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Question 1 1. Bud and Lou form WhoseOn corporation and transfer the following assets and liabilities: Bud: Building Mortgage (held for four years) on building Lou: Equipment Lien on Equipment Accounts payable Trucks Basis $210,000 30,000 Basis 35,000 0 0 15,000 FMV $225,000 30,000 FMV 90,000 40,000 25,000 50,000 Bud received $50,000 in cash plus 60% of the stock outstanding (fair market value of $150,000). Lou received 30% of the stock outstanding (fair market value of $75,000). Answer a. Bud has a recognized gain of $50,000; Lou has a recognized gain of $90,000. b Bud has a recognized gain of $65,000; Lou has a recognized gain of $15,000. . c. Bud has a recognized gain of $20,000; Lou has a recognized gain of $0. d Bud has a recognized gain of $15,000; Lou has a recognized gain of $90,000. . e. None of the above. 4 points Question 2 1. Desi transfers land to Babaloo Corporation for 80% of the stock worth $20,000 plus a note payable to him in the amount of $40,000 and the assumption by Babaloo of a mortgage on the land in the amount of $100,000. The land, which has a basis to Desi of $70,000, is worth $160,000. Answer a. Desi will have a recognized gain of $90,000 and a $20,000 basis in his stock. b Desi will have a recognized gain of $70,000 and a $20,000 basis in his stock. . c. Desi will have a basis in the stock of $ 0; Babaloo will have a basis in the land of $70,000. d Desi will have a basis in the stock of $ 0; Babaloo will have a basis in the land of $140,000. . e. Desi will have a basis in the stock of $ 20,000; Babaloo will have a basis in the land of $140,000. Question 3 1. 4 points Walkin' D Enterprises, Inc. has been lured to Swampville, Miss. by the town council which has agreed to give it 11 acres of its best soggy land (FMV: $ 275,000 and a startup grant of $150,000. Within the first six months, Walkin' spends $950,000 on new plant and equipment at the site. What happens: Answer a. Walkin' recognizes income of $150,000 and has a zero basis in the land, plant and equipment. b Walkin' recognizes income of $425,000 and has a zero basis in the land and a $950,000 basis in the plant . and equipment. c. Walkin' recognizes no income and has a zero basis in the land and an $800,000 basis in plant and equipment. d Walkin' recognizes no income and has a zero basis in the land and an $525,000 basis in plant and . equipment. e. None of the above. 4 points Question 4 1. Al Bundy and his son Bud, form Shoeworld, Inc. Al transfers $150,000 for a 50% interest and Bud transfers property (FMV: $150,000, basis: $175,000) for the remaining 50%. The transaction qualified under Sec. 351 and the stock qualified under Sec. 1244. Bud doesn't agree to reduce his stock basis. Al is married, bud is single. Five years later, the company liquidates and Bud and Al each get $50,000. What losses do Bud and Al report? Answer a. Al has an ordinary loss of $100,000; Bud has an ordinary loss of $125,000. b Al has an ordinary loss of $100,000; Bud has an ordinary loss of $100,000 and a capital loss of $25,000. . c. Al has an ordinary loss of $50,000 and a capital loss of $50,000; Bud has an ordinary loss of $50,000 and a capital loss of $75,000. d Al has an ordinary loss of $100,000; Bud has an ordinary loss of $50,000 and a capital loss of $75,000. . e. None of the above. Question 5 1. 4 points Dean and Jerry each own 50% of Pardners Corporation. In 2012 it sold land for $900,000 (basis: $300,000) on the installment basis. The purchase price is payable in three $300,000 installments in 2013, 2014, and 2015. At the start of 2013, Pardners has a deficit in accumulated E&P of $300,000. Its taxable income for 2013 is $600,000. During 2013, Pardners distributes $250,000 each to Dean and Jerry. How much of Dean's distribution will be taxed as a dividend? Answer a. $50,000. b $150,000. . c. $200,000. d $250,000. . e. None of the above. 4 points Question 6 1. Larry, Shemp and Moe are equal shareholders in Flywheel, Inc. At the start of 2012, Flywheel had accumulated E&P of $ 45,000. On June 30, when Flywheel had a deficit in current earnings of $30,000, it distributed $30,000 each to Larry, Moe and Shemp. On August 1, 2013, Shemp sold his shares to Curly for $50,000. On October 1, Flywheel distributed another $30,000 each to Moe, Larry and Curly. Taxable income at the end of the year was $18,000. Shemp had a basis in his stock of $40,000 at the start of 2013. Which is true? Answer a. Shemp recognizes a $10,000 gain; Curly's stock basis is $50,000. b Shemp recognizes a $25,000 gain; Curly's stock basis is $23,000. . c. Shemp recognizes a $22,000 gain; Curly's stock basis is $23,000. d Shemp recognizes a $10,000 gain; Curly's stock basis is $40,000. . e. None of the above. Question 7 1. 