acctg ch. 10 and 11
Assuming that the corporation has a 34% MTR, which of the following statements is true? A. Jacky, Inc. borrowed $500,000 and paid interest of $48,000; the after-tax cost of the interest was $31,680. B. Jacky, Inc issued 1,000 shares of 7%, $100 par preferred stock for $100,000. The after-tax cost of the $7,000 dividend paid was $4,620. C. Jacky, Inc issued 1,000 shares of 7%, $100 par preferred stock for $100. The after-tax cost of the $7,000 dividend paid was $2,380. D. Jacky, Inc. borrowed $500,000 and paid interest of $48,000; the after-tax cost of the interest was $16,320.
A
Which of the following is a primary legal characteristic of the corporate form of business? A. The management of the business is centered in a Board of Directors elected by the shareholders. B. A shareholder must seek permission to sell his stock. C. The life of the corporation will terminate when a majority of the shareholders die or cease to exist. D. A shareholder is personally liable for the debts of the corporation.
A
Which of the following items is not used to compute the Domestic Production Activities Deduction? A. Overseas sales of domestic products B. Taxable income C. Compensation paid to US workforce D. Net income from qualified domestic production activity
A
Which of the following statements about the calculation of alternative minimum taxable income is true? A. Excess percentage depletion is a positive adjustment to AMTI. B. The AMT net operating loss can reduce AMTI to zero. C. The AMTI exemption for all corporations is $40,000. D. The minimum tax credit can be carried back two years.
A
. Which of the following statements regarding the taxation of corporate profits is true? A. Dividends payments are deductible in computing corporate taxable income. B. The tax treatment of corporate dividends creates a bias in favor of debt financing. C. Corporations cannot deduct interest payments in computing corporate taxable income. D. Corporations with high debt-to-equity ratios have less burdensome cash flow commitments and lower risk of insolvency.
B
Harmon, Inc. was incorporated and began business on January 1, 2014. Its tax liability for 2014 was $36,000. Its tax liability for 2015 was $50,000. Which of the following is a correct statement concerning the payment of estimated taxes for 2015? A. Harmon must pay $12,500 on the15th day of April, June, September, and December. B. Harmon must pay $9,000 on the 15th day of April, June, September and December. The $14,000 balance is payable by March 15, 2016. C. Harmon may pay the $50,000 tax no later than March 15, 2016. D. None of the above statements is correct.
B
Lexington Associates, Inc. is a personal service corporation. This year, Lexington reported $75,000 of taxable income. Which of the following statements regarding Lexington's regular tax liability is true? A. Regular tax liability will be less than it would have been if Lexington were not a personal service corporation. B. Regular tax liability will be greater than it would have been if Lexington were not a personal service corporation. C. Regular tax liability will be the same as it would have been if Lexington were not a personal service corporation. D. Regular tax liability will be zero.
B
Which of the following could cause a corporation's alternative minimum taxable income to be lower than regular taxable income? A. Current year percentage depletion is smaller than cost depletion B. ADS depreciation is larger than MACRS depreciation C. The company is not entitled to an AMT exemption D. The corporation has adjusted current earnings greater than AMTI before the ACE adjustment
B
Which of the following statements is true? A. There is an AMT credit carryback from 2016 to 2015. B. There is an AMT credit carryover from 2016 to 2017. C. There is an AMT credit carryover from 2015 to 2016. D. There is an AMT credit carryback from 2015 to 2014.
B
Which of the following statements regarding Schedule M-1 is true? A. The corporate dividends-received deduction is reported on Line 8 of Schedule M-1. B. A corporation incurring nondeductible fines and penalties would report those amounts on line 5 of Schedule M-1. C. Line 2 of schedule M-1 should reflect the corporation's actual federal income tax liability for the current year. D. A corporation realizing a current gain on a like-kind exchange that is deferred for tax purposes would not report that gain on Schedule M-1.
