Question # 4 P Corporation use the calendar year as its tax year and the accrual method as its overall accounting method. S corporation uses a fiscal year ending June 30 as its tax year and the cash method as its overall accounting method. On July 31, 2012, P acquired all of S?s stock, and P-S affiliated group elects to file a consolidated tax return for 2012. a- What tax year must the group use in filing its consolidated tax return? b- What overall accounting method can P and S corporations use? c- What tax returns must the corporations file? Question # 6 On January of the current year, Becky (20%), Chuck (30%), and Dawn (50%) are partners in the BCD Partnership. During the current year, BCD reports the following results. All items occur evenly throughout the year unless otherwise indicated. Assume the current year is not a leap year. Ordinary income $120,000 Long-term capital gain (recognized September 1) 18,000 Short-term capital loss (recognized March 2) 6,000 Charitable contribution (made October 1) 20,000 a- What are the distributive shares for each partner, assuming they all continue to hold their interest at the end of the year? b- Assume the Becky purchases a 5% partnership interest from Chuck on July 1 so that Beck and Chuck each own 25% from that date through the end of the year. What are Becky and Chuck?s distributive shares for the current year?

Strayer University ACC 565 Final Exam Winter 2012 Answer the following questions: Question # 1 Nancy owns 70% of Andover Corporation stock. At the beginning of the current year, the corporation has $400,000 of NOL. Nancy plans to liquidate the corporation and have it distribute assets having a $600,000 FMV and a $350,000 adjusted basis to its shareholders. Explain to Nancy the tax consequences of the liquidation to Andover Corporation. Respond: Liquidation involves the process of collecting Andover Corporate assets, paying the expenses, satisfying creditors' claims, and distributing the net assets of Andover. As a result, Nancy incurred a capital gain amount: .7(600,000-350,000) = $175,000. Question # 2 How does the IRS interpret the continuity of interest doctrine for a Type A Reorganization? Respond: type \"A\" reorganization is governed by paragraph A of Section 368(a)(1) of the IRC, which simply states that a reorganization is \"a statutory merger or consolidation.\" Type A reorganization is primarily of benefit to the seller, who can obtain some cash, debt, or preferred stock as part of the purchase price, while still retaining tax deferred status on the purchase price that is paid with the buyer's stock. It is less useful for the buyer, who runs the risk of losing contracts associated with the selling entity. Question # 3 What is a recapitalization? What types of recapitalizations are nontaxable? Respond: In a recapitalization transaction, you would sell the equity in your business, and then reinvest some of the proceeds in an equity stake of the recapitalized company. Recapitalizations are popular because they provide owners the best of both worlds: substantial personal liquidity and continuing ownership and involvement. Stock dividend, outstanding bond convert to prefer stock is nontaxable recapitalization. Question # 4 P Corporation use the calendar year as its tax year and the accrual method as its overall accounting method. S corporation uses a fiscal year ending June 30 as its tax year and the cash method as its overall accounting method. On July 31, 2012, P acquired all of S's stock, and P-S affiliated group elects to file a consolidated tax return for 2012. a- What tax year must the group use in filing its consolidated tax return? b- What overall accounting method can P and S corporations use? c- What tax returns must the corporations file? Question # 5 Helen, a 55% partner in the ABC Partnership, owns land having a $20,000 basis and a $25,000 FMV. She plans to transfer the land to the ABC Partnership, which will subdivide the land and sell the lots. Discuss whether Helen should sell or contribute the land to the partnership. Response: Because Helen owns more than a 50% interest in the ABC partnership, the sale of the land to the partnership will generate ordinary income instead of capital gain for her. If she instead contributes the land to the partnership, it will recognize no gain until it sells the lots. Then, as the partnership sell the lot, Helen will recognize the pre-contribution gain as well as her share of any post contribution appreciation, and all the gain will be ordinary income taxable at a marginal rate apply to which ever year. A contribution, however, will allow her to delay the gain recognition. Even better result occurs if she can dispose of 5% or more of her partnership interest so that she owns, directly and indirectly, 50% or less of the ABC partnership. IF she owns 50% or less, she can recognize capital gain on the sale of the land to the partnership and use the gain to offset any capital losses she already may have recognized or that she may desire to recognize. Capital gain is taxed at a maximum marginal tax rate of 15% or up to 20%. Helen can also sell the land to a third party who would then contribute the land to the ABC partnership, assuming the partnership desire a new partner. Her gain on the sale of the land would be capital gain, and the contributing partner would recognize no gain when she/he transferred land to the partnership. Question # 6 On January of the current year, Becky (20%), Chuck (30%), and Dawn (50%) are partners in the BCD Partnership. During the current year, BCD reports the following results. All items occur evenly throughout the year unless otherwise indicated. Assume the current year is not a leap year. Ordinary income $120,000 Long-term capital gain (recognized September 1) 18,000 Short-term capital loss (recognized March 2) 6,000 Charitable contribution (made October 1) 20,000 a- What are the distributive shares for each partner, assuming they all continue to hold their interest at the end of the year? b- Assume the Becky purchases a 5% partnership interest from Chuck on July 1 so that Beck and Chuck each own 25% from that date through the end of the year. What are Becky and Chuck's distributive shares for the current year