1. (TCOs 1 and 8) Ronald, a cash basis taxpayer, incorporates his sole proprietorship. He transfers the following items to newly created Robin Corporation:

	Adjusted Basis	Fair Market Value
Cash	$10,000	$10,000
Building	$100,000	$160,000
Mortgage payable (secured by the building and held for 5 years)	$120,000	$120,000

With respect to this transaction, (Points : 5) Robin Corporation's basis in the building is $100,000. Ronald has no recognized gain. Ronald has a recognized gain of $20,000. Ronald has a recognized gain of $10,000. None of the above

Question 2. 2. (TCOs 1 and 8) Hazel transferred the following assets to Starling Corporation:

	Adjusted Basis	Fair Market Value
Cash	$120,000	$120,000
Machinery	$48,000	$36,000
Land	$108,000	$144,000

In exchange, Hazel received 50% of Starling Corporation's only class of stock outstanding. The stock has no established value. However, all parties sincerely believe that the value of the stock Hazel received is the equivalent of the value of the assets she transferred. The only other shareholder, Rick, formed Starling Corporation five years ago. (Points : 5)

Hazel has no gain or loss on the transfer. Starling Corporation has a basis of $48,000 in the machinery and $108,000 in the land. Starling Corporation has a basis of $36,000 in the machinery and $144,000 in the land. Hazel has a basis of $276,000 in the stock of Starling Corporation. None of the above

Question 3. 3. (TCOs 1, 8, and 9) Copper Corporation owns stock in Bronze Corporation and has net operating income of $900,000 for the year. Bronze Corporation pays Copper a dividend of $150,000. What amount of dividends received deduction may Copper claim if it owns 65% of Bronze stock (assuming Copper's dividends received deduction is not limited by its taxable income)? (Points : 5)

$0 $105,000 $120,000 $150,000 None of the above

Question 4. 4. (TCOs 1 and 8) Emerald Corporation, a calendar year C corporation, was formed and began operations on July 1, 2010. The following expenses were incurred during the first tax year (July 1 through December 31, 2010) of operations:

Expenses of temporary directors and of organizational meetings	$9,000
Fee paid to the state of incorporation	$1,000
Accounting services incident to organization	$2,500
Legal services for drafting the corporate charter and bylaws	$3,500
Expenses incident to the printing and sale of stock certificates	$4,000

Assuming a 248 election, what is the Emerald's deduction for organizational expenditures for 2010? (Points : 5)

$0 $533 $5,367 $5,500 None of the above

Question 5. 5. (TCOs 1 and 9) Blue Corporation, a cash basis taxpayer, has taxable income of $700,000 for the current year. Blue elected $80,000 of 179 expense. It also had a related party loss of $30,000 and a realized (not recognized) gain from an involuntary conversion of $85,000. It paid Federal income tax of $185,000 and a nondeductible fine of $20,000. What is Blue's current E & P? (Points : 5)

$465,000 $529,000 $614,000 $630,000 None of the above

Question 6. 6. (TCOs 1 and 9) Maria and Christopher each own 50% of Cockatoo Corporation, a calendar year taxpayer. Distributions from Cockatoo are $750,000 to Maria on April 1 and $250,000 to Christopher on May 1. Cockatoo's current E & P is $300,000 and its accumulated E & P is $600,000. How much of the accumulated E & P is allocated to Christopher's distribution? (Points : 5)

$0 $75,000 $150,000 $300,000 None of the above

Question 7. 7. (TCOs 1 and 10) Which equity arrangement would stop a corporation from being an S corporation? (Points : 5)

Phantom stock Stock appreciation rights Warrants Straight debt An insurance company structure

Question 8. 8. (TCOs 1 and 10) Beginning in 2010, the AAA of Amit, Inc. an S corporation, has a balance of $725,000. During the year, the following items occur:

Operating income	$472,000
Interest income	$6,500
Dividend income	$14,050
Municipal bond interest income	$6,000
Long-term capital loss from sale of investment land	$7,400
Charitable contributions	$19,000
Cash distributions to shareholders	$57,000

What is Amit's ending AAA balance? (Points : 5)

$1,153,150 $1,134,150 $1,127,650 $1,126,750

Question 9. 9. (TCOs 1 and 10) On January 2, 2009, David loans his S corporation $10,000, and by the end of 2009 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2010, the company's operating income is $10,000. The company also makes distributions to David of $11,000. Which of the following is correct? (Points : 5)

$1,000 LTCG $3,000 LTCG $11,000 LTCG Loan basis is $10,000. None of the above

Question 10. 10. (TCOs 1 and 10) Excess net passive income of an S corporation is $40,000 and taxable income is $32,000. Assuming that there is $50,000 of accumulated earnings and profits from a C corporation year, calculate any passive income penalty tax. (Points : 5)

$0 $4,500 $10,500 $11,200 None of the above