Question 1

Withdrawals of cash by a partner are taxable.

Accepted Answer

Withdrawals of cash by a partner from a partnership are not taxable. Partnerships are not taxed on the income they earn as a business entity. Instead, the income is distributed to each partner, and the partner is responsible for paying taxes on their share of the income. However, there may be tax consequences if the withdrawal exceeds the partner's basis in the partnership.

Question 2

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 3

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

Accepted Answer

True

Question 4

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 on a cash distribution if the amount received exceeds their basis in the partnership. This is because the excess amount is treated as a gain on the sale of the partner's interest in the partnership.

Question 5

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

A corporation may indeed reduce trade or business income by charitable contributions, but the deduction is limited to 10% of taxable income, as adjusted.

Question 6

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 only deduct investment interest and investment expense if they are related to their personal investments, not investments made in the name of the business.

Question 7

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 8

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

Accepted Answer

According to the Internal Revenue Code, the amount of the dividend on a nonliquidating corporate distribution of property is equal to the fair market value of the property distributed. Therefore, option A is correct.

Question 9

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 10

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

The answer of Which of the following items are included...

Question 11

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 12

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 family LLC, can provide tax benefits by allowing the transfer of assets and income to family members who may be in lower tax brackets, thereby reducing the overall tax liability of the family as a whole. This is known as income splitting and is made possible by the progressive tax rate structure.

Question 13

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

Accepted Answer

The statement is true. According to U.S. tax laws, if a corporation owns at least 80% of another corporation's voting stock, it is eligible for a 100% dividend received deduction on dividends received from the subsidiary. Therefore, since Wisher, Inc. owns 80% of Patriot, Inc., it qualifies for the 100% dividend received deduction.

Question 14

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 added or subtracted from the shareholder's basis in S corporation stock, which can affect future tax consequences such as capital gains or losses upon the sale of the stock.

Question 15

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 recognize gain as ordinary income to the extent of the depreciation previously claimed on the property.

Question 16

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 17

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

Cash distributions from partnerships do not create taxable income until they exceed the partner's adjusted basis. In this case, Harrison received $25,000 in cash distributions, but his adjusted basis was $50,000. Thus, he does not have to recognize any income from the distribution.

Question 18

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 19

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. This is to ensure that the transaction is conducted fairly and at arm's length, to prevent any potential abuse of the partnership assets or interests.

Question 20

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 find Joline's adjusted gross income, we need to add up her total income from Adventure Tours ($150,000) and her other income ($6,000), and then subtract her business expenses ($7,000). This gives us:
$150,000 + $6,000 - $7,000 = $149,000
So Joline's adjusted gross income is $149,000. The closest answer choice is C, $143,000, which is $6,000 less than the actual figure. Therefore, the correct answer is C.

Quiz 14: Choice of Business Entity-Operations and Distributions

Withdrawals of cash by a partner are taxable.

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.

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

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.

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.

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

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

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.

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 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.

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

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

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

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?

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

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.

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?

Quiz 14: Choice of Business Entity-Operations and Distributions

Withdrawals of cash by a partner are taxable.

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.

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

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.

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.

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

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

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.

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 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.

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

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

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

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?

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

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.

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?

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?