Question 1

Dogg Corporation,Katt Corporation,and Rabitt Corporation are equal partners in Critter Partnership.The partner's fiscal year ends follow:
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

According to the rules of partnership taxation, all partners in a partnership must use the same tax year, and the partnership must use the tax year of the partner who owns the largest interest in the partnership. Therefore, statement I is incorrect. Statement II is correct, as the partnership must use the tax year of the partner with the lowest deferral in order to minimize taxes and avoid penalties for late payment.

Question 2

Doug,Kate,and Gabe own Refiner Group,Inc. ,an electing S corporation.The shareholder's ownership percentages and fiscal year ends follow:
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

As an S corporation, Refiner Group, Inc. can adopt a fiscal year ending on any month except February 29th. Therefore, statement II is correct. Statement I is incorrect since Refiner Group, Inc. could choose a fiscal year end instead of a calendar year end.

Question 3

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

The answer of Nick and Rodrigo form the NRC Partnership...

Question 4

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.

Question 5

On January 5,2017,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 5,2017?

Accepted Answer

When 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, his basis in the partnership will be calculated as follows:

Adjusted basis of contributed property = $20,000
Fair market value of contributed property = $24,000
50% share in partnership = $12,000
Minus share of partnership liability = $0 (since share of liability is equal to adjusted basis of contributed property)

Therefore, Mike's basis in Precision Tools Partnership as of January 5, 2017, would be $12,000.

Question 6

During 2017,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 2017,Mercedes incorporates her accounting practice.Mercedes is...

Question 7

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 8

Clark Exploration Corporation was organized and began operations on October 1,2017.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 2017?

Accepted Answer

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

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

Neither statement is correct. A corporation can choose its own fiscal year-end as long as it's within the parameters set by the IRS. The choice does not have to be the same as its majority shareholder.

Question 10

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 11

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 period of...

Question 12

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 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 electing S...

Question 14

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

The answer of Nick and Rodrigo form the NRC Partnership...

Question 15

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 16

Winston is the sole shareholder of Winston Inc,an S corporation.In 2016,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 2017?

Accepted Answer

Winston's basis in his stock increases by the basis of the property contributed. His original basis was $50,000, and he contributed property with a basis of $75,000, so his new basis is $50,000 + $75,000 = $125,000.

Question 17

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 are partners...

Question 18

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

A newly formed partnership may adopt any taxable year it chooses, provided that it does not result in any deferral of income by the partners. However, a partnership with a natural business year may adopt the same taxable year as that of the natural business year, without obtaining prior approval. Therefore, statement I is correct. Statement II and III are also correct as a partnership may adopt a calendar year or the same taxable year as that of the majority partners without obtaining prior approval. Thus, the correct option is D.

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?
​
Building Inventory

Accepted Answer

Dewlou's basis in the assets is the adjusted basis of the assets contributed by the partners. The building's basis is $80,000, and the inventory's basis is $85,000.

Question 20

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...

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

On January 5,2017,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 5,2017?

During 2017,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?

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.

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.

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

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?

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

On January 5,2017,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 5,2017?

During 2017,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?

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. ​

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. ​

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 ​

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?

During 2017,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?

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.

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.

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