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Ewing owns a 60% interest in an S Corporation that earned $150,000 in 2013.
He also owns 60% of the stock in a C Corporation that earned $150,000
during the year. The S Corporation distributed $30,000 to Ewing and the C
Corporation paid dividends of $30,000 to Ewing. How much income must
Ewing report from these businesses?
Select one:
a. $90,000 income from the S Corporation and $30,000 income from the C
Corporation.
b. $90,000 income from the S Corporation and $0 income from the C
Corporation.
c. $0 income from the S Corporation and $30,000 income from the C
Corporation.
d. $30,000 income from the S Corporation and $30,000 of dividend income
from the C Corporation.
Question 2
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Jennifer is a 60% shareholder in Rho Corporation, a calendar year S
Corporation. During the year, Rho Corporation had gross income of $550,000
and operating expenses of $380,000. In addition, the corporation sold land
that had been held for investment purposes for a short-term capital gain of
$30,000. During the year, Rho Corporation distributed $50,000 to Jennifer.
With respect to this information, which of the following statements is correct?
Select one:
a. Jennifer reports ordinary income of $ 50,000.
b. Jennifer reports ordinary income of $102,000 and a short-term capital gain
of $18,000.
c. Rho Corporation will pay tax on taxable income of $200,000.
d. Jennifer reports ordinary income of $120,000.
Question 3
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Brass Corporation, a C Corporation, had gross receipts of $5 million in 2010,
$6 million in 2011, and $3 million in 2012. Silver Corporation, a personal
service corporation (PSC), had gross receipts of $4 million in 2010, $7 million
in 2011, and $5 million in 2012. Which of the corporations will be allowed to
use the cash method of accounting in 2013?
Select one:
a. Neither Brass Corporation nor Silver Corporation.
b. Brass Corporation only.
c. Silver Corporation only
d. Both Brass Corporation and Silver Corporation.
Question 4
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In 2014, Paradise Corporation had net income from operations of $75,000.
Further, Paradise recognized a long-term capital loss of $30,000, and a shortterm capital gain of $45,000.
Which of the following statements is correct?
Select one:
a. Paradise Corporation will have taxable income in 2014 of $85,000.
b. Paradise Corporation may use the capital loss to offset the capital gain and
must carry the net capital loss of $15,000 forward five years as a short-term
capital loss.
c. Paradise Corporation will have taxable income in 2014 of $100,000 and will
have a net capital loss of $15,000 that can be carried back 3 years and
forward 5 years.
d. Paradise Corporation may deduct $33,000 of the capital loss in 2014 and
may carry forward the remainder of the capital loss indefinitely to offset
capital gains.
Question 5
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Three individuals form Regal Corporation with the following contributions:
Cliff, cash of $50,000 for 50 shares; Brad, land worth $20,000 (basis of
$11,000) for 20 shares; and Ron, cattle worth $9,000 (basis of $6,000) for 9
shares and services worth $21,000 for 21 shares.
Select one:
a. These transfers are fully taxable and not subject to §351.
b. Ron's basis in his stock is $ 6,000.
c. Brad's basis in his stock is $21,000.
d. Ron's basis in his stock is $27,000.
Question 6
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Eve transfers property (basis of $120,000 and fair market value of $400,000) to
Green Corporation for 80% of its stock (worth $350,000) and a long-term note
(worth $50,000), executed by Green Corporation and made payable to Eve.
As a result of the transfer:
Select one:
a. Eve recognizes a gain of $ 50,000.
b. Eve recognizes no gain.
c. Eve recognizes a gain of $230,000.
d. Eve recognizes a gain of $280,000.
Question 7
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Jill transferred land worth $200,000, with a tax basis of $40,000, to Blue
Corporation, an existing entity, for 100 shares of its stock. Blue Corporation
has two other shareholders, Tom and Joe, each of whom holds 100 shares.
With respect to the transfer:
Select one:
a. Jill have no recognized gain.
b. Blue Corporation has a basis of $160,000 in the land.
c. Jill has a basis of $ 40,000 in her 100 shares in Blue Corporation.
d. Jill has a basis of $200,000 in her 100 shares in Blue Corporation.
