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Question;1484. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question MC #36;Kristine owns all of the stock of a C corporation which 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.;Her adjusted basis for her stock is $270,000. Calculate Kristine?s recognized;gain or loss and classify it as capital or ordinary if she sells her stock for;$500,000..;1485. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question MC #37;Devon owns 40% of the Agate Company for which his basis is $300,000. He sells;one-fourth of his ownership interest to Bernice for $100,000. Which of the;following statements is correct?;a.;If Agate is an S corporation, Devon has a recognized gain of $25,000, some of;which may be capital and some of which may be ordinary income.;b. If Agate is a C corporation, Devon;has a recognized capital gain of $25,000.;c. If Agate is a partnership, Devon has;a recognized capital gain of $25,000.;d. Only b. and c. are correct.;e. a., b., and c. are correct.;1486. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question MC #38;Which of the following statements is correct?;a.;The sale of an unincorporated sole proprietorship is always treated as the sale;of the individual business assets.;b. The sale of a partnership is treated;as the sale of the individual assets only if the sales transaction is;structured as the sale of the individual assets.;c. The sale of a corporation is either;treated as the sale of the corporate stock or as the sale of the individual;assets.;d. Only a. and b. are correct.;e. a., b., and c. are correct.;1487. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question MC #39;Which of the following statements is correct?;a.;The purchase of an unincorporated sole proprietorship is always treated as the;purchase of the individual business assets.;b. A taxpayer purchasing a corporation;in which the assets are appreciated would prefer to purchase the stock of the;corporation.;c. The purchase of a corporation is;always treated as the purchase of the corporate stock.;d. Only a. and b. are correct.;e. a., b., and c. are correct.;1488. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question MA #1-5 Match the following tax attributes with;the different forms. A particular attribute may apply to more than one entity;form.S corporationC corporationLimited partnershipGeneral partnershipSole;proprietorshipAbility of all owners to have limited liability. Ability of all;owners to have limited liability. Ability to pass tax attributes through to the;owners. Ability to pass tax attributes through to the owners. Ability to pass;tax attributes through to the owners. Right of all owners to participate in the;management of the business. Number of owners is limited. Ability to have;multiple owners.;[a] 1. S corporation;[b] 2. C corporation;[c] 3. Limited partnership;[d] 4. General partnership;[e] 5. Sole proprietorship;1489. CHAPTER 13?COMPARATIVE FORMS;OF DOING BUSINESS Question MA #6-10 Match the following statements:Sale;of the individual assets of an unincorporated sole proprietorship by the;owner.Sale of the corporate assets by the C corporation.Sale of corporate stock;by the C corporation shareholders.Sale of corporate stock by the S corporation;shareholders.Sale of an ownership interest by a partner.Gain or loss is;calculated separately for each asset and is subject to single taxation. Subject;to double taxation. Transaction in this form enables double taxation to be;avoided. Transaction in this form enables double taxation to be avoided. The;sale is treated as the sale of a capital asset under ? 741 subject to ordinary;income potential under ? 751. Not subject to double taxation on the sale of;corporate stock.;[a] 1. Sale of the individual assets;of an unincorporated sole proprietorship by the owner.;[b] 2. Sale of the corporate;assets by the C corporation.;[c] 3. Sale of corporate stock;by the C corporation shareholders.;[d] 4. Sale of corporate stock;by the S corporation shareholders.;[e] 5. Sale of an ownership;interest by a partner.;1490. CHAPTER 13?COMPARATIVE FORMS;OF DOING BUSINESS Question MA #11-1 Match the following statements:Organization;costsAlternative minimum taxNet capital gainNet capital lossCharitable;contributionsMust be capitalized, but can be amortized over 180 months. For the;corporate taxpayer, the rate is 20%. For the corporate taxpayer, are taxed;using the regular tax rates. For the corporate taxpayer, cannot be deducted at;all in the current tax year. For the corporate taxpayer, limited to 10% of;taxable income before certain deductions.;[a] 1. Organization costs;[b] 2. Alternative minimum tax;[c] 3. Net capital gain;[d] 4. Net capital loss;[e] 5. Charitable;contributions;1491. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question MA #16-1 Match the following:S corporationC;corporationLimited partnershipGeneral partnershipRealized gains on the;contribution of appreciated property to the entity are not recognized by the;contributor when an 80% control requirement is satisfied. Realized gains on the;contribution of appreciated property to the entity are not recognized by the;contributor when an 80% control requirement is satisfied. Contribution of;appreciated property to the business entity by an owner is never subject to;taxation. Contribution of appreciated property to the business entity by an;owner is never subject to taxation. Realized losses on the contribution of loss;property to the entity are never recognized by the contributor. Realized losses;on the contribution of loss property to the entity are recognized by the;contributor unless an 80% control requirement is satisfied. Basis of ownership;interest to the owner is dependent on whether gain or loss is recognized to the;owner on the contribution of assets to the business entity.;[a] 1. S corporation;[b] 2. C corporation;[c] 3. Limited partnership;[d] 4. General partnership;1492. CHAPTER 13?COMPARATIVE FORMS;OF DOING BUSINESS Question MA #20-2 Match the following statements:Technique;for minimizing double taxationAMTS corporationsC corporationsPartnershipsNot;making distributions to shareholders. Rate for a corporate taxpayer is 20%.;Status applies only if elected by the taxpayer. Subject to double taxation.;Eligible for special allocations.;[a] 1. Technique for minimizing double;taxation;[b] 2. AMT;[c] 3. S corporations;[d] 4. C corporations;[e] 5. Partnerships;1493. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question PR #1;Agnes is going to invest $90,000 in a business entity. She will manage the;business entity. Her projected share of the loss for the first year is $36,000.;Agnes? marginal tax rate is 33%. Determine the cash flow benefit of the loss to;Agnes if the business form is;a.;A general;partnership.;b.;An S;corporation.;c.;An LLC.;d.;A C;corporation.;1494. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question PR #2;Candace, who is in the 33% tax bracket, is establishing a business which could;have potential environmental liability problems. Therefore, she is trying to;decide between the C corporation form and the S corporation form. She projects;that the business will generate earnings of about $75,000 each year. Advise;Candace on the tax consequences of each tax form.;1495. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question PR #3;Mallard, Inc., is a C corporation that is not eligible for the small business;exception to the AMT. Its adjusted current earnings (ACE) and unadjusted;alternative minimum taxable income (unadjusted AMTI) for 2011 and 2012 are as;follows;2011;2012;ACE;$212,000;$250,000;Unadjusted;AMTI;175,000;300,000;Calculate the amount of the ACE adjustment for 2011 and 2012.;1496. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question PR #4;Saul?s AMT base is $300,000. Green, Inc.?s (a C corporation) AMT base also is;$300,000.;a.;Calculate;the tentative AMT for Saul.;b.;Calculate;the tentative AMT for Green, Inc.;c.;Why are the;amounts in a. and b. not the same since the AMT base for both is $300,000?;d.;Would your;answer in b. change if Green, Inc. was an S corporation?;1497. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question PR #5;Kirby, the;sole shareholder of Falcon, Inc., leases a building to the corporation. The;taxable income of the corporation for 2011, before deducting the lease;payments, is projected to be $300,000.;a.;What are the;tax consequences to Kirby and to Falcon if Kirby leases a building to the;corporation for $280,000?;b.;Is there a;potential pitfall? How would it change the tax consequences to Kirby and to;Falcon?;1498. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question PR #6;Blue, Inc., has taxable income before salary payments to its president of;$700,000 in 2011. Blue is in the 34% tax bracket, and the president is in the;35% tax bracket.;a.;Calculate;the tax liability to Blue if the president?s salary is $400,000 and if it is;$100,000.;b.;What tax;benefit is there of paying the larger salary to the president?;c.;What;negative tax result may occur associated with the payment of the higher;salary?;1499. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question PR #7;Albert and Bonnie each own 50% of the stock of Crow, Inc. (a C corporation). To;cover what is perceived as temporary working capital needs, each shareholder;loans Crow $150,000 with an annual interest rate of 5% (same as the Federal;rate) and a maturity date of one year. The loan is made at the beginning of;2011.;a.;What are the;tax consequences to Albert, Bonnie, and Crow if the loans are classified as;debt?;b.;What are the;tax consequences to Albert, Bonnie, and Crow if the loans are classified as;equity?;1500. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question PR #8;Daisy, Inc., has taxable income of $850,000 during 2011, its first year of;operations. Daisy distributes dividends of $200,000 to its 10 shareholders;(i.e., $20,000 each). Daisy earmarks $361,000 of its earnings for potential;future expansion into other cities.;a.;Calculate;Daisy?s total tax liability associated with the current tax year if the;$361,000 is treated as representing reasonable needs of the business.;b.;Calculate;Daisy?s total potential tax liability associated with the current tax year if;none of the $361,000 qualifies as reasonable needs of the business.;1501. CHAPTER;13?COMPARATIVE FORMS OF DOING BUSINESS Question PR #9;Eagle, Inc. recognizes that it may have an accumulated earnings tax problem.;According to its calculation, Eagle anticipates it has accumulated taxable;income, before reduction for dividends paid, of $600,000 in 2011. Assume that;its shareholders are in the 35% marginal tax bracket.;a.;Calculate;the maximum amount of tax that Eagle and its shareholders might pay if the;accumulated earnings tax is assessed.;b.;Calculate;the maximum amount of tax that Eagle and its shareholders might pay if it;distributes dividends to prevent an accumulated earnings tax assessment from;occurring.

 

Paper#59280 | Written in 18-Jul-2015

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