Entre Law Quiz 3

Pettit Company purchased heavy equipment by giving the seller $30,000 cash down payment and a 5-year interest-bearing note for the $170,000 balance of the purchase price. Compute Pettit's initial tax basis in the equipment. A) $200,000 B) $30,000 C) $30,000 plus any principal payments made. D) $170,000

A) $200,000

The rules that regulate and govern the internal operation of a limited liability company are known as: A) Operating Agreement B) By Laws C) Articles of Incorporation D) The Bond of Limited Liability

A) Operating Agreement

When a court "pierces the corporate veil," it: A) holds shareholders personally liable for corporate debts B) holds the board of directors jointly and severally liable C) provides the chief financial officer of the corporation with limited liability D) provides partial protection from corporation debts

A) holds shareholders personally liable for corporate debts

John and Bob contribute $60,000 and $40,000, respectively, to form JB Partnership. The partnership had a successful start and earned $200,000 in profit its first year. The partnership agreement did not specify how the profits would be split. The UPA (and RUPA) says if the partnership is silent on how to split profits: A) the profits be split equally. B) the profits be split according to their capital contributions; John gets 60% and Bob gets 40%. C) the partnership must dissolve; no partnership may exist if the partners have not specifically agreed on how to split profits and losses. D) None of the above.

A) the profits be split equally.

Which of the following is not true about a partnership? A) it must be owned by two or more people B) it is always an independent legal entity C) partners share control over the business operation D) none of the above; all of the other choices are true.

B) it is always an independent legal entity

Which of the following business expenses always results in a difference between taxable income and book income? A) Rent Expense B) Interest Expense C) Client Entertainment D) Salary Expense

C) Client Entertainment

Which of the following statement(s) is(are) true? A) a partnership may consist entirely of limited partners B) a limited partner may exercise control over the business in proportion to her ownership interest in the business C) a limited partnership must have at least one general partner D) All of the above are true.

C) a limited partnership must have at least one general partner

To create a corporation: A) articles of incorporation must be filed with the federal government. B) the federal government issues a certificate of incorporation, which must be filed with an application to do business in the relevant states. C) the corporation's articles of incorporation are filed with the appropriate officer of the state in which it is to be incorporated. D) None of the above.

C) the corporation's articles of incorporation are filed with the appropriate officer of the state in which it is to be incorporated.

Stack, Inc. owns a $1 million insurance policy on the life of Mary Stack, the corporate CEO. The corporation is the policy beneficiary. Stack's annual premium on the policy is $3,160. Which of the following statements is true? A) Stack, Inc. can deduct the annual premium as a business expense. If Stack ever collects the $1 million death benefit, the benefit is excluded from gross income. B) Stack, Inc. can deduct the annual premium as a business expense. If Stack ever collects the $1 million death benefit, the benefit is included in gross income. C) Stack, Inc. cannot deduct the annual premium as a business expense. If Stack ever collects the $1 million death benefit, the benefit is included in gross income. D) Stack, Inc. cannot deduct the annual premium as a business expense. If Stack ever collects the $1 million death benefit, the benefit is excluded from gross income.

D) Stack, Inc. cannot deduct the annual premium as a business expense. If Stack ever collects the $1 million death benefit, the benefit is excluded from gross income.

In Zhou v. Bickley, Zhou helped Bickley start a motorcycle repair shop. When they got into a dispute later, the courts held: A) Zhou and Bickley were partners, so each was owed the fair market value of his share in the organization. B) Bickley was a partner but breached his duty to Zhou by not working, so he could be fired from the partnership. C) Bickley was not a partner, he was an employee subject to wrongful dismissal and could sue for damages. D) Zhou and Bickley were not partners, Zhou loaned Bickley money but that alone did not create a partnership.

D) Zhou and Bickley were not partners, Zhou loaned Bickley money but that alone did not create a partnership.

Carter's share of a partnership's operating loss is $17,200. His tax basis in his partnership interest before any adjustment for this loss is $26,000. If Carter has no excess business loss, he may deduct the full partnership loss on his individual tax return. T or F

T

Corporations may not be shareholders in an S corporation. T or F

T

Gabriel operates his business as a sole proprietorship. This year the business incurred an operating loss. The loss can be used to offset other business income he earned during the year. (Hint - True ; this is the 100th quiz point I said I would give you) T or F

T

If a business expenditure creates or enhances an identifiable asset with a useful life substantially beyond the current year, the expenditure must be capitalized. T or F

T