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Question;1449. MC #1;Which of the following is correct regarding the form for filing the annual;Federal income tax return?Business entity form Tax form;a.;Sole proprietorship Form;1040-Schedule C;b. Partnership Form 1065P;c. C corporation Form 1120C;d. LLC Form 1120S;e. S corporation Form 1120;1450. MC #2;A limited liability company;a.;Could be subject to double taxation.;b. Is normally taxed as a partnership.;c. Is normally taxed as an S;corporation.;d. Only a. and b.;e. a., b., and c.;1451. MC #3;For a limited liability company with 100 owners;a.;An election can be made to be taxed as a C corporation.;b. An election can be made to be taxed;as an S corporation.;c. An election can be made to be taxed;as a partnership.;d. Only a. and c. are correct.;e. a., b., and c. are correct.;1452. MC #4;Which of the following statements is correct?;a.;The number of owners of an LLC is not limited.;b. If the LLC has three or more;corporate characteristics, it will be taxed as a C corporation.;c. An LLC can elect to be taxed as a C;corporation or as a partnership.;d. Only a. and c.;e. a., b., and c. are correct.;1453. MC #5;Which of the following statements is not;correct?;a.;An S corporation has a greater opportunity to raise capital than does an C;corporation.;b. A general partnership has a greater;opportunity to raise capital than does a limited partnership.;c. A partnership has a greater;opportunity to raise capital than does a sole proprietorship.;d. Only a. and b. are not correct.;e. a., b., and c. are not correct.;1454. MC #6;Nontax factors that affect the choice of business entity include;a.;Ease of capital formation.;b. Limited liability.;c. Single versus double taxation.;d. Only a. and b.;e. a., b., and c.;1455. MC #7;Amber, Inc., has taxable income of $212,000. In addition, Amber accumulates the;following information which may affect its AMT.;?;Depreciation on buildings placed in service in the;early 1990s was $52,000. ADS would have been $41,000.;?;The president of Amber exercised stock options on;Amber stock. She paid $30,000 for the stock, which had a fair market value at;exercise date of $49,000. At the end of the year, the stock was worth;$54,000.;?;Amber deducted percentage depletion of $65,000.;The adjusted basis of the natural resource at the beginning of the year was;$39,000.;?;Amber contributed CSX stock worth $20,000 to the;Red Cross. Amber purchased the stock four months ago for $19,000.;What is Amber?s AMTI?;a.;$212,000.;b. $233,000.;c. $238,000.;d. $249,000.;e. None of the above;1456. MC #8;Which of the following statements is correct?;a.;The AMT applies to both the individual taxpayer and the C corporation.;b. The individual AMT rates are 26% and;28%.;c. The C corporation AMT rate is 20%.;d. Only a. and b. are correct.;e. a., b., and c. are correct.;1457. MC #9;Techniques that can be used to minimize the current period tax liability;include;a.;Recognizing the interaction between the regular income tax liability and the;alternative minimum tax liability.;b. Utilization of special allocations.;c. Favorable treatment of certain fringe;benefits.;d. Minimizing double taxation.;e. All of the above.;1458. MC #10;Maria has a 70% ownership interest in a business entity. She is in the 28% tax;bracket. The entity incurs $18,000 of meals and lodging expense for Maria;which she believes qualify for exclusion under ? 119. Which of the following;statements is correct?;a.;If the entity is a partnership, the effect of the $18,000 expenditure by the;partnership on Maria?s tax liability is an increase of $5,040.;b. If the entity is a sole;proprietorship, the effect of the $18,000 expenditure by the sole;proprietorship on Maria?s tax liability is $0.;c. If the entity is a C corporation, the;effect of the $18,000 expenditure by the corporation on Maria?s tax liability;is $0.;d. Only a. and c. are correct.;e. a., b., and c. are correct.;1459. MC #11;Brown, Inc., has accumulated earnings and profits at the end of the year of;$600,000. Brown pays a salary and bonus of $175,000 to Alice, its CEO. Brown?s;taxable income before the salary and bonus is $200,000. The IRS classifies;$75,000 of the salary and bonus as unreasonable. Calculate Brown?s taxable;income after the reclassification.;a.;$21,250.;b. $25,000.;c. $77,750.;d. $100,000.;e. None of the above.;1460. MC #12;Robin Company has $100,000 of income before payment of $100,000 of reasonable;salaries to its owners/employees (who are in the 33% bracket). Which form of;business results in the least amount of combined tax being paid by the company;and its owners?;a.;Partnership.;b. C corporation.;c. S corporation.;d. a., b., and c. all result in the same;amount of tax.;e. a. and c. result in the least amount;of tax.;1461. MC #13;Aaron purchases a building for $500,000 which is going to be used by his;wholly-owned corporation. Which of the following statements are correct?;a.;If Aaron contributes the building to the corporation, there will be no;recognition under ? 