall basis in the land is stepped up to its fair market value of $300,000. However, because Mary's basis in the stock is determined by the adjusted basis of the land, her basis in her shares will be $100,000. As a result, the other shareholders' bases in their shares must be adjusted to give Mary a total basis of $150,000 (one-third of $450,000), which is accomplished by increasing their bases to $200,000 each ($250,000 cash plus $50,000 cash received by Mary). Therefore, the correct answer is B.

Question 9

Which of the following statements, if any, is characteristic of constructive dividends?

Accepted Answer

The answer of Which of the following statements, if any,...

Question 10

As of January 1, 2017, Amanda, the sole shareholder of Tern (a calendar year S corporation), had a basis in her stock of $50,000. During 2017, Tern had a net operating loss of $100,000 and distributed a $70,000 dividend to Amanda. What is Amanda's basis in her Tern stock as of January 1, 2018?

Accepted Answer

Amanda's basis is reduced by the net operating loss and the distribution. Starting with $50,000, subtract the $100,000 loss and the $70,000 distribution, resulting in a negative basis of ($120,000). However, basis cannot be negative, so it is limited to $0.

Question 11

On January 1, 2017, Copper Corporation (a calendar year S corporation for many years) became a C corporation. A possible reason for this change in status is:

Accepted Answer

The revocation of the S election by a majority of the shareholders is a valid reason for a calendar year S corporation to become a C corporation, effectively on the first day of the year. Options A, B, D are not valid reasons for the S corporation to convert to a C corporation.

Question 12

During the current year, Brown had taxable income of $200,000 and the following capital asset transactions:
​
  How are these transactions handled if Brown is: 
a.An individual?
b.A C corporation?

Accepted Answer

The answer of During the current year, Brown had taxable...

Question 13

In determining the taxable income (or loss) of a partnership, which, if any, of the following items must be considered?

Accepted Answer

Guaranteed payments to partners must be considered when determining taxable income or loss of a partnership. The other items listed (domestic production activities deduction, charitable contributions, and qualified dividend income) are not relevant to partnership taxable income.

Question 14

Jacob and Ashley form Junco Corporation with the following investments: ​
 Jacob and Ashley each receive one-half of the Junco stock. In addition, Ashley receives cash of $100,000. One of the results of these transfers is:

Accepted Answer

The basis of the land transferred to Junco Corporation is the fair market value of $400,000. Jacob and Ashley both contribute $500,000 in assets (including the land) and receive one-half of the Junco stock each. Ashley also receives cash of $100,000, which is not relevant to the basis calculation for Junco Corporation.

Question 15

As of January 1, 2017, Donald, the sole shareholder of Sandpiper (a calendar year C corporation), had a basis in his stock of $50,000. During 2017, Sandpiper had an operating loss of $100,000 and distributed a $70,000 dividend to Donald. As of January 1, 2017, Sandpiper had accumulated E & P of $200,000. What is Donald's basis in his Sandpiper stock as of January 1, 2018?

Accepted Answer

The answer of As of January 1, 2017, Donald, the...

Question 16

Which, if any, of the following transactions incurred by an S corporation is not a separately stated item?

Accepted Answer

Amortization of organizational expenditures is not a separately stated item for an S corporation.

Question 17

Snipe Corporation, a calendar year taxpayer, has total E & P of $800,000. During the current year, Snipe makes property distributions to Tracy (the sole shareholder) as follows: ​
 As a result of these distributions:

Accepted Answer

The answer of Snipe Corporation, a calendar year taxpayer, has...

Question 18

Jean is a shareholder in Parrot Corporation, a calendar year S corporation. During the year, Jean's share of the pass-through from Parrot is: ​
 If Jean's basis in the Parrot stock was $100,000 at the beginning of the year, her basis at the end of the year is:

Accepted Answer

The answer of Jean is a shareholder in Parrot Corporation,...

Question 19

Jim, Betty, and Bill form Crow Corporation. Jim and Betty each contribute cash of $500,000, while Bill contributes land (basis of $550,000; fair market value of $600,000). Each shareholder receives one-third of Crow's stock, and Bill also receives $100,000 in cash. Which, if any, of the following choices is a correct result of the incorporation?

Accepted Answer

The answer of Jim, Betty, and Bill form Crow Corporation....

Question 20

In determining a partner's basis in the partnership interest, which of the following reflects a correct adjustment?

Accepted Answer

The partner's basis in the partnership interest is adjusted for several items, including the decrease in partnership liabilities. This is because as liabilities decrease, the partner's share of the partnership assets increases, which in turn increases their basis in the partnership interest. Adding capital losses or partnership operating losses would decrease the partner's basis, which is not a correct adjustment. Subtracting tax-exempt income would also not be a correct adjustment since tax-exempt income is not subject to taxation and therefore does not affect the partner's basis.

Quiz 20: Corporations and Partnerships

During the current year, Scarlet had taxable income of $150,000 and the following capital asset transactions: How are these transactions handled if Scarlet is: a.An individual? b.A C corporation?

