Question 1

Tax characteristics of corporations include which of the following?
I.At higher income levels,the lower tax rates phase out by the use of a surtax.
II.The corporate tax rates are 10%,15%,25%,28%,33%,35% and 39.6%.
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Accepted Answer

At higher income levels, corporations face a surtax that effectively phases out the benefit of lower tax rates. However, the specific tax rates listed in statement II are not accurate for corporate tax rates.

Question 2

A partner in a limited liability partnership (LLP)
I.Has no liability for acts of malfeasance of any of the other partners.
II.Has no liability for the debts of the partnership.
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Accepted Answer

A partner in an LLP has limited liability for both acts of malfeasance of other partners and debts of the partnership. This is the main advantage of forming an LLP.

Question 3

Western Corporation began operations in 1999.Its fiscal year end is October 31.This date coincides with its natural business year.On June 2,2016,Western elects S corporation status.All of the corporate shareholders consented to the election.The earliest date the corporation is recognized as an S corporation is

Accepted Answer

The S corporation status becomes effective at the start of the corporation's fiscal year following the election, which is November 1, 2017, since the election was made after the start of the fiscal year on June 2, 2016.

Question 4

Which of the following will render a corporation ineligible for S corporation status?
I.The corporation has 95 stockholders.
II.One of the stockholders is a citizen- resident of Canada.
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Accepted Answer

The answer of Which of the following will render a...

Question 5

Limited liability refers to an owner's liability for which of the following?
I.The amount invested in the entity.
II.The liabilities of the corporation that the owner has personally guaranteed.
III.All of the outstanding liabilities of the corporation.
IV.Only for the corporation's loans from financial institutions
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Accepted Answer

Limited liability means an owner's financial liability is limited to the amount they have invested in the entity. They are not personally responsible for the corporation's liabilities beyond their investment, unless they have personally guaranteed specific liabilities.

Question 6

Which of the following characteristics distinguish a corporation from other forms of businesses?
I.Centralization of management
II.Continuity of life
III.Free transferability of ownership interests
IV.Limited liability
V.Profit motive
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Accepted Answer

Statements I, II, III, and IV are the distinguishing characteristics of a corporation. Centralization of management refers to the fact that corporations are managed by a board of directors, rather than by the ownership. Continuity of life means that a corporation can exist beyond the lifespan of its shareholders or directors. Free transferability of ownership interests means that shares of stock can be easily bought and sold by shareholders. Limited liability refers to the fact that shareholders are not personally responsible for the debts or obligations of the corporation. Profit motive is not a distinguishing characteristic, as all forms of businesses operate with the goal of generating profits.

Question 7

Which of the following is/are correct with respect to limited liability companies (LLCs)?
I.An advantage of an LLC when compared to a regular corporation is the ability to pass through tax attributes to owners.
II.A disadvantage of a general partnership when compared with an LLC is the inability of owners to have limited liability.
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Accepted Answer

Statement I is correct. One of the advantages of an LLC is the ability to pass through tax attributes to its owners, which means the income is only taxed once at the individual level. This is different from a regular corporation where income is taxed at the corporate level and again at the individual level when dividends are distributed.

Statement II is also correct. One of the disadvantages of a general partnership is that the owners do not have limited liability, which means their personal assets could be at risk in case of any lawsuits or debts of the partnership. LLCs provide limited liability protection to their owners.

Question 8

Julian and Tanya each contribute $50,000 cash to form the M&T Partnership on January 4,2017.Julian and Tanya share profits and losses in the ratio of 60% and 40%,respectively.During 2017,the partnership generates ordinary income of $80,000.A cash distribution of $5,000 is made to Julian in December 2017.How much income must Julian recognize from the partnership in 2017?

Accepted Answer

The answer of Julian and Tanya each contribute $50,000 cash...

Question 9

Carmen owns 10% of the stock of Fitness Design Corporation,and is its manager.Fitness Design reports taxable income of $70,000 and pays $60,000 in dividends to shareholders before considering payments to Carmen.Carmen receives a $50,000 salary.What is Carmen's income from Fitness Design?