351 and a carryover basis of $500,000.;b. If Aaron leases the building to the;corporation, lease-rental payments of $30,000 per year to Aaron will result in;a $30,000 deduction for the corporation.;c. If Aaron leases the building to the;corporation, lease-rental payments of $30,000 per year to Aaron will result in;$30,000 of gross income for Aaron.;d. Leasing the building to the;corporation will contribute to the tax avoidance objective of minimizing double;taxation.;e. All of the above are correct.;1462. MC #14;Tonya contributes $150,000 to Swan, Inc., for 80% of the stock. In addition;she loans Swan $600,000. The maturity date on the loan is 5 years and the;interest rate is 6%, the same as the Federal rate. Which of the following;statements are correct?;a.;If the loan is reclassified as equity under ? 385, Swan qualifies for a deduction;of $600,000 when the loan is repaid, and Tonya receives dividend income of;$600,000 (assuming that Swan?s earnings and profits are at least $600,000).;b. If the loan is not reclassified as equity under ? 385, Swan can deduct interest;expense annually of $36,000, and Tonya includes in gross income annually;interest income of $36,000.;c. If the loan is reclassified as equity;under ? 385, Swan claims no interest deduction, and Tonya recognizes no income.;d. Only a. and b.;e. a., b., and c.;1463. MC #15;Rocky and Sandra (shareholders) each loan Eagle Corporation $10,000 at the;market rate of 10% interest. Which of the following statements are false?;a.;Eagle may deduct the interest expense, and the interest income is taxable to;Rocky and Sandra.;b. When the note principal is repaid;neither Rocky nor Sandra recognizes gross income from the repayment.;c. If the IRS were successful in;reclassifying the notes as equity, the interest payments would not be;deductible by Eagle, and Rocky and Sandra would still recognize income.;d. If the IRS were successful in;reclassifying the notes as equity, repayment of the note principal to Rocky and;Sandra would not qualify for return of capital treatment and would most likely;result in dividend income treatment for Rocky and Sandra.;e. All of the above are true.;1464. MC #16;Austin is the sole shareholder of Purple, Inc. Purple?s accumulated E & P;at the beginning of the year is $700,000. Purple?s taxable income after paying;a salary and bonus to Austin of $100,000 is $500,000. Assume the salary and;bonus payment are reasonable. Purple?s maximum exposure in calculating;accumulated taxable income for purposes of the accumulated earnings tax for the;current tax year is;a.;$330,000.;b. $500,000.;c. $600,000.;d. $1,300,000.;e. None of the above.;1465. MC #17;Which of the following statements regarding the accumulated earnings tax is;correct in 2011?;a.;If Blue, Inc.?s accumulated taxable income for 2011 is $180,000, the calculated;accumulated earnings tax liability would be $53,450 [($50,000 ? 15%) + ($25,000;? 25%) + ($25,000 ? 34%) + ($80,000 ? 39%)].;b. Blue, Inc., calculates accumulated;taxable income for 2011 of $100,000. Therefore, it should increase the amount;paid to the IRS for 2011 by $15,000 ($100,000 ? 15%).;c. The accumulated earnings tax applies;to C corporations, but applies to S corporations at only the shareholder level.;d. The tax rate for the accumulated;earnings tax of 35% is the same as the highest tax bracket for the corporate;taxpayer.;e. None of the above.;1466. MC #18;Factors that should be considered in making the S corporation election for the;current tax year include the following;a.;Are greater than 50% of the shareholders willing to consent to the election?;b. Can the requirements for;qualification be satisfied by the 15th day of the third month of the tax year;and also for the period of the tax year that precedes this date?;c. Will the corporation have total;capital not in excess of $1 million?;d. Only b. and c.;e. a., b., and c.;1467. MC #19;Steve and Karen are going to establish a business entity. They expect the;business to be very successful in the long-run, but project losses of;approximately $100,000 for each of the first five years. Due to potential;environmental concerns, limited liability is a requisite for the owners. Which;form of business entity should they select?;a.;General partnership.;b. Limited partnership.;c. C corporation.;d. S corporation.;e. Any of the above should satisfy