Question 8
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Arnold and Victoria form Deep Purple Corporation with the following
transfers: inventory from Arnold (basis of $360,000 and fair market value of
$400,000) and improved real estate from Victoria (basis of $320,000 and fair
market value of $375,000). Victoria, an accountant, agrees to contribute her
services (worth $25,000) in organizing Deep Purple. The corporation’s stock is
distributed equally to Arnold and Victoria.
As a result of these transfers:
Select one:
a. Victoria has a recognized gain of $55,000 on the transfer of the real estate.
b. Deep Purple can deduct $25,000 as a business expense.
c. Deep Purple has a basis of $375,000 in the real estate.
d. Deep Purple has a basis of $360,000 in the inventory.
Question 9
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The tax treatment of corporate distributions at the shareholder level does not
depend on:
Select one:
a. The basis of stock in the hands of the shareholder.
b. Whether the distributed property is received by an individual or a
corporation.
c. The character of the property being distributed.
d. The earnings and profits of the corporation.
Question 10
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Tin Corporation, a cash basis taxpayer, has taxable income of $500,000 for the
current year. Tin elected $100,000 of §179 expense. It also had a related
party loss of $20,000 and a realized (not recognized) gain from an involuntary
conversion of $75,000. It paid Federal income tax of $150,000 and paid a
nondeductible fine of $10,000. Tin’s current E & P is:
Select one:
a. $320,000.
b. $410,000.
c. $400,000.
d. $475,000.
Question 11
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Chrome Corporation, a calendar-year cash-basis taxpayer, made estimated tax
payments of $400 each quarter in 2014, for a total of $1,600. Chrome filed its
2014 tax return in 2015 and the return showed a tax liability $2,100. At the
time of filing, March 15, 2015, Chrome paid an additional $500 in Federal
income taxes. How does the additional payment of $500 impact Chrome’s E
& P?
Select one:
a. Decrease by $500 in 2015.
b. Increase by $500 in 2015.
c. Decrease by $500 in 2014.
d. Increase by $500 in 2014.
Question 12
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Wren Corporation, a calendar year taxpayer, has a deficit in current E & P of
$200,000 and a $580,000 positive balance in accumulated E & P. If Wren
determines that a $700,000 distribution to its shareholders is appropriate at
some point during the year, what is the maximum amount of the distribution
that could potentially be treated as a dividend?
Select one:
a. $580,000.
b. $
0.
c. $380,000.
d. $480,000.
Question 13
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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 does not qualify for sale or exchange
treatment. With respect to the redemption, Eleanor will have a:
Select one:
a. $140,000 dividend.
b. $260,000 capital gain.
c. $140,000 capital gain.
d. $260,000 dividend.
Question 14
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Blue Jay Corporation distributes property (basis of $450,000, fair market value
of $600,000) to a shareholder in a distribution that is a qualifying stock
redemption. The property is subject to a liability of $320,000, which the
shareholder assumes. The basis of the property to the shareholder is:
Select one:
a. $
-0-.
b. $450,000.
c. $280,000.
d. $600,000.
Question 15
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Bill owns 100% of Gray Corporation (E & P of $500,000) and 100% of Black
Corporation (E & P of $400,000). Bill sells 100 shares in Gray (basis of
$40,000) to Black for $70,000, its fair market value. Bill purchased the stock in
Gray six years ago. Bill has:
Select one:
a. A long-term capital gain of $30,000.
b. Dividend income of $30,000.
c. A long-term capital gain of $70,000
d. Dividend income of $70,000
Question 16
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Canary Corporation has 5,000 shares of stock outstanding. It redeems in a
qualifying stock redemption
1,200 shares for $475,000 at a time when it has paid-in capital of $300,000
and E & P of $1.5 million. What
would be the charge to Canary’s E & P as a result of the redemption?
Select one:
a. $475,000.
b. $ 72,000.
c. $360,000.
d. $300,000.
Question 17
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Which of the following is true?
