50 adaptive 3

S corporation distributions are

1) tax-free to the extent of the accumulated adjustments account (previously taxed to Paul), (2) taxable to the extent of accumulated earnings and profits (C corporation earnings), (3) any remaining distributions are a return of capital.

Acorn Corp. wants to acquire the entire business of Trend Corp. Which of the following methods of business combination will best satisfy Acorn's objectives without requiring the approval of the shareholders of either corporation?

A cash tender offer, whereby Acorn acquires at least 90% of Trend's shares, followed by a short-form merger of Trend into Acorn

Robinson's personal residence was partially destroyed by fire. Its fair market value (FMV) before the fire was $500,000, and the FMV after the fire was $300,000. Robinson's adjusted basis in the home was $350,000. Robinson settled the insurance claim on the fire for $175,000. If Robinson's adjusted gross income for the year is $120,000, what amount of the casualty loss may Robinson claim after consideration of threshold limitations?

After consideration of threshold limitations, Robinson can claim a casualty loss of $12,900. For non-income-producing property, a casualty loss is recognized only to the extent that the casualty exceeds $100 for each event. Additionally, the loss is limited to the decline in the fair market value immediately before and immediately after the event ($200,000: $500,000 − $300,000) or the adjusted basis of the property ($350,000), whichever is smaller. Insurance and/or other compensation received acts to reduce the loss. The deduction for casualty losses on nonbusiness property is further limited to the excess of the loss over 10% of the adjusted gross income. Robinson's loss is $12,900 [$200,000 − $175,000 − $100 − (10% × $120,000)].

The CSU partnership distributed to each partner cash of $4,000, inventory with a basis of $4,000 and a fair market value (FMV) of $6,000, and land with an adjusted basis of $5,000 and an FMV of $3,000 in a liquidating distribution. Partner Chang had an outside basis in Chang's partnership interest of $12,000. In the second year after receiving the liquidating distribution, Chang sold the inventory for $5,000 and the land for $3,000. What income must Chang report upon the sale of these assets?

Assets distributed to Partner Chang: Basis FMV ------- ------- Cash $ 4,000 $ 4,000 Land 5,000 3,000 Inventory 4,000 6,000 ------- ------- $13,000 $13,000 Allocation of basis to assets received by Partner Chang: Outside basis $12,000 Less: Cash received (4,000) -------- Remaining basis $ 8,000 Less: Basis allocated to inventory (4,000) -------- Basis allocated to land $ 4,000

Par Corp. acquired the assets of its wholly owned subsidiary, Sub Corp., under a plan that qualified as a tax-free complete liquidation of Sub. Which of the following of Sub's unused carryovers may be transferred to Par?

Both excess charitable contributions and net operating loss

Clark and Hunt organized Jet Corp. with authorized voting common stock of $400,000. Clark contributed $60,000 cash. Both Clark and Hunt transferred other property in exchange for Jet stock as follows: Other Property: Fair Percentage Adjusted Market of Jet Stock Basis Value Acquired Clark $ 50,000 $100,000 40% Hunt 120,000 240,000 60% What was Clark's basis on Jet stock?

Clark's Basis in Jet Stock: Cash $ 60,000 Adjusted basis-property 50,000 Clark's basis in Jet Stock $110,000 ========

Bern Corp., an S corporation, had an ordinary loss of $36,500 for the year ended December 31, Year 0. At January 1, Year 0, Meyer owned 50% of Bern's stock. Meyer held the stock for 40 days in Year 0 before selling the entire 50% interest to an unrelated third party. Meyer's basis for the stock was $10,000. Meyer was a full-time employee of Bern until the stock was sold. Meyer's share of Bern's Year 0 loss was:

Each shareholder of an S corporation will include in his taxable income his pro rata share of corporate items of income, deduction, loss, and credit in his tax year in which the corporation's tax year ends. Meyer owned 50% of Bern Corp for 40 days during Year 0. Therefore, Meyer will include in his Year 0 tax return a loss of $2,000 from Bern Corporation, as computed below: $36,500 × 0.50 × 40/365 = $2,000

Hart's adjusted basis in Best Partnership was $9,000 at the time he received the following nonliquidating distributions of partnership property: Cash $5,000 Land Adjusted basis 7,000 Fair market value 10,000 What was the amount of Hart's basis in the land?

