1) Leah Joseph transferred land with a fair market value of $250,000 to a controlled corporation The land had an adjusted basis of $100,000 In exchange for the land, Leah received stock worth $160,000, $40,000 in cash, and property with a fair market value of $50,000 and an adjusted basis of $10,000 How much gain does Leah have to recognize a $0 b $50,000 c $90,000 d $150,000 2) A calendar year S corporation has a $36,500 operating loss for 20X1 At the beginning of 20X1, S corporation had two equal shareholders A and B On May 31, 20X1, A sells his shares of stock in the S corporation How much of the $36,500 loss is allocable to A a $0 b $4,167 c $7,550 d $7,604 e $15,100 3) When a corporation distributes cash or other property to its shareholders, the amount of the distribution equals the sum of a The money distributed and the adjusted basis of any property distributed b The money distributed and the fair market value of any property distributed c The money distributed and the original market value of any property distributed d None of the above 4) Debt will not be treated as a second class of stock if all of the following requirements are satisfied except a It will be paid on demand or on a specified date b The interest rate is contingent on profits c It cannot be converted into stock in the corporation d It is held by an individual (other than a nonresident alien), estate, trust eligible to be an S corporation shareholder, or a person in the business of lending money 5) The partnership of Spencer and Holodick realized an ordinary loss of $42,000 in 2018 Both the Partnership and the two partners are on a calendar year basis The partners share profits and losses equally On December 31, 2018, Holodick had an adjusted basis of $18,000 for his partnership interest before taking the 2018 loss into consideration On his individual return for 2018, what amount and character of loss should he deduct a An ordinary loss of $18,000 b An ordinary loss of $21,000 c An ordinary loss of $18,000 and a capital loss of $3,000 d A capital loss of $21,000 6) Which one of the following will NOT be treated as boot when received by a shareholder from a controlled corporation in addition to the controlled corporation's stock a Cash b A used computer c The controlled corporation's acceptance of a parcel of land with an adjusted basis of $150,000 but subject to a $125,000 mortgage d A bond issued by the controlled corporation 7) Caroline Finley transferred land with a fair market value of $300,000 to a controlled corporation The land, which was subject to a $140,000 mortgage, had an adjusted basis of $100,000 In exchange for the land, Caroline received stock worth $150,000 and $10,000 in cash How much gain does Caroline have to recognize a $0 b $10,000 c $50,000 d $60,000 8) A calendar year corporation in its first year of operations reports earnings and profits of $50,000 In December of that year, it distributes land worth $40,000 to one of its shareholders The corporation's basis in the land was $35,000, and the land is subject to a $15,000 mortgage What is the amount of the distribution that will be taxed as a dividend to the shareholder a $20,000 b $25,000 c $35,000 d $50,000 9) When a corporation distributes property to its shareholders, it a May recognize either gain or loss b May recognize gain, but never a loss c May recognize a loss, but never a gain d Never recognize a gain or loss 10) Hale Instruments, Inc , a C corporation, transferred its inventory to Agnes Acoustics, Inc , an S corporation, in a nonrecognition transaction Agnes Acoustics took Hale Instruments' basis in the transferred inventory Hale Instruments uses the last in, first out (LIFO) method to value its inventory Before the transfer, the value of the corporation's inventory under the LIFO method was $135,000 The value of the corporation's inventory assets under the first in, first out (FIFO) method was $185,000 What amount, if any, has to be recognized, and by whom a A $50,000 loss has to be recognized by Hale Instruments b $0 c $50,000 has to be included in Hale Instruments' income d $50,000 has to be included in Agnes Acoustics' income 11) A corporation has a $15,000 deficit balance in its accumulated E P at the beginning 20X1 During 20X1, the corporation generates $20,000 of E P and distributes $20,000 to its shareholders Which of the following statements is true regarding the treatment of the $20,000 distribution and the corporation's accumulated E P at the end of 20X1 a The $20,000 is treated as a dividend distribution, and the corporation's accumulated E P at the end of 20X1 is a $15,000 