Multiple Choice Questions
1. Mindy, an individual, owns 100% of Markee, an S corporation, and she has an initial stock basis of $10,000. This is the first year of Markee's operations. Additional items reported by Markee during the current year are:
Municipal bond interest ............ $10,000
Ordinary income ..................... 3,400
Shareholder distributions ........... 5,000
What was Mindy's basis in Markee at the end of the tax year?
a. $5,000
b. $8,400
c. $15,000
d. $18,400
2. Mindy, an individual, owns 100% of Markee, an S corporation, and she has an initial stock basis of $10,000. This is the first year of Markee's operations. Additional items reported by Markee during the current year are:
Municipal bond interest ...................... $10,000
Ordinary income ............................... 3,400
Shareholder distributions ..................... 5,000
What amount of the $5,000 distribution is taxable to Mindy?
a. $0
b. $1,600
c. $3,400
d. $5,000
3. Monie, an individual taxpayer, owns 50% of Monie & Co, an S corporation. At the beginning of the tax year, Monie's basis in Monie & Co stock was $55,000. During the year, Monie & Co realized ordinary loss in the amount of $45,000 and a short-term capital loss of $15,000. Monie & Co made total distributions of $70,000 to its shareholders during this taxable year. What amount of the $70,000 distribution is taxable to Monie?
a. $70,000
b. $35,000
c. $25,000
d. $10,000
4. Which of the following would cause a revocation of S status for an existing S corporation?
I. A partnership becomes a shareholder of an S corporation
II. An S corporation becomes a partner in a partnership
III. An S corporation becomes a shareholder in a C corporation
IV. A nonresident alien becomes a shareholder of an S corporation
a. None of the above
b. II and III
c. I and IV
d. All of the above
5. Rocket Co, an S corporation, pays single-coverage health insurance premiums of $17,000 per year. Philip is a 1% shareholder-employee in Rocket. On Philip's behalf, Rocket pays Philip's family coverage under the health insurance plan. What amount of insurance premiums is includible in Philip's gross income?
a. $17,000
b. $170
c. $17
d. $0
6. Shareholders of Rayle Co, a calendar year corporation whose S status was terminated during 2016, are looking to reapply for the S status as soon as possible. What is the earliest year a new S election can be made, in the absence of IRS consent to an earlier election?
a. 2021
b. 2020
c. 2019
d. 2016
7. Pankee, Inc., was formed as a C corporation and made an S election five years ago. Which of the following statements correctly describes the taxability of Pankee's distributions to its shareholders?
a. A distribution to the shareholders will be taxable to the shareholders, if it is treated as coming from the S corporation's accumulated adjusted account and represents an amount already taxed to the shareholders
b. A distribution to the shareholders will be nontaxable to the shareholders, if it is treated as coming from the S corporation's accumulated adjusted account and represents an amount already taxed to the shareholders
c. A distribution to the shareholders will be nontaxable to the shareholders, if it is treated as coming from the S corporation's accumulated earnings and profits, earned during its years as a C corporation
d. A distribution to the shareholders will be nontaxable to the shareholders regardless of whether it is treated as coming from the S corporation's accumulated adjusted account or its accumulated earnings and profits
8. As of January 1, 2015, Kirk owned all 300 shares of Cork, Inc., a calendar year S corporation. On September 1, 2015 (243 days after January 1), Kirk sold 50 shares each to Steve and Moe and kept the remaining 200 shares for himself. For the year ended December 31, 2015, Cork reported nonseparately computed income of $109,500 and made no distributions to its shareholders. What amount of nonseparately stated income from Cork should Kirk report on his 2015 tax return?
a. $97,300
b. $109,500
c. $73,000
d. $36,500