Question 1

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 2

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 3

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 new corporation can choose any annual accounting period that it wants, as long as it does not exceed 12 months in length. The choice does not need to be approved by the IRS, and it does not need to match the accounting period of its majority shareholder.

Question 4

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 5

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

The answer of Which of the following taxable years are...

Question 6

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 7

Winston is the sole shareholder of Winston Inc,an S corporation.In 2015,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 2016?

Accepted Answer

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

Question 8

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 9

Clark Exploration Corporation was organized and began operations on October 1,2016.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 2016?

Accepted Answer

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

Question 10

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 first step is to calculate the total value of the assets contributed by both partners:
Nick's assets: $90,000 (adjusted basis of $60,000) + $10,000 cash = $100,000
Rodrigo's assets: $270,000 (adjusted basis of $150,000) + $90,000 cash - $60,000 debt = $300,000

The total value of the partnership is therefore $400,000 ($100,000 + $300,000). Nick's 1/3 interest corresponds to $133,333 ($400,000 * 1/3).

To calculate Nick's basis in his partnership interest, we start with the adjusted basis of his contributed assets ($60,000) and add the cash he contributed ($10,000), giving a total of $70,000. This amount is less than the value of his partnership interest ($133,333), so we use the latter as his basis.

Therefore, Nick's basis in his partnership interest is $133,333, which is option B.

Question 11

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

The answer of Dogg Corporation,Katt Corporation,and Rabitt Corporation are equal...

Question 12

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?
​

Accepted Answer

The answer of Dewey and Louie agree to combine their...

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 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 14

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 15

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 16

On January 5,2016,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 5,2016?

Accepted Answer

Mike's basis in the partnership will be determined by the adjusted basis of the property he is contributing minus any liabilities assumed. In this case, the adjusted basis of Mike's property is $20,000, and the liability assumed is $16,000. Therefore, Mike's basis in the partnership is $20,000 - $16,000 = $4,000. Since Mike has acquired a 50% interest, his share of the basis will be $4,000 x 50% = $2,000. Mike's share of the fair market value of the property is $24,000 x 50% = $12,000. Therefore, Mike's basis in the partnership is $12,000.

Question 17

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?

Accepted Answer

The answer of Dewey and Louie agree to combine their...

Question 18

During 2016,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 2016,Mercedes incorporates her accounting practice.Mercedes is...

Question 19

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 20

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

S corporations generally must use a calendar year as their taxable year, unless they can establish a business purpose for using a fiscal year. However, if an S corporation has a valid business purpose for using a fiscal year, it may elect to use a fiscal year ending no later than the 15th day of the third month following the close of its taxable year. Therefore, statement II is correct. Statement I is incorrect because using a fiscal year ending January 31 would satisfy the requirement for a valid business purpose.

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

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.

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?

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.

On January 5,2016,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 5,2016?

During 2016,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 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

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

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. ​

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?

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. ​

On January 5,2016,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 5,2016?

During 2016,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 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 ​

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.

During 2016,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 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