Accepted Answer

Carmen's income from Fitness Design consists of her salary and her share of the dividends.

Her share of the dividends is 10% of $60,000, which is $6,000.

Therefore, her total income is $50,000 (salary) + $6,000 (dividends) = $56,000.

So the correct answer is D.

Question 10

Which of the following entities directly bear the burden of income taxes?
I.Limited Liability Company
II.Corporations
III.Partnerships
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Accepted Answer

Only corporations directly bear the burden of income taxes. Limited Liability Companies and partnerships are pass-through entities, meaning that the tax burden is passed on to the individual owners or partners.

Question 11

Assume a corporation's status as an S corporation is revoked or terminated.How many years must the corporation wait before making a new S corporation election,in absence of IRS consent to an earlier election?

Accepted Answer

If an S corporation's status is revoked or terminated, it must wait five years before making a new S corporation election, unless they receive IRS consent to make an earlier election.

Question 12

Danube Corporation operates a theatrical costume shop.Taxable income for the current year is $1,000,000.What is Danube's income tax liability?

Accepted Answer

The answer of Danube Corporation operates a theatrical costume shop.Taxable...

Question 13

Personal Service Corporations (PSCs)have certain special characteristics.Which of the following describes a PSC?
I.A PSC is not permitted to reduce any of its income from portfolio investments with a passive activity loss.
II.The owner-employees aggregately own more than 95% of the corporate stock.
III.The performance of personal services by owner-employees is the principal activity.
IV.PSCs are subject to a flat income tax of 35% of taxable income.
​

Accepted Answer

The answer of Personal Service Corporations (PSCs)have certain special characteristics.Which...

Question 14

Rockhill Corporation operates a women's clothing boutique.Taxable income for the current year is $60,000.What is Rockhill's income tax liability?

Accepted Answer

The answer of Rockhill Corporation operates a women's clothing boutique.Taxable...

Question 15

Ricardo is the marketing manager and owns a 40% interest in the Fielder Partnership.Fielder's taxable income before considering payments to partners is $80,000.Ricardo withdraws $40,000 for his personal living expenses.How much income must Ricardo report from Fielder?

Accepted Answer

Ricardo must report his share of the partnership's taxable income, not the amount he withdraws for personal expenses. His share is 40% of $80,000, which equals $32,000.

Question 16

Which of the following will render a corporation ineligible for S corporation status?
I.The corporation has 125 stockholders.
II.One of the stockholders is another corporation.
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Accepted Answer

Both statements are correct. According to the IRS, S corporations can have no more than 100 shareholders, and they must all be individuals, estates, or certain trusts. Additionally, another corporation cannot be a shareholder in an S corporation. Therefore, a corporation with 125 stockholders and one of them being another corporation would be ineligible for S corporation status.

Question 17

Claudia owns 10% of the stock of Fitness Design Corporation,an S corporation.She is also its controller.Fitness Design reports taxable income of $70,000 and pays $60,000 in dividends to shareholders before considering Claudia's salary.Claudia receives a $75,000 salary.What is Claudia's income from Fitness Design?

Accepted Answer

The answer of Claudia owns 10% of the stock of...

Question 18

Marty owns 30% of the stock of Myron Corporation.Myron reports taxable income of $100,000 and pays $80,000 in dividends to shareholders.What is Marty's income from Myron Corporation?

Accepted Answer

Marty's income from Myron Corporation includes his share of the dividends paid. Since he owns 30% of the stock, he receives 30% of the $80,000 in dividends, which amounts to $24,000.

Question 19

Which of the following facts would prevent an S Corporation election?
I.Magnificent Corporation has 125 shareholders.
II.Simms Corporation,incorporated in Kansas,has only one class of common stock issued and outstanding.
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Accepted Answer

An S Corporation cannot have more than 100 shareholders. Therefore, statement I would prevent an S Corporation election. Statement II is correct, but it does not prevent an S Corporation election.