B
. Borough, Inc. is entitled to a rehabilitation credit of $500,000 for its current tax year. The corporation's regular tax liability is $450,000. No estimated tax payments have been made. Which of the following statements is true? A. The corporation should receive a tax refund for the current year. B. The portion of the rehabilitation credit that cannot be used this year will be lost. C. The credit would have been higher if the company had restored a certified historic structure. D. The credit is available for restoration of a building that is at least ten years old.
C
Fleet, Inc. owns 85% of the stock of Pete, Inc. and 35% of the stock of Zete, Inc. The remaining stock of Pete and Zete is owned by unrelated individuals. Which of the following statements is correct? A. Fleet, Pete, and Zete are an affiliated group. B. Fleet and Zete are an affiliated group. C. Fleet and Pete are an affiliated group. D. There is no affiliated group here.
C
Loda Inc. made an $8,300 nondeductible charitable contribution and a $2,000 nondeductible political contribution this year. Which of the following statements is true? A. Both nondeductible contributions are permanent book/tax differences. B. Both nondeductible contributions are temporary book/tax differences. C. The nondeductible charitable contribution is a temporary book/tax difference. The nondeductible political contribution is a permanent book/tax difference. D. The nondeductible charitable contribution is a permanent book/tax difference. The nondeductible political contribution is a temporary book/tax difference.
C
Aaron, Inc. is a nonprofit corporation that collects and distributes food for needy families. Aaron, Inc. also operates a small grocery store for profit. Which of the following statements is true? A. The income from the collection and distribution of food and the income from grocery store are taxable. B. No income from either of the activities is taxable. C. Only the income from the collection and distribution of food is taxable. D. Only the income from the grocery store is taxable.
D
Fleet, Inc. owns 85% of the stock of Pete, Inc. and 35% of the stock of Zete, Inc. and 90% of the stock of Stock ownership of Bete, Inc. Bete owns 5% of the stock of Pete and 5% of the stock of Zete. Zete owns 10% of the stock of Bete. The remaining stock of Pete and Zete is owned by unrelated individuals. Which of the following statements is correct? A. Fleet, Zete, Pete, and Bete are an affiliated group. B. Fleet and Zete are an affiliated group. C. Fleet and Pete are an affiliated group. D. Fleet, Pete, and Bete are an affiliated group.
D
For tax years beginning after December 31, 2015, which of the following statements regarding corporate tax filing requirements is false? A. Corporations must file their annual federal income tax returns by the 15th day of the fourth month following the close of the taxable year. B. Most corporations may request an automatic six-month extension of time to file their federal income tax returns. C. An extension of the income tax filing deadline does not extend the payment deadline for any balance of tax due for the taxable year. D. Corporations must file their annual federal income tax returns by 15th day of the third month following the close of the taxable year.
D
In determining the incidence of the corporate income tax: A. Corporations may pass the tax burden onto consumers in the form of higher prices B. Corporate shareholders may bear the burden of the corporate tax in the form of lower return on investment C. Corporate employees may bear the burden of the corporate tax in the form of lower compensation D. All of the above parties may bear the indirect burden of the corporate income tax
D
The stock of Wheel Corporation, a U.S. company, is publicly traded, with no single shareholder owning more than 5 percent of its outstanding stock. Wheel owns 90 percent of the outstanding stock of Axle, Inc, also a U.S. company. Axle owns 100% of the outstanding stock of Tire Corporation, a German company. Wheel and Tire each own 50 percent of the outstanding stock of Bumper, Inc., a U.S. company. Wheel and Axle each own 50 percent of the outstanding stock of Trunk Corporation, a U.S. company. Which of these corporations form an affiliated group eligible to file a consolidated tax return? A. Wheel, Axle, Tire, Bumper, and Trunk are an affiliated group. B. Wheel, Axle, and Tire are an affiliated group. C. Wheel and Axle are an affiliated group. D. Wheel, Axle, and Trunk are an affiliated group.