deficit b The $20,000 is treated as a return of capital distribution, and the corporation's accumulated E P at the end of 20X1 is $15,000 c The $20,000 is treated as a $5,000 dividend distribution and a $15,000 return of capital distribution The corporation's accumulated E P at the end of 20X1 is $0 d None of the above 12) On January 1, 20X6, an S corporation has accumulated E P of $55,000 from its years as a C corporation and has a positive AAA balance of $15,000 The corporation's sole shareholder, Betty, has a basis in her S corporation stock of $30,000 During 20X6, the corporation reports ordinary income of $10,000 and a $20,000 long term capital gain During 20X6, the corporation distributes $65,000 to Betty The amount of the distribution that represents a taxable dividend is a $0 b $20,000 c $50,000 d $55,000 13) Passive investment income a Includes gross receipts derived from royalties, rents, dividends, interest, and annuities b Does not include interest on any obligation acquired in the ordinary course of the corporation's trade or business or from its sale of inventory c Does not include any recognized built in gain or loss of the S corporation for any tax year during the recognition period d All of the above 14) If a personal use asset is contributed to a partnership for business use, the partnership's basis in the asset is always a $0 b The FMV of the asset at the date of contribution c The basis of the asset at the date of contribution d The lesser of the asset's FMV or basis at the date of contribution 15) Ross and Mike both use a fiscal year that ends on October 31 and each owns a 20 percent interest in the Sunrise Partnership Each of the remaining partners in Sunrise owns less than a five percent interest in Sunrise Which rule for determining the partnerships required year end would apply to Sunrise a December 31st default year end b Majority partners' year end c Least aggregate deferral method d Principal partners' year end e None of the above 16) S status may be terminated by all of the following EXCEPT a Consent of shareholders who own more than half of the outstanding shares of the corporation at the time of the revocation b A U S citizen shareholder marries a nonresident alien but elects to treat the nonresident alien as a U S resident for federal income tax purposes c A nonresident alien becomes a shareholder d The corporation has excess passive investment income for three consecutive tax years 17) Villanueva Games, a newly formed corporation, is authorized to issue 1,000 common shares Ibrahim Guerra transferred land with a fair market value of $200,000 and an adjusted basis of $80,000 to the corporation in exchange for 900 shares worth $180,000 Jakayla Khan transferred equipment with a fair market value of $20,000 and an adjusted basis of $4,000 in exchange for 100 shares worth $20,000 How much gain does each one have to recognize a Ibrahim does not have to recognize any gain Jakayla has to recognize $16,000 of gain b Ibrahim has to recognize $120,000 of gain Jakayla does not have to recognize any gain c Ibrahim has to recognize $120,000 of gain Jakayla has to recognize $16,000 of gain d Neither Ibrahim nor Jakayla has to recognize any gain 18) On July 1, Nick acquired a 20 percent interest in the partnership of Dolhon Marchese, by contributing a parcel of land for which his basis was $8,000 At the date of the contribution, the land had a fair market value of $20,000 and was subject to a mortgage of $4,000 Responsibility for the mortgage was assumed by the partnership Assuming there are no other partnership liabilities, the basis of Nick's interest in the partnership is a $4,000 b $4,800 c $16,000 d $16,800 19) An S corporation's separately stated items must include all of the following except a Gross income from business operations b Tax credits c Investment income expense d Charitable contributions 20) Rachael and Ray form an equal partnership R R on January 1, 2004 Rachael contributes $100,000 in exchange for her one half interest Ray contributes land worth $100,000 Ray's adjusted basis in the land is $30,000 Ray is a real estate developer, and at the time of the contribution, the land was inventory in his hands The land is a capital asset in the hands of R R If R R sells the land in 2018 for $180,000, (Hint the sales date versus the contribution date is important) a R R will recognize $150,000 of capital gain b R R will recognize $150,000 of ordinary income c R R will recognize $80,000 of ordinary income and $70,000 of capital gain d R R will recognize $80,000 of ordinary income e R R will recognize $80,000 of capital gain

