Accounting Misc, MCQs

Seven years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 2,000 shares of Blue Corporation in a transaction that qualified under § 351. The assets had a tax basis to her of $400,000 and a fair market value of $700,000 on the date of the transfer. In the current year, Blue Corporation ( E & P of $1 million) redeems 600 shares from Eleanor for $260,000 in a transaction that qualifies for sale or exchange treatment. With respect to the redemption, Eleanor will have a:

$140,000 dividend.

$260,000 dividend.

$140,000 capital gain.

$260,000 capital gain.

None of the above.

Question 2

Which of the following entity owners cannot participate in management of the entity?

A general partner in a general partnership.

A member of a limited liability company.

A partner in a limited liability partnership.

A limited partner in a limited liability limited partnership.

None of the above.

Question 3

Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the year. In addition, Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss. Elk’s taxable income is:

$63,000.

$73,000.

$80,000.

$90,000.

None of the above.

Question 4

Which of the following statements is incorrect with respect to determining current E & P?

All tax-exempt income should be added back to taxable income.

Dividends received deductions should be added back to taxable income.

Charitable contributions in excess of the 10% of taxable income limit should be subtracted from taxable income.

Federal income tax refunds should be added back to taxable income.

None of the above statements are incorrect.

Question 5

Rachel is the sole member of an LLC, and Jordan is the sole shareholder of a C corporation. Both businesses were started in the current year, and each business has a long-term capital gain of $10,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is correct?

The C corporation receives a preferential tax rate on the LTCG of $10,000.

The LLC must pay corporate tax on taxable income of $10,000.

Jordan must report $10,000 of LTCG on his tax return.

Rachel must report $10,000 of LTCG on her tax return.

None of the above.

Question 6

Fred and Ella are going to establish a business. 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?

General partnership.

Limited partnership.

C corporation.

S corporation.

Any of the above should satisfy Fred and Ella.

Question 7

During 2013, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2012, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?

Nutt recognizes a $1,000 LTCG.

Nutt’s stock basis will be $2,000.

Nutt’s ordinary income is $15,000.

Nutt’s return of capital is $11,000.

None of the above.

question 9

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations):

Adjusted
Fair Market

Basis
Value
Pink Corporation stock (held for investment)
$150,000
$120,000
Non-LIFO inventory
80,000
110,000

Warbler Corporation is not a member of a controlled group. As a result of the distribution:

The shareholders have dividend income of $200,000.

The shareholders have dividend income of $260,000.

Warbler has a recognized gain of $30,000 and a recognized loss of $30,000.

Warbler has no recognized gain or loss.

None of the above.

Question 10

Bev and Cabel each have 50% ownership in Finch Partnership. Bev’s partnership interest has a basis of $225,000. Finch’s taxable income for the current year is $100,000, and it distributes $180,000 to each partner. Bev’s partnership interest basis at the end of the year is:

$0.

$45,000.

$95,000.

$100,000.

None of the above.

Question 11

Finch Corporation distributes property (basis of $225,000, fair market value of $300,000) to a shareholder in a distribution that is a qualifying stock redemption. The property is subject to a liability of $160,000, which the shareholder assumes. The basis of the property to the shareholder is:

$0.

$140,000.

$225,000.

$300,000.