Hart's adjusted basis in Best Partnership $9,000 He received the following: Cash - 5,000 Remaining basis allocated to the land $4,000 ======

Under the Sales Article of the U.C.C., which of the following oral contracts for the sale of goods valued at more than $500 is most likely to be unenforceable?

However, there are several exceptions which could make an oral contract enforceable: (1) the goods are specially manufactured (2) the goods have been paid for and accepted or received and accepted ((3) the person admits in court to have contracted with the plaintiff (the contract is enforceable to the quantity admitted); or (4) one of the merchants sends a written confirmation to the other and receives no objection within 10 days after sending it

A homestead exemption ordinarily could exempt a debtor's equity in certain property from post-judgment collection by a creditor. To which of the following creditors will this exemption apply?

Neither a valid home mortgage lien nor a valid IRS tax lien In most states, a debtor's personal residence ("homestead") cannot be seized by general creditors. However, this exemption does not apply to a specific creditor who was given a mortgage ("lien") on the property, nor does it apply in circumstances where the unpaid creditor is the Internal Revenue Service.

During the year, a corporation declares a dividend and subsequently distributes to a stockholder $15,000 in cash and a bond with a basis of $25,000 and a fair market value of $26,000 on the date of distribution. The bond had a fair market value of $26,500 on the date that the corporation declared the dividend. The corporation has current earnings and profits in excess of the total amounts distributed during the year. Which of the following identifies the tax consequences of the distribution to the stockholder?

Nonmonetary dividends (also called property dividends) are recognized by the shareholder at the fair market value (FMV) of the assets distributed. Cash dividends are recognized as income at face amount. The total amount of dividend income for this shareholder is therefore $41,000 ($15,000 cash + $26,000 FMV of the bond).

Flagg and Miles are each 50% partners in Decor Partnership. Each partner had a $200,000 tax basis in the partnership on January 1, Year 5. Decor's Year 5 net business income before guaranteed payments was $45,000. During Year 5, Decor made a $7,500 guaranteed payment to Miles for deductible services rendered. What is Miles's tax basis in Decor on December 31, Year 5?

Partners are taxed on their share of partnership income earned. Partnership income is allocated as follows: Included Included on Flagg's on Miles' Tax Tax Total Return Return Partnership income before $45,000 guaranteed payments Guaranteed payments (7,500) 7,500 Residual, 50% each partner ( 37,500) 18,750 18,750 Totals 0 18,750 26,250 ========= ====== ====== Miles beginning basis $200,000 Residual allocated 18,750 End basis $218,750 =========

Frost's will created a testamentary trust naming Hill as life income beneficiary, with the principal to Brown when Hill dies. The trust was silent on allocation of principal and income. The trust's sole asset was a commercial office building originally valued at $100,000 and having a current market value of $200,000. If the building was sold, which of the following statements would be correct concerning the allocation of the proceeds?

The entire proceeds would be allocated to principal and retained. Since the trust's only asset was the commercial office building and it was sold, then it is reasonable that the entire proceeds from the sale of the office building be allocated to the trust principal.

What is Tom's adjusted gross income for Year 5?

Thus, adjusted gross income for this question is calculated as follows: Wages $55,000 Minus Alimony (5,000) Minus Moving expenses (2,000) Adjusted gross income $48,000 Moving expense in AGI

Under which of the following circumstances would a promoter be relieved of personal liability on contracts entered into while engaged in forming a corporation?

When the third party, the corporation, and the promoter enter into an agreement to substitute the corporation for the promoter

Which of the following statements best describes whether a CPA has met the required standard of care in conducting an audit of a client's financial statements?

Whether the CPA conducted the audit with the same skill and care expected of an ordinarily prudent CPA under the circumstances

Under the 2005 Bankruptcy Reform Act, the clerk of the bankruptcy court must provide a consumer-debtor with which of the following materials or services?

Written notice of the costs, purpose, and benefits of each form of bankruptcy

On February 28, Master, Inc., had total assets with a fair market value of $1,200,000 and total liabilities of $990,000. On January 15, Master made a monthly installment note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment having a fair market value greater than the balance due on the note. On March 15, Master voluntarily filed a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. One year later, the equipment was sold for less than the balance due on the note to Acme. Master's payment to Acme could:

not be set aside as a preferential transfer because Acme was oversecured. A preferential transfer is a transfer of an interest by a debtor to any party within 90 days of filing the petition or with an insider (or family member) between 90 days and one year of filing the petition.