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1) Leah Joseph transferred land with a fair market value of $250,000 to a controlled corporation. The land had an adjusted basis of $100,000. In

1) Leah Joseph transferred land with a fair market value of $250,000 to a controlled corporation. The land had an adjusted basis of $100,000. In exchange for the land, Leah received stock worth $160,000, $40,000 in cash, and property with a fair market value of $50,000 and an adjusted basis of $10,000. How much gain does Leah have to recognize?

$50,000

$90,000

$150,000

2) A calendar-year S corporation has a $36,500 operating loss for 20X1. At the beginning of 20X1, S corporation had two equal shareholders: A and B. On May 31, 20X1, A sells his shares of stock in the S corporation. How much of the $36,500 loss is allocable to A?

$4,167

$7,550

$7,604

$15,100

3) When a corporation distributes cash or other property to its shareholders, the amount of the distribution equals the sum of:

The money distributed and the adjusted basis of any property distributed.

The money distributed and the fair market value of any property distributed.

The money distributed and the original market value of any property distributed.

None of the above.

4) Debt will not be treated as a second class of stock if all of the following requirements are satisfied except:

It will be paid on demand or on a specified date.

The interest rate is contingent on profits.

It cannot be converted into stock in the corporation.

It is held by an individual (other than a nonresident alien), estate, trust eligible to be an S corporation shareholder, or a person in the business of lending money.

5) The partnership of Spencer and Holodick realized an ordinary loss of $42,000 in 2018. Both the Partnership and the two partners are on a calendar-year basis. The partners share profits and losses equally. On December 31, 2018, Holodick had an adjusted basis of $18,000 for his partnership interest before taking the 2018 loss into consideration. On his individual return for 2018, what amount and character of loss should he deduct?

An ordinary loss of $18,000

An ordinary loss of $21,000

An ordinary loss of $18,000 and a capital loss of $3,000

A capital loss of $21,000

6) Which one of the following will NOT be treated as boot when received by a shareholder from a controlled corporation in addition to the controlled corporation's stock?

Cash.

A used computer.

The controlled corporation's acceptance of a parcel of land with an adjusted basis of $150,000 but subject to a $125,000 mortgage.

A bond issued by the controlled corporation.

7) Caroline Finley transferred land with a fair market value of $300,000 to a controlled corporation. The land, which was subject to a $140,000 mortgage, had an adjusted basis of $100,000. In exchange for the land, Caroline received stock worth $150,000 and $10,000 in cash. How much gain does Caroline have to recognize?

$10,000

$50,000

$60,000

8) A calendar year corporation in its first year of operations reports earnings and profits of $50,000. In December of that year, it distributes land worth $40,000 to one of its shareholders. The corporation's basis in the land was $35,000, and the land is subject to a $15,000 mortgage. What is the amount of the distribution that will be taxed as a dividend to the shareholder?

$20,000

$25,000

$35,000

$50,000

9) When a corporation distributes property to its shareholders, it:

May recognize either gain or loss.

May recognize gain, but never a loss.

May recognize a loss, but never a gain.

Never recognize a gain or loss.

10) Hale Instruments, Inc., a C corporation, transferred its inventory to Agnes Acoustics, Inc., an S corporation, in a nonrecognition transaction. Agnes Acoustics took Hale Instruments' basis in the transferred inventory. Hale Instruments uses the last-in, first-out (LIFO) method to value its inventory. Before the transfer, the value of the corporation's inventory under the LIFO method was $135,000. The value of the corporation's inventory assets under the first-in, first-out (FIFO) method was $185,000. What amount, if any, has to be recognized, and by whom?

A $50,000 loss has to be recognized by Hale Instruments.

$50,000 has to be included in Hale Instruments' income.

$50,000 has to be included in Agnes Acoustics' income.

11) A corporation has a $15,000 deficit balance in its accumulated E&P at the beginning 20X1. During 20X1, the corporation generates $20,000 of E&P and distributes $20,000 to its shareholders. Which of the following statements is true regarding the treatment of the $20,000 distribution and the corporation's accumulated E&P at the end of 20X1?

The $20,000 is treated as a dividend distribution, and the corporation's accumulated E&P at the end of 20X1 is a $15,000 deficit.

The $20,000 is treated as a return of capital distribution, and the corporation's accumulated E&P at the end of 20X1 is $15,000.

