Question 1

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 share of taxable income is 10% of $70,000, which is $7,000, but she only receives a salary of $50,000 + $6,000 (10% of $60,000 dividend) = $56,000 from Fitness Design.

Question 2

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

The answer of Santana Corporation operates a golf shop.It properly...

Question 3

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 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.
​

Accepted Answer

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

Question 5

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 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.
​

Accepted Answer

In an LLP, each partner has limited liability for the debts and obligations of the partnership. Therefore, statement II is correct. Additionally, a partner in an LLP is generally not personally liable for the misconduct or malfeasance of other partners, as long as they did not participate in the wrongful act themselves. Therefore, statement I is also correct.

Question 7

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 8

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
​

Accepted Answer

Centralization of management, continuity of life, free transferability of ownership interests, and limited liability are all characteristics that distinguish corporations from other forms of businesses. Profit motive is not a distinguishing characteristic, as all businesses have the goal of making a profit.

Question 9

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 as they are considered separate legal entities from their owners. Limited Liability Companies and Partnerships are pass-through entities, meaning their income is not taxed at the entity level but rather passed through to the owners who pay taxes on that income on their individual tax returns.

Question 10

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.
​

Accepted Answer

Statement I is correct as LLCs are pass-through entities, which means that the tax attributes are passed through to the individual owners and are not taxed at the entity level. This is a significant advantage over regular corporations, which are taxed at both the entity and individual owner level.

Statement II is also correct as an LLC offers limited liability protection to its owners, which means they are protected from personal liability for the business's debts and obligations. Conversely, general partnerships do not offer limited liability protection, and the individual partners are personally liable for business debts and obligations.

Question 11

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.
​

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 12

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%.
​

Accepted Answer

The answer of Tax characteristics of corporations include which of...

Question 13

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 14

Julian and Tanya each contribute $50,000 cash to form the M&T Partnership on January 4,2016.Julian and Tanya share profits and losses in the ratio of 60% and 40%,respectively.During 2016,the partnership generates ordinary income of $80,000.A cash distribution of $5,000 is made to Julian in December 2016.How much income must Julian recognize from the partnership in 2016?

Accepted Answer

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

Question 15

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

As a 10% shareholder, Claudia's share of the taxable income is $7,000 (10% of $70,000). Her share of the dividends is $6,000 (10% of $60,000). Therefore, her total income from Fitness Design is $88,000 ($7,000 + $6,000 + $75,000).

Question 16

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 a corporation's status as an S corporation is revoked or terminated, it must wait 5 years before making a new S corporation election in the absence of IRS consent to an earlier election.

Question 17

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
​

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 18

Western Corporation began operations in 1999.Its fiscal year end is October 31.This date coincides with its natural business year.On June 2,2015,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 election made on June 2, 2015, would be effective for the next fiscal year starting November 1, 2016, since the election was made after the 15th day of the third month of the current fiscal year.

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.
​

Accepted Answer

An S Corporation can have no more than 100 shareholders, and they must all be U.S. citizens or residents. Therefore, statement I is correct and would prevent an S Corporation election. Statement II is incorrect since having only one class of stock is a requirement for S Corporation status.

Question 20

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...

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

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?

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?

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 95 stockholders. II.One of the stockholders is a citizen- resident of Canada. ​

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

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 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. ​

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%. ​

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?

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?

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. ​

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

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.

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 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.

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%.

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.