4 points Kemo Sabe Corporation distributes real property to one of its shareholders, Dan Reed (FMV: $150,000; basis: $165,000). Dan also assumes a $200,000 mortgage. Before considering the consequences of the distribution, Kemo's current E & P is $50,000 and its accumulated E & P is $90,000. Kemo makes no other distributions during the current year. What is its taxable gain or loss and Dan's dividend amount (this does not qualify as a redemption) on the distribution? Answer a. Kemo recognizes a gain of $35,000; Dan has dividend income of $0. b Kemo recognizes a gain of $0; Dan has dividend income of $140,000. . c. Kemo recognizes a loss of $15,000; Dan has dividend income of $0. d Kemo recognizes a gain of $35,000; Dan has dividend income of $140,000. . e. None of the above. 4 points Question 8 1. On March 30, 2013, Walkin' D, Inc. distributes nontaxable stock rights. One right is issued for every share of stock owned. Rick owns 100 shares of stock purchased two years ago for $4,000. At the date of distribution, the rights are worth $1,000 (100 rights at $20 per right) and Rick's stock is worth $6,000 (or $60 per share). On December 1, he sells 50 stock rights for $15 per right and allows the rest to expire. How much gain or loss does he recognize on the sale and what is his basis in his Walkin' D shares? Answer a. Rick has a gain of $750; his basis in the common is $4,000. b Rick has a loss of $250; his basis in the common is $3,000. . c. Rick has a gain of $250; his basis in the common is $3,500. d Rick has a gain is $650; his basis in the common is $3,900. . e. None of the above. Question 9 1. 4 points Gravestone Corporation has 1,000 shares of stock outstanding. Gomez owns 300 shares, his wife, Morticia, owns 200 shares, brother, Fester, owns 100 shares. Rack 'em, Inc. owns 200 shares. Gomez owns 30% of Rack 'em. his son, Pugsley, owns 20%. the rest is owned by unrelated persons. The remaining 200 shares are owned by Morticia's father, Gruesome. Pl Applying the 318 stock attribution rules, how many shares does Gomez own in Gravestone Corporation? Answer a. 500. b 600. . c. 700. d 800. . e. None of the above. 4 points Question 10 1. Archibald Leach owns 1,500 shares of Old Lace, Inc. there are 2,000 shares outstanding. the remaining 500 are owned by unrelated individuals. Old Lace redeems 900 of Archie's shares (basis of $15,000) for $45,000. Old lace has E&P of $40,000 before the redemption. With respect to the distribution in redemption of the stock: Answer a. Archie has a capital gain of $36,000. b Archie has a capital gain of $30,000. . c. Archie has dividend income of $45,000. d Archie has dividend income of $40,000. . e. None of the above. 4 points Question 11 1. Groucho, Chico and Zeppo, brothers, own 900 shares of the stock in Flywheel Corporation (E & P of $700,000) as follows: Groucho, 300 shares; Chico, 300 shares; and Zeppo, 300 shares. The remaining 100 shares are owned by Whyaduck, Inc., which is owned by Chico's wife. Flywheel redeems 200 of Chico's shares (he bought them all three years ago for $90,000)) for $100,000. If Chico's stock is a capital asset and has been held for over three years, Chico has: Answer a. A longterm capital gain of $40,000. b A shortterm capital gain of $40,000. . c. Dividend of $100,000. d A longterm capital gain of $30,000. Dividend income of $10,000. . e. None of the above. Question 12 1. 4 points Moe, Shemp and Curley own 500 shares each of the 2,000 outstanding shares of Susquehanna Hat Corporation (E & P of $900,000). The remaining 500 shares are owned by Curley's son, Curley Joe. The formed Susquehanna five years ago. Each contributed $50,000. Susquehanna has operated several trades or businesses for more than five years. In the current year, Susquehanna sells the assets of one of those trades or businesses and distributes the proceeds from the asset sale to the shareholders in a pro rata stock redemption. In this transaction, Curley receives $100,000 in redemption of 300 shares. As a result of this transaction and section 267, Curley will recognize: Answer a. $100,000 dividend income. b $70,000 dividend income. . c. $70,000 longterm capital gain. d $100,000 longterm capital gain. . e. None of the above. Question 13 1. 