D
Which of the following is a means to avoid the double taxation burden imposed on the profits of corporations? A. Treat all corporations as passthrough entities for federal tax purposes. B. Enact tax legislation that would make dividends nontaxable to all of the corporation's shareholders. C. Allow corporate shareholders a credit on their tax returns for the taxes paid by the corporation on the profits currently distributed to such shareholders as dividends. D. All of the above would avoid double taxation.
D
Which of the following statements regarding the domestic production activities deduction is false? A. The deduction is equivalent to a reduced tax rate on income from any qualified activity. B. The amount of the deduction allowed for any tax year cannot exceed 50% of the total compensation paid to the corporation's U.S. workforce. C. The deduction equals a percentage of the lesser of the corporation's net income from qualified activities or its taxable income before the deduction. D. The deduction is only available for U.S. taxpayers engaged in manufacturing activities.
D
A corporate taxpayer would prefer a $50,000 deduction to a $50,000 credit.
F
A corporation that is unable to meet its original filing deadline may obtain an automatic twelve-month extension of the time to file its federal income tax return.
F
A limited liability company is always taxed as a partnership, regardless of the number of its members.
F
Corporations are rarely targeted in political debates over taxation.
F
Corporations report their taxable income and calculate the federal income tax on Form 1040.
F
If a corporation's depreciation expense for regular tax purposes is $32,000 and its depreciation expense for alternative minimum tax purposes is $28,000, such corporation will have a negative (decrease) depreciation adjustment for alternative minimum taxable income.
F
On June 1, Jefferson had a basis in his partnership interest of $75,000. On June 2, he received a cash distribution from the partnership of $28,000. All of the cash distribution is taxable.
F
Partners may deduct on their individual income tax returns an amount equal to 100% of self-employment tax paid.
F
Partners receiving guaranteed payments are not required to pay self-employment tax on such payments.
F
The corporate alternative minimum tax rate is 26% of AMTI in excess of the AMT exemption.
F
. A shareholder in an S corporation can include only his or her own loans to the corporation in tax basis.
T
A corporation's minimum tax credit can reduce the corporation's future regular tax liability if regular tax liability exceeds tentative minimum tax in that year.
T
A significant advantage of issuing stock instead of debt is that payment of dividends is discretionary.
T
Corporations are required to pay their federal tax liability in four quarterly estimated tax installments.
T
Corporations with more than $1 million taxable income must pay 100% of their current federal income tax liability in the form of quarterly estimate payments to avoid an underpayment penalty.
T
Frazier, Inc. paid a $150,000 cash dividend to its shareholders. The corporation cannot deduct this payment on its corporate income tax return.
T
The burden of corporate taxation is often borne by corporate shareholders, customers, employees, and suppliers.
T
A corporation that owns more than $10 million of total assets uses which schedule to reconcile book income to taxable income? A. Schedule M-1 B. Schedule M-2 C. Schedule M-3 D. Schedule M-4
c
Which of the following statements regarding Schedule M-3 is false? A. The IRS developed Schedule M-3 with the goal of increasing transparency between reported net income for financial accounting purposes and reported net income for tax purposes. B. Schedule M-3 reports the temporary versus permanent characterization of book-tax differences. C. Part I of Schedule M-3 reconciles worldwide financial statement net income to the financial statement net income of those corporations permitted to be included in the U.S. consolidated tax return group. D. Schedule M-3 replaces Schedule M-1 for all tax years beginning after December 31, 2004.
d
Which of the following statements regarding the tax treatment of corporate dividends is true? A. All shareholders receiving dividend payments from U.S. corporations are entitled to a dividends-received deduction. B. Dividends-received from foreign corporations are eligible for the dividends-received deduction. C. Corporations are entitled to deduct dividend payments to shareholders in calculating corporate taxable income. D. Dividend payments between members of an affiliated group of corporations filing a consolidated return are tax exempt.
d
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. Carter may deduct the full loss on his individual tax return.
T
Corporations are allowed a deduction for charitable contributions, limited to 10 percent of taxable income before the deduction.