Question 20

Santana Corporation operates a golf shop.It properly elected Subchapter S status on March 1 of the current year.Taxable income for the current year is $120,000.What is Santana Corporation's income tax liability?

Accepted Answer

As a Subchapter S corporation, Santana Corporation is a pass-through entity, meaning it does not pay federal income tax at the corporate level. Instead, the income is passed through to the shareholders, who report it on their personal tax returns. Therefore, the corporation itself has no income tax liability.

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

Tax characteristics of corporations include which of the following? I.At higher income levels,the lower tax rates phase out by the use of a surtax. II.The corporate tax rates are 10%,15%,25%,28%,33%,35% and 39.6%. ​

A partner in a limited liability partnership (LLP) I.Has no liability for acts of malfeasance of any of the other partners. II.Has no liability for the debts of the partnership. ​

Which of the following will render a corporation ineligible for S corporation status? I.The corporation has 95 stockholders. II.One of the stockholders is a citizen- resident of Canada. ​

Which of the following characteristics distinguish a corporation from other forms of businesses? I.Centralization of management II.Continuity of life III.Free transferability of ownership interests IV.Limited liability V.Profit motive ​

Carmen owns 10% of the stock of Fitness Design Corporation,and is its manager.Fitness Design reports taxable income of $70,000 and pays $60,000 in dividends to shareholders before considering payments to Carmen.Carmen receives a $50,000 salary.What is Carmen's income from Fitness Design?

Which of the following entities directly bear the burden of income taxes? I.Limited Liability Company II.Corporations III.Partnerships ​

Assume a corporation's status as an S corporation is revoked or terminated.How many years must the corporation wait before making a new S corporation election,in absence of IRS consent to an earlier election?

Danube Corporation operates a theatrical costume shop.Taxable income for the current year is $1,000,000.What is Danube's income tax liability?

Rockhill Corporation operates a women's clothing boutique.Taxable income for the current year is $60,000.What is Rockhill's income tax liability?

Ricardo is the marketing manager and owns a 40% interest in the Fielder Partnership.Fielder's taxable income before considering payments to partners is $80,000.Ricardo withdraws $40,000 for his personal living expenses.How much income must Ricardo report from Fielder?

Which of the following will render a corporation ineligible for S corporation status? I.The corporation has 125 stockholders. II.One of the stockholders is another corporation. ​

Marty owns 30% of the stock of Myron Corporation.Myron reports taxable income of $100,000 and pays $80,000 in dividends to shareholders.What is Marty's income from Myron Corporation?

Which of the following facts would prevent an S Corporation election? I.Magnificent Corporation has 125 shareholders. II.Simms Corporation,incorporated in Kansas,has only one class of common stock issued and outstanding. ​

Santana Corporation operates a golf shop.It properly elected Subchapter S status on March 1 of the current year.Taxable income for the current year is $120,000.What is Santana Corporation's income tax liability?

Tax characteristics of corporations include which of the following? I.At higher income levels,the lower tax rates phase out by the use of a surtax. II.The corporate tax rates are 10%,15%,25%,28%,33%,35% and 39.6%.

A partner in a limited liability partnership (LLP) I.Has no liability for acts of malfeasance of any of the other partners. II.Has no liability for the debts of the partnership.

Which of the following will render a corporation ineligible for S corporation status? I.The corporation has 95 stockholders. II.One of the stockholders is a citizen- resident of Canada.

Which of the following characteristics distinguish a corporation from other forms of businesses? I.Centralization of management II.Continuity of life III.Free transferability of ownership interests IV.Limited liability V.Profit motive

Which of the following entities directly bear the burden of income taxes? I.Limited Liability Company II.Corporations III.Partnerships

Which of the following will render a corporation ineligible for S corporation status? I.The corporation has 125 stockholders. II.One of the stockholders is another corporation.

Which of the following facts would prevent an S Corporation election? I.Magnificent Corporation has 125 shareholders. II.Simms Corporation,incorporated in Kansas,has only one class of common stock issued and outstanding.