4 points When Lionel Twain died, his gross estate included stock in Flyer Corporation and 22 Twain, Inc. valued at $1.3 million and $2 million, respectively. His adjusted gross estate was $9 million. He owned 23% of Flyer and 31% of the Twain stock. The remaining shares of both corporations were owned by his children, who are his sole heirs. Death taxes and funeral and administration expenses for his estate are $1.3 million. He had a basis of $475,000 in the Flyer stock and $510,000 in the Twain stock. Flyer (E & P of $3 million) distributed land worth $1.5 million (basis of $800,000) to his estate in redemption of all of its stock. Which of the following is a correct statement regarding the tax consequences of this redemption? Answer a. The estate recognizes dividend income of $1.5 million on the redemption. b Flyer Corporation recognizes $700,000 on the distribution of the land. . c. The estate recognizes no gain or loss on the redemption. d The estate recognizes dividend income of $200,000 on the redemption. . e. Both b and d.. Question 14 1. 4 points Susquehanna Hat Corporation has 1,000 shares of stock outstanding. Moe owns 300 shares, his brother, Larry 250 shares, and his brother, Shemp 250 shares. Moe's son owns the remaining 200 shares. The remaining At a time when it has paidin capital of $300,000 and E & P of $750,000. It redeems 200 of Moe's shares for $210,000. His basis in his 300 shares was $90,000. What would be the charge to Susquehanna's E & P as a result of the redemption? Answer a. $110,000. b $150,000. . c. $170,000. d $0. . e. None of the above. 4 points Question 15 1. In 2008, Bruce Wayne receives a nontaxable preferred stock dividend from Wayne Corp. At the time, Wayne Corp. had E&P of $85,000. The preferred stock had a market value of $100,000. Bruce allocated $20,000 of his common stock basis to the preferred. In 2012, Wayne Corp. redeems the stock from him for $120,000. It has E&P at the time of $200,000. With respect to the stock redemption: Answer a. Bruce will recognize a capital gain of $100,000. b Bruce will recognize dividend income of $85,000. . c. Bruce will recognize dividend income of $100,000. d Bruce will recognize dividend income of $120,000. . e. None of the above. Question 16 1. 4 points Norton owns 800 shares (80%) of Shiny Sewer, Inc. (E & P of $500,000) and 50% of NosePlug Corporation (E & P of $400,000). Norton sells 650 shares in Shiny (basis of $40,000) to Noseplug for $70,000, its fair market value. Norton purchased the stock in Shiny six years ago. Norton has: Answer a. Dividend income of $70,000. b A longterm capital gain of $40,000. . c. Dividend income of $40,000. d A longterm capital gain of $70,000. . e. None of the above. 4 points Question 17 1. In 2005, Jethro Bodine and his cousin, Ellie Mae Clampert formed Hillbilly Construction Corp. to sell and install cement ponds through out Beverly Hills. In 2010, Grandma Clampert, their grandmother, contributed land (FMV: $200,000; basis: $150,000) for an 80% interest. In a liquidation of the corporation in 2013, the company distributes the land to Jethro, Grandma and Ellie Mae, pro rata. At the time of the distribution, he property has a FMV of $100,000. What loss, if any, will the corporation recognize with respect to the distribution of land? Answer a. $0. b $50,000. . c. $10,000. d $100,000. . e. $20,000.. 4 points Question 18 1. Jimmy, Perry and Lois formed Newshawks, Inc. in 2010. Jimmy and Lois own 20% each and Perry the other 60%. They are unrelated. They transferred property (basis of $20,000, fair market value of $25,000) as a contribution to capital. In 2012, they contributed another parcel (FMV: $ 50,000; Basis: $20,000). In the current year, 2013, and pursuant to a complete liquidation, the 2005 property is distributed proportionately to the shareholders. At the time of the distribution, the property had a fair market value of 10,000. The 2012 property is sold to an unrelated third party for its FMV. What amount of loss will the corporation recognize on the distribution of the property? Answer a. $0. b $4,000. . c. $10,000. d $40,000. . e. None of the above. 