T
Corporations cannot be shareholders in an S corporation.
T
Corporations with taxable incomes in excess of $18,333,333 have a 35% marginal tax rate and a 35% average tax rate.
T
Dividends-received deductions generally are not allowed for dividends from foreign corporations.
T
For a consolidated group of corporations, Schedule M-3 reconciles worldwide financial statement net income to the financial statement net income of those corporations permitted to be included in the U.S. consolidated tax return group.
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 income he earned during the year.
T
Tax savings achieved by operating a business through a pass-through entity, rather than as a C corporation, is an example of entity variable tax planning.
T
The allocations made to a partner are reported on Schedule K-1 and are referred to as his or her distributive share of partnership items.
T
The federal tax law considers the member corporations of an affiliated group to be a single entity for federal tax purposes. An example of this treatment is the requirement to share the 15% tax bracket.
T
The purpose of Schedule M-1 is to explain the differences between financial statement income and taxable income.
T
The rate schedule for determining the regular tax liability of a corporation includes rates ranging from 15% to 39%.
T
The stock of closely held corporations is typically restricted as to transferability by some type of buy-sell agreement.
T
The taxable income earned by a personal service corporation is taxed at a flat rate of 35%.
T
On January 1, Leon purchased a 10% stock interest in an S corporation for $30,000. He also loaned the S corporation $5,000 in exchange for a written promissory note. The S corporation generated a $330,000 operating loss for the year. Leon deducted his 10% share of the loss, reducing his tax basis in his stock to zero, and his tax basis in the note to $2,000. The following year, the S corporation repaid the note before Leon restored his basis in the note. What are the consequences of the loan repayment to Leon? A. $3,000 capital gain B. $3,000 ordinary income C. $2,000 capital gain D. $2,000 ordinary income
A
During the current year, Margie earned wage income of $300,000. If Margie is single, which of the following statements regarding her Medicare tax liability is true? A. Margie will owe both the regular 1.45 percent Medicare tax and the additional .9 percent Medicare tax on her entire wage income. B. Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $200,000. C. Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $250,000. D. Margie's employer is required to withhold both the regular Medicare tax but does not withhold the additional .9 percent Medicare tax.
B
In applying the basis limitation on the deduction of S corporation losses, which of the following statements is true? A. The basis of a shareholder's interest in an S corporation, for purposes of limiting deductibility of losses, is computed in the same manner as a partner's basis in a partnership interest. B. A shareholder is permitted to deduct losses against basis in any debt obligation from the S corporation to the shareholder. C. If a shareholder's tax basis in a debt obligation is reduced, any gain resulting from the repayment of that obligation is considered ordinary income. D. All of the above statements are false.
B
A major advantage of an S corporation is the ability to specially allocate losses to specific members of the company.
F
A nondeductible charitable contribution is a permanent book/tax difference.
F
A partner's distributive share of partnership nondeductible expenses does not decrease his or her tax basis in the partnership interest.
F
A shareholder in an S corporation includes in tax basis his or her share of the corporation's liabilities.
F
AMT adjustments can only increase a corporation's alternative minimum taxable income
F
Angel Corporation's current-year regular tax liability is $40,000. Angel is eligible for a general business credit of $45,000. The corporation will receive a $5,000 refund of federal income tax.
F
At least three corporations are required to form an affiliated group.
F
Bisou Inc. made a $48,200 contribution to charity this year. Only $39,000 of the contribution was deductible. Bisou can carry the $9,200 nondeductible contribution back three years and forward five years.
F
John's share of partnership loss was $60,000. He had only enough tax basis to deduct $34,000 of the loss. He may deduct the remaining loss against other income in the following year, regardless of what happens in the partnership.
F
Matthew earned $150,000 in wages during 2016. FICA taxes withheld by his employer would have been $11,475.
F
Mr. Dilly has expenses relating to a qualifying home office of $14,320. The taxable income generated by the business before any deduction of home office expenses was $13,700. His allowable home office deduction is $14,320.