Select one:
a. Careful planning can ensure that all gains recognized by individual
shareholders receive beneficial dividend treatment.
b. The dollar amounts involved in reorganizations are generally substantial;
thus, it is important that the financial and tax treatment of the reorganization
is consistent.
c. A letter ruling indicates the income tax treatment the IRS will apply to the
proposed corporate restructuring transaction
d. Corporations prefer to recognize capital gains on reorganizations because
they can offset the capital losses they may have.
Question 18
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Minx Corporation transfers 40% of its stock and $50,000 in cash to Eritrea
Corporation for $500,000 of assets and all $200,000 of its liabilities. Eritrea
exchanges the Minx stock, cash, and its remaining $100,000 of assets with its
shareholders for all of their stock in Eritrea. After the exchange, Eritrea
liquidates. The exchange qualifies as what type of transaction?
Select one:
a. Acquisitive "Type D" reorganization.
b. "Type C" reorganization.
c. "Type A" reorganization.
d. "Type B" reorganization.
Question 19
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Against the will of Drive Corporation’s management, Gull Corporation offers
Drive’s shareholders 2 shares of Gull common stock for each share of Drive
common and 50 shares of Gull common for each share of Drive preferred.
The results of a hostile takeover yield Gull 85% of Drive common stock and
100% of the preferred. The only stock it did not obtain was that owned by
management. This transaction qualifies as a(n):
Select one:
a. Acquisitive "Type D" reorganization.
b. "Type A" consolidation.
c. "Type B" reorganization.
d. "Type D" split-up reorganization.
Question 20
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Western, Inc. is a corporation located in California. In June of the current
year, Western moves to
Georgia and changes its name to Southern Corporation. Its sole shareholder,
Dharma, exchanges all of
her stock in Western and receives all of the stock in Southern.
Select one:
a. This transaction qualifies as a "Type F" reorganization.
b. This move has no tax significance for Federal purposes.
c. This is treated as a liquidation of Western and incorporation of Southern.
Thus, gain can be recognized on the liquidation of Western.
d. This transaction qualifies as a "Type E" reorganization.
Question 21
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Which of the following potentially is a disadvantage of electing to file a
Federal corporate income tax consolidated return?
Select one:
a. Increased deduction amounts when computations are made on a group
basis.
b. Deferral of gains realized in transactions between group members.
c. Increased basis in the stock of a subsidiary that generates annual taxable
income.
d. Additional administrative costs in complying with the election.
Question 22
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Which of the following tax effects becomes more restrictive if an election is
made to file a group’s Federal corporate income tax returns on a consolidated
basis?
Select one:
a. Members who are liable for the consolidated tax liability.
b. Use of the $40,000 AMT exemption.
c. Use of the lower tax rate brackets.
d. Choice of members' tax accounting methods.
Question 23
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Which of the following entities is eligible to file Federal income tax returns on
a consolidated basis?
Select one:
a. Professional sports team operating as a limited partnership.
b. Japanese corporation engaged in multinational operations, including twothirds of its activities in the U.S.
c. Japanese corporation engaged in multinational operations, including onethirds of its activities in the U.S.
d. U.S. corporation engaged in the nuclear energy industry.
Question 24
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ParentCo owned 100% of SubCo for the entire year. ParentCo uses the accrual
method of tax accounting, whereas SubCo uses the cash method. During the
year, SubCo sold raw materials to ParentCo for $30,000 under a contract that
requires no payment to SubCo until the following year. Exclusive of this
transaction, ParentCo had income for the year of $35,000, and SubCo had
income of $50,000. The group’s consolidated taxable income for the year was:
Select one:
a. $ 80,000.
b. $ 85,000.
c. $150,000.
d. $115,000.
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ParentCo’s separate taxable income was $300,000, and SubCo’s was $50,000.
Consolidated taxable income before contributions was $300,000. Charitable
contributions made by the affiliated group included $60,000 by ParentCo and
$10,000 by SubCo. Compute the group’s maximum charitable contribution
deduction.
Select one:
a. $20,000.
b. $60,000.
c. $70,000.
d. $30,000.