The $20,000 is treated as a $5,000 dividend distribution and a $15,000 return of capital distribution. The corporation's accumulated E&P at the end of 20X1 is $0.

None of the above.

12) On January 1, 20X6, an S corporation has accumulated E&P of $55,000 from its years as a C corporation and has a positive AAA balance of $15,000. The corporation's sole shareholder, Betty, has a basis in her S corporation stock of $30,000. During 20X6, the corporation reports ordinary income of $10,000 and a $20,000 long-term capital gain. During 20X6, the corporation distributes $65,000 to Betty. The amount of the distribution that represents a taxable dividend is:

$20,000

$50,000

$55,000

13) Passive investment income:

Includes gross receipts derived from royalties, rents, dividends, interest, and annuities.

Does not include interest on any obligation acquired in the ordinary course of the corporation's trade or business or from its sale of inventory.

Does not include any recognized built-in gain or loss of the S corporation for any tax year during the recognition period.

All of the above.

14) If a personal-use asset is contributed to a partnership for business use, the partnership's basis in the asset is always:

$0.

The FMV of the asset at the date of contribution.

The basis of the asset at the date of contribution.

The lesser of the asset's FMV or basis at the date of contribution.

15) Ross and Mike both use a fiscal year that ends on October 31 and each owns a 20-percent interest in the Sunrise Partnership. Each of the remaining partners in Sunrise owns less than a five-percent interest in Sunrise. Which rule for determining the partnerships required year end would apply to Sunrise?

December 31st default year-end.

Majority partners' year-end.

Least aggregate deferral method.

Principal partners' year-end.

None of the above

16) S status may be terminated by all of the following EXCEPT:

Consent of shareholders who own more than half of the outstanding shares of the corporation at the time of the revocation.

A U.S. citizen shareholder marries a nonresident alien but elects to treat the nonresident alien as a U.S. resident for federal income tax purposes.

A nonresident alien becomes a shareholder.

The corporation has excess passive investment income for three consecutive tax years.

17) Villanueva Games, a newly formed corporation, is authorized to issue 1,000 common shares. Ibrahim Guerra transferred land with a fair market value of $200,000 and an adjusted basis of $80,000 to the corporation in exchange for 900 shares worth $180,000. Jakayla Khan transferred equipment with a fair market value of $20,000 and an adjusted basis of $4,000 in exchange for 100 shares worth $20,000. How much gain does each one have to recognize?

Ibrahim does not have to recognize any gain; Jakayla has to recognize $16,000 of gain.

Ibrahim has to recognize $120,000 of gain; Jakayla does not have to recognize any gain.

Ibrahim has to recognize $120,000 of gain; Jakayla has to recognize $16,000 of gain.

Neither Ibrahim nor Jakayla has to recognize any gain.

18) On July 1, Nick acquired a 20-percent interest in the partnership of Dolhon & Marchese, by contributing a parcel of land for which his basis was $8,000. At the date of the contribution, the land had a fair market value of $20,000 and was subject to a mortgage of $4,000. Responsibility for the mortgage was assumed by the partnership. Assuming there are no other partnership liabilities, the basis of Nick's interest in the partnership is:

$4,000

$4,800

$16,000

$16,800

19) An S corporation's separately stated items must include all of the following except:

Gross income from business operations.

Tax credits.

Investment income expense.

Charitable contributions.

20) Rachael and Ray form an equal partnership R&R on January 1, 2004. Rachael contributes $100,000 in exchange for her one-half interest; Ray contributes land worth $100,000. Ray's adjusted basis in the land is $30,000. Ray is a real estate developer, and at the time of the contribution, the land was inventory in his hands. The land is a capital asset in the hands of R&R. If R&R sells the land in 2018 for $180,000, (Hint: the sales date versus the contribution date is important)

R&R will recognize $150,000 of capital gain.

R&R will recognize $150,000 of ordinary income.

R&R will recognize $80,000 of ordinary income and $70,000 of capital gain.

R&R will recognize $80,000 of ordinary income.

R&R will recognize $80,000 of capital gain.