F
The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of the employee's wages for the year.
F
The Schedule M-3 reconciliation requires less detailed information than the M-1 reconciliation.
F
The corporate characteristic of free transferability exists if the corporate stock is subject to a buy-sell agreement.
F
The domestic production activities deduction is computed as a percentage of the greater of taxable income or net income from qualified production activities.
F
The earnings of a C corporation are taxed only at the shareholder level.
F
The four primary legal characteristics of a corporation are unlimited liability, limited life, free transferability of interests, and centralized management.
F
The shareholders of an S corporation must pay self-employment tax on their share of the corporation's ordinary income.
F
Drake Partnership earned a net profit of $400,000. Four partners share profits and losses equally. No cash was distributed. The partners will report taxable income from the partnership on their personal income tax returns for the year.
T
In 2016, Mike Elfred received a $165,000 salary from his employer and generated $39,000 net earnings from self-employment from his small business. Which of the following statements is true? A. Mike does not owe any self-employment tax because his salary exceeded the 2016 base amount ($118,500) for federal employment tax. B. Mike owes both the Medicare and Social Security tax portions of self-employment tax on his $39,000 earnings from his small business. C. Mike owes Medicare tax but not Social Security tax on his $39,000 earnings from his small business. D. Mike owes Social Security tax but not Medicare tax on his $39,000 earnings from his small business.
C
Martha Pim is a general partner in PLF Partnership. This year, Martha received a $48,000 guaranteed payment from PLF, and her distributive share of PLF's ordinary business income was $93,200. Which of the following is accurate? A. Martha must pay income tax on $141,200 and self-employment tax on $48,000. B. Martha must pay income tax on $141,200 and self-employment tax on $93,200. C. Martha must pay both income tax and self-employment tax on $141,200. D. Martha must pay income tax on $48,000 and self-employment tax on $93,200.
C
Haddie's Hats is a regular corporation. The business must file an income tax return each year to report its taxable income or loss and pay any related taxes.
T
In contrast to a partnership, every member of an LLC has limited liability for the LLC's debts.
T
In terms of dispersal of ownership, corporations are classified as either closely held or publicly held.
T
The corporate alternative minimum tax is designed to insure that corporations with substantial economic income will pay their fair share of the federal tax burden.
T
The corporate characteristic of limited liability is more important to the shareholders than the characteristic of centralized management.
T
The domestic production activities deduction is a permanent book/tax difference.
T
Aaron James has a qualifying home office. The office is 500 square feet and the entire house is 2,500 square feet. Use the following information to determine his allowable home office deduction: A. $5,240 B. $4,140 C. $4,260 D. $21,800
A
A partner's tax basis in his or her partnership interest is decreased by partnership distributions.
T
A partnership deducts guaranteed payments paid to its partners in computing ordinary income, and partners report guaranteed payments received as ordinary income.
T
A partnership is an unincorporated business activity owned by at least two taxpayers.
T
All general partners have unlimited personal liability for the debts of the entity.
T
Debbie is a limited partner in ADK Partnership. Her partnership Schedule K-1 reports $19,000 ordinary business income, $2,000 long-term capital gain, and $830 dividend income. Which of these items are subject to self-employment tax? A. None of the items are subject to SE tax because Debbie is a limited partner. B. $19,000 ordinary business income C. $19,000 ordinary business income and $2,000 long-term capital gain D. All income reported on a partner's Schedule K-1 are subject to self-employment tax.
A
Grant and Amy have formed a new business to be operated through an S corporation. They each own 50% of the corporation's outstanding common stock. During the first year of operations, the business incurred an operating loss of $100,000. In allocating this loss to the shareholders: A. Grant and Amy must each be allocated $50,000 of the operating loss. B. If the corporate charter permits, the S corporation can make a special allocation of 100% of the operating loss to Grant. C. Because the shareholders have limited liability for the S corporation's debts, they are not permitted any deduction for the operating loss. D. The corporation should also consider ownership of any outstanding preferred stock in making the loss allocation.