Camilla and Dean form Grouse Corporation with the following investment: Camilla and Dean each receive 300 shares of stock in Grouse Corporation and, in addition, Dean receives $30,000 in cash. As a result of the transfer, Dean's basis in the stock and Grouse's basis in the property will be:

Elijah contributes land (basis of $80,000; fair market value of $400,000) for a 20% interest in a partnership. The land is subject to a mortgage of $50,000 which the partnership assumes. As a result of the transfer, Elijah:

Silver Corporation has held an S election since its formation five years ago. Which, if any, of the following will cause Silver to lose its election?

Which of the following statements, if any, is characteristic of constructive dividends?

As of January 1, 2017, Amanda, the sole shareholder of Tern (a calendar year S corporation) , had a basis in her stock of $50,000. During 2017, Tern had a net operating loss of $100,000 and distributed a $70,000 dividend to Amanda. What is Amanda's basis in her Tern stock as of January 1, 2018?

On January 1, 2017, Copper Corporation (a calendar year S corporation for many years) became a C corporation. A possible reason for this change in status is:

During the current year, Brown had taxable income of $200,000 and the following capital asset transactions: How are these transactions handled if Brown is: a.An individual? b.A C corporation?

In determining the taxable income (or loss) of a partnership, which, if any, of the following items must be considered?

Jacob and Ashley form Junco Corporation with the following investments: Jacob and Ashley each receive one-half of the Junco stock. In addition, Ashley receives cash of $100,000. One of the results of these transfers is:

Which, if any, of the following transactions incurred by an S corporation is not a separately stated item?

Snipe Corporation, a calendar year taxpayer, has total E & P of $800,000. During the current year, Snipe makes property distributions to Tracy (the sole shareholder) as follows: As a result of these distributions:

Jean is a shareholder in Parrot Corporation, a calendar year S corporation. During the year, Jean's share of the pass-through from Parrot is: If Jean's basis in the Parrot stock was $100,000 at the beginning of the year, her basis at the end of the year is:

In determining a partner's basis in the partnership interest, which of the following reflects a correct adjustment?

Quiz 20: Corporations and Partnerships

During the current year, Scarlet had taxable income of $150,000 and the following capital asset transactions: ​ How are these transactions handled if Scarlet is: a.An individual? b.A C corporation?

Camilla and Dean form Grouse Corporation with the following investment: ​ Camilla and Dean each receive 300 shares of stock in Grouse Corporation and, in addition, Dean receives $30,000 in cash. As a result of the transfer, Dean's basis in the stock and Grouse's basis in the property will be:

Elijah contributes land (basis of $80,000; fair market value of $400,000) for a 20% interest in a partnership. The land is subject to a mortgage of $50,000 which the partnership assumes. As a result of the transfer, Elijah:

Silver Corporation has held an S election since its formation five years ago. Which, if any, of the following will cause Silver to lose its election?

Which of the following statements, if any, is characteristic of constructive dividends?

As of January 1, 2017, Amanda, the sole shareholder of Tern (a calendar year S corporation) , had a basis in her stock of $50,000. During 2017, Tern had a net operating loss of $100,000 and distributed a $70,000 dividend to Amanda. What is Amanda's basis in her Tern stock as of January 1, 2018?

On January 1, 2017, Copper Corporation (a calendar year S corporation for many years) became a C corporation. A possible reason for this change in status is:

During the current year, Brown had taxable income of $200,000 and the following capital asset transactions: ​ How are these transactions handled if Brown is: a.An individual? b.A C corporation?

In determining the taxable income (or loss) of a partnership, which, if any, of the following items must be considered?

Jacob and Ashley form Junco Corporation with the following investments: ​ Jacob and Ashley each receive one-half of the Junco stock. In addition, Ashley receives cash of $100,000. One of the results of these transfers is:

Which, if any, of the following transactions incurred by an S corporation is not a separately stated item?

Snipe Corporation, a calendar year taxpayer, has total E & P of $800,000. During the current year, Snipe makes property distributions to Tracy (the sole shareholder) as follows: ​ As a result of these distributions:

Jean is a shareholder in Parrot Corporation, a calendar year S corporation. During the year, Jean's share of the pass-through from Parrot is: ​ If Jean's basis in the Parrot stock was $100,000 at the beginning of the year, her basis at the end of the year is:

In determining a partner's basis in the partnership interest, which of the following reflects a correct adjustment?

During the current year, Scarlet had taxable income of $150,000 and the following capital asset transactions: How are these transactions handled if Scarlet is: a.An individual? b.A C corporation?

Camilla and Dean form Grouse Corporation with the following investment: Camilla and Dean each receive 300 shares of stock in Grouse Corporation and, in addition, Dean receives $30,000 in cash. As a result of the transfer, Dean's basis in the stock and Grouse's basis in the property will be:

During the current year, Brown had taxable income of $200,000 and the following capital asset transactions: How are these transactions handled if Brown is: a.An individual? b.A C corporation?

Jacob and Ashley form Junco Corporation with the following investments: Jacob and Ashley each receive one-half of the Junco stock. In addition, Ashley receives cash of $100,000. One of the results of these transfers is:

Snipe Corporation, a calendar year taxpayer, has total E & P of $800,000. During the current year, Snipe makes property distributions to Tracy (the sole shareholder) as follows: As a result of these distributions:

Jean is a shareholder in Parrot Corporation, a calendar year S corporation. During the year, Jean's share of the pass-through from Parrot is: If Jean's basis in the Parrot stock was $100,000 at the beginning of the year, her basis at the end of the year is: