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Question;FEDERAL INCOME TAX II;(ACCOUNTING;417);TERM OL2-FALL;SEMESTER 2014;(SECTION 6980);MID-TERM EXAMINATION (EXAMINATION NUMBER 1);MULTIPLE CHOICE (3 Points Each)Select the one best;answer and place it in the space provided in the ANSWER KEY. 1. Which of the following statements about a Limited Liability;Company (LLC) is incorrect?(a) A Limited Liability Company with more than one owner can;elect to be classified as either a Partnership or a Corporation.(b) A Limited Liability Company with only one owner can elect;to be classified as either a Sole Proprietorship or a Corporation.(c) If a Limited Liability Company does not make an election;under the "Check The Box" regulations, multi-owner entities are;classified as either Partnerships or Corporations at the sole discretion of the;owners.(d) If a Limited Liability Company does not make an election;under the "Check The Box" regulations, single-person;entities are classified as Sole Proprietorships.2. On January 1 of the;current year, Tanager Corporation (a calendar year taxpayer) has Accumulated;Earnings And Profits (AE&P) of $190,000.For the current tax year;Tanager Corporation had a Deficit in its Current Earnings And Profits;(CE&P) of ($240,000) (before any distributions).;On June 30 of the current year, Tanager distributes $100,000 to Sharisa, its;sole shareholder, who has a basis in her stock of $40,000. As a result of the distribution, how much of;the $100,000 is a Dividend Income to Sharisa for the current year?(a) $;0.(b);$70,000.(c);$60,000.(d);$50,000. 3. George transfers cash of $150,000 to Grouse Corporation, a;newly formed corporation, for 100% of the stock in Grouse worth $80,000 and;debt in the amount of $70,000, payable in equal annual installments of $7,000;plus interest at the rate of 9% per annum. In the first year of operation;Grouse has net taxable income of $40,000. If Grouse pays George interest of;$6,300 and $7,000 principal payment on the note, which of the following;statements is correct?(a) George has dividend income of $13,300.(b) Grouse Corporation does not have a tax deduction with;respect to the payment.(c) George has dividend income of $7,000.(d) Grouse Corporation has an interest expense deduction of;$6,300.-1- 4. Saguaro Corporation, a cash basis and calendar year;taxpayer, was formed and began operations on July 1, 2013. Saguaro incurred the;following expenses during its first year of operations (July 1-December 31, 2013);Expenses of temporary directors and of;organizational meetings;$10,500;Fee paid to the state of incorporation;5,000;Expenses in printing and sale of stock;certificates;1,200;Legal services for drafting the;corporate charter and bylaws;7,500;Total;$24,200;If Saguaro Corporation makes a timely;election under Section 248 to amortize qualifying Organizational Expenses, how;much may the corporation deduct for Organizational Expenses for the tax year 2013?(a) $5,000.(b) $5,100.(c) $5,600.(d) $5,800. 5. Tom and George form Swan Corporation with the following;investments: Tom transfers machinery worth $100,000 (basis of $40,000) while;George transfers land worth $90,000 (basis of $20,000) and services rendered in;organizing the corporation worth $10,000. Each is issued 25 shares in Swan;Corporation. Which of the following statements is correct? (a) Tom has no recognized gain, George recognizes gain of;$80,000. (b) Neither Tom nor;George recognizes gain. (c) Swan Corporation;has a basis of $90,000 in the land. (d) George has a basis of $30,000 in the shares of Swan;Corporation.6. Kite Corporation, a;calendar year taxpayer, has Taxable Income of $360,000 for 2013. Among its transactions for the year are the;following;Tax-Exempt Interest Income;$9,000;Life Insurance Premiums on Life Insurance;Policy on the life of the president of Kite Corporation (Kite Corporation is;the beneficiary of the Life Insurance Policy);10,000;Nondeductible Fines And Penalties;11,000;Based on the information provide above;Kite Corporation's Earnings And Profits (E&P) for 2013 is:(a);$358,000.(b);$348,000.(c);$369,000. (d);$349,000. -2- 7. For purposes of;the Accumulated Earnings Tax (Penalty) (Section 531), Justifiable Reasonable;Business Needs does notinclude:(a) Loans To Shareholders.(b) Self-Insurance.(c) Loans To Key Suppliers And Customers.(d) Expansion Of Business. 8. Cardinal;Corporation (Earnings And Profits (E&P) of $700,000) has one thousand;(1,000) shares of stock outstanding. Lupita owns three hundred (300) shares of;Cardinal Corporation's stock, Berta (Lupita's sister) owns five hundred (500);shares of Cardinal Corporation's stock and April (Lupita's daughter) owns two;hundred (200) shares of Cardinal Corporation?s stock. Cardinal Corporation redeems two hundred;(200) shares of Lupita's stock for $100,000. Lupita paid $100 a share for the;stock five (5) years ago. As a result of;this transaction, which of the following is correct?(a) Lupita has a Long-Term Capital Gain of $80,000.(b) Lupita has a Long-Term Capital Gain of $100,000.(c) Lupita has Dividend Income of $100,000.(d) Lupita has;Dividend Income of $80,000. 9. The Gross Estate of;Katheryn, decedent, includes stock in Yellow Corporation and Violet Corporation;valued at $300,000 and $460,000, respectively.;Katheryn's Adjusted Gross Estate is $2,000,000. She owned thirty-three percent (33%) of the;Yellow Corporation's stock and twenty-one percent (21%) of the Violet;Corporation?s stock. Immediate members of Katheryn's family own the remaining;shares of both Yellow Corporation and Violet Corporation. Those individuals are also the sole;beneficiaries of Katheryn's estate. Death;Taxes And Funeral And Administration Expenses for Katheryn's estate are $300,000. Katheryn had an Adjusted Basis of $100,000 in;the Yellow Corporation stock and $110,000 in the Violet Corporation stock.;Yellow Corporation (Earnings And Profits (E&P) of $800,000) distributed;land worth (Fair Market Value) $300,000 (Adjusted Basis of $350,000) to;Katheryn's estate in redemption of all of the Yellow Corporation's stock. As a result of this transaction, which of the;following is correct?(a) The estate recognizes no Gain or Loss on the redemption.(b) Yellow Corporation recognizes a $50,000 Loss on the;distribution of the land.(c) The estate recognizes a Gain of $200,000 on the redemption. (d) The estate;recognizes Dividend Income of $300,000 on the redemption.10.;Elk, a C corporation, has $400,000 operating income;and $350,000 operating expenses during;the year. In addition, Elk has a $30,000 long-term capital gain and a $52,000;short-term capital loss. Elk?s Taxable Income is:(a);($2,000).(b) $28,000.(c);$50,000. (d) $80,000.-3- 11.;Magenta Corporation acquired land in a Section;351 Transfer one (1) year ago. The land had an Adjusted;Basis of $450,000 and a Fair Market Value of $520,000 on the date of the;transfer. Magenta Corporation has two (2);equal shareholders, Mark and Megan, who are father and daughter. Magenta Corporation adopts a plan of complete liquidation in the;current year. On this date;the land has decreased in Fair Market Value to $390,000. Magenta Corporation;sells the land;for $390,000 and distributes the proceeds pro rata to Mark and Megan. As a;result of the sale of;the land what amount of Loss may Magenta Corporation recognize on the sale of;the land?(a) $ 0.(b) $ 60,000.(c) $ 70,000. (d) $130,000.12.;When Pheasant Corporation was formed under Section 351;Kristen transferred property (basis of $26,000 and fair market value of;$22,500) for Section 1244 stock.;Kristen?s basis in the Pheasant stock was $26,000. Three (3) years later, Pheasant Corporation declared;bankruptcy and its stock becomes worthless.;Kristen, who is single, owned the stock as an investment. As a result, Kristen?s loss is a:(a) $26,000 Capital Loss (limited to $3,000 deduction per year).(b) $22,500 Ordinary Loss and $3,500 Capital Loss (limited to;$3,000 deduction per;year).(c) $3,500 Ordinary Loss and $22,500 Capital Loss (limited to;$3,000 deduction per year). (d) $26,000 Ordinary;Loss.13.;On April 12, 2012, Crow Corporation acquired land in;a transaction that qualified under Section 351 (ie. Section 351 Transfer). The;land had an Adjusted Basis of $200,000 to the contributing shareholder and a;Fair Market Value of $170,000. Crow Corporation adopted a plan of complete liquidation on October;3, 2013. On December 4, 2013, Crow;Corporation distributes the land to Ali, a shareholder who owns twenty percent;(20%) of the stock of Crow Corporation. The Fair Market Value of the land has;declined to $130,000 on the date of the distribution to Ali. There was no business purpose for Crow;Corporation acquiring the land on April 12, 2012. As a result of the;distribution what amount of Loss may Crow Corporation recognize on the;distribution of the land?(a) $ 0.(b) $ 70,000.(c) $ 40,000.(d) $130,000.14. The Taxable Income for Violet Corporation;for the year of 2013 is $32,000. What is;the Tax Liability for Violet Corporation for the year of 2013?(a);$ 0.(b);$4,800.(c);$5,200. (d) $7,000.-4-15. An Audit of a;taxpayer's Income Tax Return takes place at the place of business (corporate;office) of the taxpayer is known as;a(n):(a);Office Audit.(b) Field Audit.(c) Business Audit.(d);Compliance Audit.16. Tara incorporates her sole proprietorship transferring it to;newly formed Black Corporation. The assets transferred have an adjusted basis;of $240,000 and a fair market value of $300,000. Also transferred was $10,000;in liabilities, $1,000 of which was personal (nonbusiness) and the balance of;$9,000 being business related. In return for these transfers, Tara receives all;of the stock in Black Corporation. Which of the following statements is;correct?(a);Black Corporation has a basis of $241,000 in;the property.(b);Black Corporation has a basis of $240,000 in;the property.(c);Tara?s basis in the Black Corporation stock is $241,000.(d);Tara?s basis in the Black Corporation stock is $240,000.17. Veronica and;Tracy, unrelated individuals, own all the stock in Beige Corporation. Each has a;basis of $20,000 in her twenty (20) shares. Beige Corporation has Accumulated;Earnings And Profits (E&P);of $2,000,000. Veronica wishes to retire in the current year and wants to sell her stock for $500,000, it's Fair;Market Value. Tracy would like to purchase Veronica's shares and, thus, become the sole;shareholder in Beige Corporation.;However, because Tracy is short of funds;Beige Corporation redeems all of Veronica's shares for $500,000. As a result of this transaction;which of the following is correct?(a);Tracy will have Dividend Income of $500,000 on the transaction.(b) Veronica will;have a Capital Gain of $480,000.(c) Veronica will;have taxable Dividend Income of $500,000.(d) Beige Corporation will not;reduce its Earnings And Profits (E&P) as a result of the redemption.;18.;Which of the;following is a not;correct regarding the tax consequences of a Section 306 Preferred Stock Bailout;sale transaction?(a) The shareholder generally recognizes Capital Gain equal to;the Fair Market Value of the Preferred Stock on the date of;the Stock Dividend.(b) No Loss is recognized on the sale.(c) Any Ordinary Income recognized by the shareholder does not;qualify as Dividend Income to the selling shareholder. (d) The sale does;not affect the issuing corporation's Earnings And Profits (E&P).-5-19.;Crimson Corporation has a Deficit in Accumulated;Earnings And Profits (AE&P) of ($430,000). For the year of 2013, Crimson;Corporation has Current Earnings And Profits (CE&P) of $370,000. On July 1;2013, Crimson Corporation distributes $390,000 to its sole shareholder, Anita.;Anita has a basis of $85,000 in her stock in Crimson Corporation at the time of;the distribution. As a result of the distribution, which of the following is;correct?(a) Anita has;Dividend Income of $390,000.(b) Anita has;Dividend Income of $85,000 and reduces her stock basis to zero ($-0-).(c) Anita has Dividend Income of $370,000 and reduces her stock;basis to $65,000.(d) Anita has no Dividend Income, reduces her stock basis to;zero ($-0-) and has a Capital;Gain of $305,000.20. Orange Corporation;owns stock in White Corporation and Taxable Income Before Dividends Received;Deduction of $800,000 for the year. White Corporation pays Orange a dividend of $300,000. What amount of;Dividends Received Deduction may Orange;claim if it owns 18% of White stock?(a);$ 0.(b);$210,000.