A
Kelly received a $60,000 salary during 2016. Her federal income tax withholding rate was 20%, and the Social Security base amount for 2016 was $118,500. What is the total amount that her employer should have withheld in 2016? A. $16,590 B. $12,000 C. $4,590 D. $0
A
Randolph Scott operates a business as a sole proprietorship. This year his net profit was $10,570. For tax purposes this amount should be reported on: A. Schedule C, Statement of Profit or Loss from Business B. The first page of Form 1040 as other income C. A separate tax return prepared for the business operation D. Schedule E, Statement of Rent and Royalty Income
A
William is a member of an LLC. His Schedule K-1 reported a $1,200 share of capital loss and a $3,000 share of Section 1231 gain. William recognized a $4,500 capital gain on the sale of marketable securities and a $15,000 Section 1231 loss on the sale of business equipment. What is the net effect of these gains and losses on William's taxable income? A. $3,300 net capital gain; $12,000 deductible net Section 1231 loss B. $4,500 net capital gain; $12,000 deductible net Section 1231 loss C. $4,500 net capital gain; $15,000 deductible net Section 1231 loss D. $3,300 net capital gain; -0- deductible net Section 1231 loss
A
An affiliated group consists of a parent company that directly owns 80% of at least one subsidiary corporation plus all other subsidiaries that are 80% owned within the group.
T
. Alan is a general partner in ADK Partnership. His partnership Schedule K-1 reports $50,000 ordinary business income, $22,000 guaranteed payment, $5,000 long-term capital gain, and $400 dividend income. Which of these items are subject to self-employment tax? A. $50,000 ordinary income B. $50,000 ordinary business income and $22,000 guaranteed payment C. $50,000 ordinary business income, $22,000 guaranteed payment, and $5,000 long-term capital gain D. All income reported on a general partner's Schedule K-1 are subject to self-employment tax
B
. Which of the following amounts are not subject to self-employment tax? A. General partner's share of partnership income B. Limited partner's share of partnership income C. Sole proprietor's income from business activity D. Guaranteed payment to general partner
B
Loretta is the sole shareholder of Country Collectibles, a calendar year S corporation. Although Loretta spends at least 40 hours per week supervising Country Collectible's employees, she has never drawn a salary from the business. Country Collectibles has been in existence for five years and has earned a profit every year. Loretta withdraws $100,000 cash from the S corporation each year. As a result of an audit, the IRS asserts that $75,000 of the cash withdrawal should be considered a salary payment to Loretta. What are the payroll tax consequences of this recharacterization? A. No payroll taxes will be owed as a result of the audit. B. Loretta and Country Collectibles will each be liable for unpaid payroll taxes as a result of the audit. C. Only Loretta will be liable for unpaid payroll taxes as a result of the audit. D. Only Country Collectibles will be liable for unpaid payroll taxes as a result of the audit.
B
Sue's 2016 net (take-home) pay was $23,205. Her only payroll deductions were for payroll taxes and federal income tax. Federal income tax withholdings totaled $4,500. What was the amount of her gross wages for the year? A. $25,127 B. $30,000 C. $29,480 D. None of the above
B
Which of the following statements about S corporations is true? A. An S corporation has unlimited liability. B. An S corporation is a flow-through entity for federal income tax purposes. C. S corporations can only have 75 shareholders. D. S corporations can have several classes of stock.
B
Which of the following statements regarding a partner's tax basis in a partnership interest is true? A. Partnership tax basis is increased annually by cash distributions from the partnership. B. Partnership tax basis is reduced by the partner's share of nondeductible partnership expenses. C. Partnership tax basis is reduced by the partner's share of nontaxable partnership income. D. Partnership tax basis becomes negative if allocable losses exceed basis.
B
Which of the following statements regarding a sole proprietorship is false? A. A sole proprietorship is an unincorporated business operated by one individual. B. Taxable income from a sole proprietorship is reported on Schedule D of the proprietor's individual income tax return. C. Sole proprietors are entitled to deduct 50 percent of self-employment tax paid. D. None of the above statements are false.
B
Which of the following statements regarding limited liability companies is false? A. Every member of an LLC has limited liability for the LLC's debts. B. An LLC with only one member is generally treated as a corporation for income tax purposes. C. An LLC with more than one member is generally treated as a partnership for income tax purposes. D. State laws do not limit the number of members or the type of entity that can be a member in an LLC.
B
On January 1, 2016, Laura Wang contributed $30,000 cash in exchange for 30 shares of stock in Suki Inc., an S corporation. On May 12, Laura loaned $8,500 to Suki in exchange for a 5-year interest-bearing note. Laura's pro rata share of Suki's 2016 ordinary business loss was $34,100, and she received no cash distributions during the year. Which of the following statements is accurate? A. Laura can deduct $30,000 of the loss in 2016. On January 1, 2017, the basis in her Suki stock is zero, and the basis in her Suki note is $8,500. B. Laura can deduct $34,100 of the loss in 2016. On January 1, 2017, the basis in her Suki stock is $4,400, and the basis in her Suki note is zero. C. Laura can deduct $34,100 of the loss in 2016. On January 1, 2017, the basis in her Suki stock is zero, and the basis in her Suki note is $4,400. D. None of the above is accurate.
C
Rebecca has a qualifying home office. The room is 600 square feet and the entire house is 3,000 square feet. Use the following information to determine her allowable home office deduction: A. $3,300 home office deduction B. $16,500 home office deduction C. $3,500 home office deduction D. $4,100 home office deduction
C
Which of the following statements about partnerships is false? A. A partnership is a legal entity that may enter into valid contracts. B. Partnerships are unincorporated entities. C. Only individuals may be partners in a partnership. D. Partnerships are sometimes referred to as passthrough entities since they do not pay federal income tax.
C
Which of the following statements regarding S corporations is true? A. An S corporation may have no more than 50 shareholders. B. Any individual, estate, corporation, or trust may be an S corporation shareholder. C. An S corporation may have only one class of stock. D. An S corporation shareholder's allocable share of ordinary income is subject to self-employment tax.
C
Which of the following statements regarding limited liability companies is true? A. Just like an S corporation, an LLC member's share of ordinary income is not subject to self-employment taxes. B. Just like an S corporation, an LLC is restricted to 100 members. C. Because LLCs are a relatively new organizational form, many tax questions concerning their operation have yet to be resolved. D. Just like a limited partnership, only LLC members who are not actively involved in the entity's business activities have limited liability for the LLC's debts.
C
Which of the following statements regarding the basis limitation on deduction of partnership losses is false? A. If a partner's share of partnership losses exceeds the partner's tax basis in the partnership interest, the excess is not deductible in the current year. B. Partnership losses that are not deductible due to the basis limitation can be carried forward indefinitely. C. Partners can increase tax basis in their partnership interest only by making additional capital contributions. D. If a partnership becomes profitable in the future, the partner's share of such future income will create basis against which loss carryforwards can be deducted.
C
Which of the following statements regarding the home office deduction is true? A. In order to qualify for the deduction, a portion of the taxpayer's home must be used regularly and exclusively to meet with clients or customers. B. A home office deduction is not allowed for using the home office for administrative or management activities only. C. The home office deduction is limited to the taxable income of the business before the deduction. D. A depreciation deduction is not allowed for a home office.
C
Businesses are required by law to withhold federal income tax from the compensation paid to their employees.
T
A guaranteed payment may be designed to compensate a partner for personal services rendered to the partnership.