Steve;and Karen.;1468. MC #20;Beige, Inc., has 3,000 shares of stock authorized and 1,000 shares outstanding.;The shares are owned by Sam (700 shares) and Lois (300 shares). Sam?s adjusted;basis for his stock is $100,000 and Lois? adjusted basis for her stock is;$90,000. Beige?s earnings and profits are $500,000. Beige redeems 200 of Lois?;shares for $150,000. Determine the amount of Lois? recognized gain (1) if she;is Sam?s mother and (2) if they are unrelated.;a.;$0 and $0.;b. $150,000 and $60,000.;c. $150,000 and $90,000.;d. $50,000 and $150,000.;e. None of the above.;1469. MC #21;Shania, Taylor, and Kelly form a corporation with the following contributions.;Basis;FMV;Shania;Cash;$100,000;$100,000;Taylor;Land;60,000;100,000;Kelly;Building;110,000;100,000;a.;If the corporation is a C corporation, Taylor has a recognized gain of $40,000;a stock basis of $100,000, and the corporation has a basis for the land of;$100,000.;b. If the corporation is an S;corporation, Kelly has a recognized gain or loss of $0, a stock basis of;$110,000, and the corporation has a basis for the building of $110,000.;c. If the corporation is a C;corporation, Shania has a recognized gain or loss of $0, a stock basis of;$100,000, and the corporation has a basis for the cash of $100,000.;d. Only a. and c. are correct.;e. Only b. and c. are correct.;1470. MC #22;Barb and Chuck each own one-half of the stock of Wren, Inc., a C corporation.;Each shareholder has a stock basis of $125,000. Wren has accumulated E & P;of $200,000. Wren?s taxable income for the current year is $90,000, and it;distributes $60,000 to each shareholder. Barb?s stock basis at the end of the;year is;a.;$0.;b. $65,000.;c. $110,000.;d. $125,000.;e. None of the above.;1471. MC #23;Barb and Chuck each own one-half the stock of Wren, Inc., an S corporation.;Each shareholder has a stock basis of $125,000. Wren has no accumulated E;P. Wren?s taxable income for the current year is $90,000, and it distributes;$60,000 to each shareholder. Barb?s stock basis at the end of the year is;a.;$0.;b. $65,000.;c. $110,000.;d. $125,000.;e. None of the above.;1472. MC #24;Barb and Chuck each have a 50% ownership in Wren Partnership. Each partner has;a partnership interest basis of $125,000. Wren?s taxable income for the current;year is $90,000, and it distributes $60,000 to each partner. Barb?s basis in;the partnership interest at the end of the year is;a.;$0.;b. $65,000.;c. $110,000.;d. $125,000.;e. None of the above.;1473. MC #25;Trolette contributes property with an adjusted basis of $80,000 and a fair;market value of $100,000 to a newly formed business entity. If the entity is a;C corporation and the transaction qualifies under ? 351, the corporation?s;basis for the property and the shareholder?s basis for the stock are:Asset Basis Stock Basis;a.;$ 80,000 $100,000;b. $100,000 $ 80,000;c. $ 80,000 $ 80,000;d. $100,000 $100,000;e. None of the above.;1474. MC #26;Alanna contributes property with an adjusted basis of $80,000 and a fair market;value of $100,000 to a newly formed business entity. If the entity is a;partnership and the transaction qualifies under ? 721, the partnership?s basis;for the property and the partner?s basis for the partnership interest are:Asset Basis Stock Basis;a.;$ 80,000 $100,000;b. $100,000 $ 80,000;c. $ 80,000 $ 80,000;d. $100,000 $100,000;e. None of the above.;1475. MC #27;Marcus contributes property with an adjusted basis of $80,000 and a fair market;value of $100,000 to a newly formed business entity. If the entity is an S;corporation and the transaction qualifies under ? 351, the S corporation?s;basis for the property and the shareholder?s basis for the stock are:Asset Basis Stock Basis;a.;$ 80,000 $100,000;b. $100,000 $ 80,000;c. $ 80,000 $ 80,000;d. $100,000 $100,000;e. None of the above.;1476. MC #28;Brenda contributes appreciated property (i.e., adjusted basis of $65,000 and a;fair market value of $100,000) to her business entity in a transaction which;qualifies for nonrecognition of gain. Brenda?s ownership interest is 60%. The;business entity later sells the appreciated property for $110,000. The property;is not depreciable. Which of the following statement(s) is correct?;a.;If the entity is a partnership, Brenda?s gross income is increased by $41,000;[($35,000 ? 100%) + ($10,000 ? 60%)] in the year of the sale of the property by;the partnership.;b. If the entity is a C corporation, the;corporation?s gross income is increased by $10,000 in the year of the sale of;the property by the corporation.;c. If the entity is an S corporation;the S corporation?s gross income is increased by $10,000 in the year of the;sale of the property by the S corporation and Brenda?s gross income is;increased by $6,000 ($10,000 ? 