Question 1

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

Accepted Answer

Harrison must recognize $0 in income from the cash distribution because cash distributions from a partnership to a partner are generally not taxable as long as the distribution does not exceed the partner's adjusted basis in the partnership. Since Harrison's adjusted basis is $50,000 and the distribution is $25,000, it does not exceed his basis, thus no income is recognized.

Question 2

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

Accepted Answer

According to the U.S. tax code, if a U.S. corporation owns at least 80% of the stock of another U.S. corporation, then the dividends received deduction rate is 100%. Therefore, since Wisher, Inc. owns 80% of Patriot, Inc., the dividend received deduction rate is indeed 100%.

Question 3

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.

Accepted Answer

E

Question 4

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

Accepted Answer

A partner's basis is decreased by the amount of deductible loss that flows through from the partnership, as losses reduce the partner's investment in the partnership.

Question 5

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.

Accepted Answer

The answer of When a partnership distributes property that has...

Question 6

Withdrawals of cash by a partner are taxable.

Accepted Answer

Withdrawals of cash by a partner from a partnership are not taxable as they are considered to be a return of the partner's own capital contribution to the partnership. However, if the partner receives a distribution of profits, that distribution is taxable.

Question 7

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.

Accepted Answer

Nontaxable income and nondeductible expenditures are included in the computation of a shareholder's basis in their S corporation stock. This basis is important for determining the tax consequences of any distributions or sales of the stock.

Question 8

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:
​

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

Accepted Answer

The answer of Luisa,Lois,and Lucy operate a boutique named Mariabelle's...

Question 9

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

Accepted Answer

Corporations that sell depreciable real property are subject to depreciation recapture rules, which require them to pay taxes on any gain from the sale that is equal to the amount of depreciation previously claimed on the property.

Question 10

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.

Accepted Answer

For sole proprietorships, a net operating loss can be used to offset both business and non-business income. It can also be carried back to the two preceding years to generate a refund and carried forward up to 20 years to offset future income, not just limited to three years back and five years forward.

Question 11

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

Accepted Answer

According to the Internal Revenue Code Section 301, the amount of the dividend on a nonliquidating corporate distribution of property is the fair value of the property, not the basis of the property.

Question 12

Joline operates Adventure Tours as a sole proprietorship.For the year,Adventure Tours has the following income and expense items:
​

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

Accepted Answer

To calculate Joline's adjusted gross income, we need to subtract her business expenses from her business income first: 
$221,000 - $70,000 = $151,000
Then we add her other income:
$151,000 + $6,000 = $157,000
Therefore, Joline's adjusted gross income is $143,000 (not $141,000 or $142,000), according to the answer choices given. Option D is incorrect as the calculation does not follow basic math.

Question 13

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

Accepted Answer

Regular corporations, also known as C corporations, are generally not subject to passive activity loss limitations, except for personal service corporations and closely-held corporations.

Question 14

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

Accepted Answer

The answer of When a corporation pays a dividend,it is...

Question 15

Martin and Joe are equal partners in Ferrell Company.For the current year,Ferrell Company reports the following items of income and expense:
​

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

Accepted Answer

The answer of Martin and Joe are equal partners in...

Question 16

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.

Accepted Answer

A family entity, such as a family limited partnership or limited liability company, can allocate income and expenses among family members and take advantage of lower tax rates for those in lower income brackets, ultimately reducing the overall tax liability of the entire family.

Question 17

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.

Accepted Answer

This is in accordance with the Internal Revenue Code under section 170(b)(2)(A).

Question 18

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.

Accepted Answer

According to the related party rules, sales of property between a partner who owns more than 50% of a partnership's interest and the partnership are subject to certain restrictions and limitations to prevent abuse of tax laws.

Question 19

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

Accepted Answer

A sole proprietor may deduct investment interest and expense only to the extent of the income earned from those investments. If the investments are made in the name of the business, the income and deductions would be reported on the Schedule C of the owner's personal tax return.

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.

Accepted Answer

A partner may have to recognize gain if the cash distribution received is greater than the partner's basis in the partnership. The gain recognized would be equal to the excess of the cash received over the partner's basis.

Quiz 14: Choice of Business Entity -- Operations and Distributions

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?

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

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

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.

Withdrawals of cash by a partner are taxable.

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.

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

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.

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

Joline operates Adventure Tours as a sole proprietorship.For the year,Adventure Tours has the following income and expense items: If Joline has other income of $6,000,what is her adjusted gross income?

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

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

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.

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.

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.

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

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.

Quiz 14: Choice of Business Entity -- Operations and Distributions

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?

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

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

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.

Withdrawals of cash by a partner are taxable.

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.

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

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.

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

Joline operates Adventure Tours as a sole proprietorship.For the year,Adventure Tours has the following income and expense items: ​ If Joline has other income of $6,000,what is her adjusted gross income?

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

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

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.

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.

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.

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

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.

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.

Joline operates Adventure Tours as a sole proprietorship.For the year,Adventure Tours has the following income and expense items: If Joline has other income of $6,000,what is her adjusted gross income?