T
Armond earned $10,000 of profit from a sole proprietorship in 2016. If he also has $120,000 of salary income, how much self-employment tax will he owe? A. $1,530 B. $1,413 C. $290 D. $268
D
During 2016, Scott Howell received a salary of $125,000. The social security base amount for 2016 was $118,500. How much payroll tax should have been withheld from Scott's salary for 2016? A. $0 B. $9,065 C. $9,563 D. $9,160
D
Loretta is the sole shareholder of Country Collectibles, a calendar year S corporation. Although Loretta spends at least 40 hours per week supervising Country Collectible's employees, she has never drawn a salary from the business. Country Collectibles has been in existence for five years and has earned a profit every year. Loretta withdraws $100,000 cash from the S corporation each year. Which of the following statements accurately describes the tax consequences of these withdrawals? A. The withdrawals are nontaxable, with no risk that they could be recharacterized as taxable salary or dividend payments. B. The withdrawals are considered taxable dividends to Loretta. C. There is significant risk that the IRS could recharacterize the payments to Loretta as salary. Such treatment would increase taxable income for both Loretta and the S corporation. D. There is significant risk that the IRS could recharacterize the payments to Loretta as salary. Such treatment would not change taxable income for Loretta and reduce taxable income of the S corporation.
D
Which of the following items would be separately stated instead of included in ordinary income when reported by a partnership? A. Municipal bond interest income B. Capital loss C. Dividend income D. All of the above items would be separately stated
D
Which of the following statements concerning partnerships is false? A. A properly-drafted partnership agreement is crucial. B. A general partner's basis in a partnership includes his share of partnership debt. C. Limited partnerships must have at least one general partner. D. A partner is taxed annually on only that portion of a partnership's taxable income that is actually distributed.
D
Which of the following statements regarding sole proprietorships is false? A. A sole proprietorship has no legal identity separate from that of its owner. B. Sole proprietorships are the most common form of business entity in the U.S. C. The cash flow generated by a sole proprietorship belongs to the owner. D. The assets and liabilities of a sole proprietorship are held in the name of the business, not the owner.
D
XYZ, Inc. wishes to make an election to become an S corporation for federal tax purposes. Which of the following statements regarding the election is false? A. All of the corporation's shareholders must consent to make an S election. B. If a shareholder in an S corporation sells his shares of stock to a nonresident alien, the election will terminate. C. If an S corporation loses its election, the shareholders cannot make a new election for five years without IRS consent. D. All of the shareholders must consent to voluntarily terminating an S election.
D
Businesses must withhold payroll taxes from payments made to independent contractors and periodically remit such taxes to the state and federal governments.
F
Donatoni Corporation owns 40% of Market, Inc. voting common stock. During the current year, Donatoni received a $30,000 dividend from Market. Donatoni must report the dividend as gross income, and is allowed a $21,000 dividends-received deduction.
F
Eagle, Inc. made a contribution to the Boy Scouts of $25,000 during its current tax year. The corporation's taxable income before any charitable contribution deduction was $200,000. The corporation has a current charitable contribution deduction of $25,000.
F
Generally, the corporate income tax is computed on a proportionate rate schedule.
F
Hearth, Inc. reported $30,000 of depreciation expense on its financial statements. For federal income tax purposes, it deducted depreciation of $35,000. This book/tax difference would result in an increase to net income per books on the Schedule M-1 or M-3.
F
If a business is formed as an S corporation, its income may be subject to double taxation
F
If a partner's share of partnership losses exceeds basis, the excess is not deductible in the current year and cannot be carried forward for deduction in the future.
F
The dividends-received deduction is equal to 80% of any dividends-received by a corporate taxpayer.
F
A limited liability company that has only one member is generally treated as a disregarded entity for federal tax purposes.
T
A limited liability company with more than one member is generally considered a partnership for federal tax purposes.
T
A nonprofit corporation may incur a federal income tax if it has unrelated business income
T
A partner's distributive share of partnership profits will increase his or her tax basis in the partnership interest.
T
. Most tax credits for which a corporate taxpayer would be eligible are nonrefundable.
T
A corporate shareholder usually cannot be held personally liable for the debts arising from the corporate business.
T
A corporation is required to report differences between book and taxable income on either Schedule M-1 or Schedule M-3 of the corporate income tax return.
T