(c);$240,000. (d) $300,000.21. Chev Corporation, a calendar year corporation, has;Alternative Minimum Taxable Income (Line 8) (before the Alternative Minimum;Tax Exemption (Line 9)) of $1,280,000 for the year of 2013. The Chev Corporation;is not a small;corporation. If the Regular Corporate Tax (Line 15) is $209,000, Chev;Corporation's Alternative Minimum Tax (Line 16) for 2013 is: (a) $ 47,000. (b) $ 209,000. (c) $ 256,000. (d) $1,280,000.22.;Canary Corporation has one thousand (1,000) shares of;stock outstanding. Canary Corporation;redeems in a qualifying Stock Redemption three hundred (300) shares of its;stock for $350,000 at a time when it has paid-in capital of $100,000 and;Earnings And Profits (E&P) of $1,000,000.;As a result of this transaction, Canary Corporation reduces its Earnings;And Profits (E&P) by:(a) $350,000.(b) $300,000.(c) $ 30,000. (d) $ 0.-6-23.;Tim, a cash basis taxpayer, incorporates his sole;proprietorship. He transfers the following items to newly created Wren;Corporation.;Adjusted;Fair Market;Basis;Value;Cash;$;20,000;$;20,000;Building;110,000;160,000;Mortgage payable (secured by the;building and held for;15 years);135,000;135,000;Which;of the following statements is correct?(a);Wren Corporation?s basis in the building is;$110,000.(b);Tim has no recognized gain.(c);Tim has a recognized gain of $25,000.(d);Tim has a recognized gain of $5,000.24. Which of the;following sources has the lowest tax authority?(a);Final Treasury Regulation.(b);Temporary Treasury Regulation.(c) Internal Revenue Code. (d) Proposed;Treasury Regulation.25. As of January 1 of;the current year, Cassowary Corporation has a Deficit in Accumulated Earnings;And Profits (AE&P) of ($100,000). For the current tax year, Current;Earnings And Profits (CE&P)for Cassowary Corporation is $240,000 (prior to;any distributions). On July 1 of the current year, Cassowary Corporation;distributes $275,000 to its sole shareholder. The amount of the distribution;that is Dividend Income to the sole shareholder for the current year is:(a);$ 20,000.(b);$140,000.(c);$240,000. (d) $275,000.26.;Starling;Corporation distributes property to its sole shareholder, Zoe. The property has;a Fair Market Value of $350,000, an Adjusted Basis of $205,000 and is subject;to a liability of $220,000. Current Earnings And Profits (CE&P) is;$500,000. As a result of the distribution, which of the following is correct?(a) Starling has a Gain of $15,000 and Zoe has Dividend Income;of $350,000.(b) Starling has a Gain of $145,000 and Zoe's basis in the;distributed property is $130,000.(c) Starling has a Gain of $130,000 and Zoe?s basis in the;distributed property is $350,000.(d) Starling has a Gain of $145,000 and Zoe has Dividend Income;of $130,000.-7-27. In order to induce;Yellow Corporation to build a new manufacturing facility in Knoxville;Tennessee, the city donates land (fair market value of $400,000) and cash of;$100,000 to the corporation. Several;months after the donation, Yellow Corporation spends $450,000 (which includes;the $100,000 received from Knoxville);on the construction of a new plant located on the donated land. Which of the following statements is correct?(a) Yellow recognizes;income of $100,000 as to the donation.(b) Yellow has a zero;basis in the land and a basis of $450,000 in the plant.(c) Yellow recognizes;income of $500,000 as to the donation.(d) Yellow has a zero basis in the land and a;basis of $350,000 in the plant. 28. Pursuant to a Complete;Liquidation, Oriole Corporation distributes to its shareholders land with an Adjusted Basis;of $400,000 and a Fair Market Value;of $550,000. The land is;subject to a liability of $620,000. As a;result of this transaction, what is Oriole;Corporation's Recognized Gain or Recognized;Loss on the distribution?(a) $70,000 Loss.(b) $70,000 Gain.(c) $150,000 Gain. (d) $220,000 Gain.29. Federal tax;legislation generally originates in what body?(a) Internal;Revenue Service.(b) Senate Finance Committee.(c) House Ways and Means Committee.(d) House Taxation Committee.30. Rhino, Inc., a;calendar year C corporation, had the following income and expenses in 2013;Income from operations;$300,000;Expenses from operations;120,000;Dividends received (less than 20%;ownership);13,500;Capital loss carryback;10,500;Charitable contribution;24,000;How;much is Rhino?s Charitable Contribution Deduction for 2013? (a) $17,895. (b) $18,300. (c) $18,945.;(d) $19,350.;="msonormal">


Paper#37843 | Written in 18-Jul-2015

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