4 points Question 19 1. WhoseOn, Inc. acquired land in a 351 transaction in 2012, (FMV: $200,000; basis: $150,0000). Bud and Lou are the sole shareholders, Bud (70%) and Lou (30%), who are unrelated.. WhoseOn adopts a plan of liquidation in 2013. On this date, the land has decreased in value to $50,000. WhoseOn sells the land for $50,000 and distributes the proceeds pro rata. What amount of loss may the corporation recognize on the sale of the land? Answer a. $0. b $30,000. . c. $50,000. d $100,000. . e. None of the above. 4 points Question 20 1. Gomez, Morticia, and Uncle Fester own 200 shares, 200 shares, and 600 shares, respectively, in Graveyard Corporation (E & P of $750,000). Morticia is Gomez's wife, and Uncle Fester is his brother. Graveyard redeems all of Gomez's stock for $10,000. Gomez paid $20 a share for the stock five years ago. He severed all ties with the company. Six years later, Uncle Fester fell afoul of the IRS and so to keep it from falling into unfriendly hands, Gomez bought Fester's shares at the tax sale. With respect to the redemption, Gomez has: Answer a. Dividend income of $10,000. b Dividend income of $60,000. . c. Longterm capital gain of $60,000. d Longterm capital gain of $10,000. . e. None of the above. Question 21 1. 4 points Pardners, Inc., an accrual basis taxpayer, has two equal shareholders, Dean and Jerry. They each bought their shares five years ago for $100,000. The following transactions also occurred during the year: a b c d e f g h Pardners had taxable income of $186,000. Taxable income was reduced by a net operating loss carryover of $40,000. It paid federal income taxes of $65,000. It had meal and entertainment expenses of $ 8,000. The company paid life insurance premiums on key employees of $15,000. It received life insurance payments on key employees of $25,000. The cash surrender value of the key man policies increased by $5,000 during the year. The company sold a piece of equipment during the year for $150,000. The purchase price will be paid over three years, starting in 2013, at $50,000 per year. The company's tax basis in the equipment was $110,000. i The company sold a piece of land held for investment during the year and reported a capital gain of $105,000. The corporation also a capital loss carryforward of $10,000. j E & P depreciation exceeded MACRS depreciation by $14,000. k An election under 179 was made in 2010 for $40,000 of assets. l Pardners made a distribution to Dean and Jerry of $150,000 each on August 4, 2012. m Dean sold his stock to Jerry on November 5, 2012 for $ 125,000. n Pardners had a deficit in accumulated E&P as of January 1, 2012 of $234,000. 1 Compute Pardners' E & P prior to the distribution.. 2 What are the tax consequences of the distribution to Dean and Jerry? 3 What was Dean's gain or loss on the sale of his stock.? Answer Path Question 22 1. 10 points Bruce Wayne, Diana Prince and Clark Kent, unrelated taxpayers, formed Trinity Enterprises, Inc. five years ago, as equal shareholders, to rehabilitate super villains. Last year, Bruce contributed land (FMV: $150,000; basis: $200,000) and equipment (FMV: $ 80,000; basis: $30,000). After a chilling review by Mr. Freeze and a collapse of its website, they voted to liquidate the corporation and distribute the land and equipment pre rata. At the time of the distribution, the liquidation, the land is worth $90,000. a. b. How much loss, if any, may Trinity recognize on the distribution of the land? Assume that the transfer of land was made so that it could use the land to construct a hospital, but unable to decipher the bizarro zoning regulations were force to abandon its plans. What amount of loss may Trinity recognize on the distribution? c. Assume the land was contributed three years ago and Clark owns 55% of Trinity. What amount of loss may Trinity recognize on the distribution? d. Assume that Bruce contributed only the land, but did so 7 years ago. What amount of loss may Trinity recognize on the distribution? Answer Path 10 points Question 23 1. Bonus Bonus Question (total of 6 points): Every hero needs a sidekick. The following four characters were sidekicks, partners, spouses or other types of assistants to what main TV characters (not the actor)? A. SamPhone Operator. B. Neilalcoholic St. Bernard. C. 'Wolf Who Stands in Water' (translated from the Pawnee). D. Roaring Chicken, Hekawi Medicine Man to the Chief ???? E. What actress (not either Sam above) in explaining why she held her job as a secretary despite no skill at dictation, typing or filing said, \"I give good phone\" and in what movie? 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