60%).;d. All of the above.;e. None of the above.;1477. MC #29;Alice contributes equipment (fair market value of $50,000, adjusted basis of;$15,000), subject to a $10,000 liability, to form Orange Partnership, a general;partnership. Mary contributes $40,000 cash. Alice and Mary share equally in;partnership profits and losses. What is Alice?s and Mary?s basis for their;partnership interests?;a.;$10,000 to Alice, $45,000 to Mary.;b. $25,000 to Alice, $25,000 to Mary.;c. $15,000 to Alice, $40,000 to Mary.;d. $5,000 to Alice, $40,000 to Mary.;e. $20,000 to Alice, $45,000 to Mary.;1478. MC #30;Melba contributes land (basis of $190,000, fair market value of $250,000) to a;business entity in exchange for 100% of the stock. During the first year of;operations, the entity earns a profit of $75,000. At the end of the first year;the entity has outstanding liabilities of $30,000 ($20,000 recourse and $10,000;nonrecourse).;a.;If the entity is a C corporation, Melba?s basis for her stock at the end of the;first year is $265,000 ($190,000 + $75,000) and her at-risk basis is $265,000.;b. If the entity is a partnership;Melba?s basis for her partnership interest (outside basis) at the end of the;first year is $355,000 ($250,000 + $75,000 + $30,000) and her at-risk basis is;$345,000 ($250,000 + $75,000 + $20,000).;c. If the entity is an S corporation;Melba?s basis for her stock at the end of the first year is $345,000 ($250,000;+ $75,000 + $20,000) and her at-risk basis is $345,000.;d. Only a. and c. are correct.;e. a., b., and c. are incorrect.;1479. MC #31;Catfish, Inc., a closely held corporation which is not a PSC, owns a 45% interest;in Trout Partnership, which is classified as a passive activity. Trout?s;taxable loss for the current year is $250,000. During the year, Catfish;receives a $60,000 cash distribution from Trout. Other relevant data for;Catfish are as follows;Net income from operations;$800,000;Dividend income;25,000;Rent income;20,000;How much of Catfish?s share of Trout?s loss may it deduct in calculating its;taxable income?;a.;$0.;b. $20,000.;c. $45,000.;d. $112,500.;e. None of the above.;1480. MC #32;Bart contributes $160,000 to the Tuna Partnership for a 30% interest. During;the first year of operations, Tuna has a profit of $30,000. At the end of the;first year, Tuna has outstanding loans from the following banks.;First Bank (recourse);$20,000;Second Bank (nonrecourse);40,000;What is Bart?s at-risk basis in Tuna at the end of the first year?;a.;$160,000.;b. $169,000.;c. $175,000.;d. $187,000.;e. None of the above.;1481. MC #33;Which of the following special allocations are mandatory for the partners in a;partnership?;a.;Section 704(a) special allocation requiring limited partners to share losses in;accordance with their capital interests in the partnership.;b. Section 704(c) special allocation for;the difference between the adjusted basis and fair market value of contributed;property.;c. Section 734 (optional adjustment to;basis) special allocation for distributions to partners when the partnership;does have a ? 754 election in effect or does make a ? 754 election.;d. Only b. and c. are mandatory.;e. a., b., and c. are mandatory.;1482. MC #34;Albert?s sole proprietorship owns the following assets;Adjusted Basis;Fair Market Value;Accounts receivable;$ ?0?;$ 60,000;Inventory;20,000;30,000;Machinery and equipment;50,000;90,000;Buildings;120,000;170,000;Land;80,000;140,000;$270,000;$490,000;Potential ? 1245 recapture of $45,000.;Straight-line depreciation was used.;Albert sells his sole proprietorship for $500,000. Calculate Albert?s;recognized gain or loss and classify it as capital or ordinary.;a.;$230,000 ordinary income.;b. $230,000 capital gain.;c. $115,000 ordinary income and $115,000;capital gain.;d. $110,000 ordinary income and $120,000;capital gain.;e. None of the above.;1483. MC #35;Mr. and Ms. Smith?s partnership owns the following assets;Adjusted Basis;Fair Market Value;Accounts receivable;$ ?0?;$ 60,000;Inventory;20,000;30,000;Machinery and equipment;50,000;90,000;Buildings;120,000;170,000;Land;80,000;140,000;$270,000;$490,000;Potential ? 1245 recapture of $45,000.;Straight-line depreciation was used.;Mr. and Ms. Smith each have a basis for their partnership interest of $135,000.;Calculate their combined recognized gain or loss and classify it as capital or;ordinary if they sell their partnership interests for $500,000.;a.;$230,000 ordinary income.;b. $230,000 capital gain.;c. $115,000 ordinary income and $115,000;capital gain.;d. $110,000 ordinary income and $120,000;capital gain.;e. None of the above.

 

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