someone can help with this? i have attached the questions

NAME____________________________________________________________________ Business Taxation, Spring 2017, Exam 3 For Parts I&II, enter your answers on the Scantron. Follow the instructions for answering the longer problem at the end of this exam. Part I - True/False - Enter A (TRUE) or B (FALSE) 1. _____ Although tax exempt income and nondeductible expenses are not includable and deductible by partners and S corporation shareholders, those items do affect the adjusted bases of those owners. 2. _____ Tom is a 20% capital owner of a limited liability company that elects to be taxed as a partnership. Tina is a 20% shareholder in an S corporation. If each entity earns $100,000 of non-separately stated ordinary income, both entities are required to allocate 20% of that income to Tom and Tina. 3. _____ As a general rule, when a person obtains a partnership interest in future profits (but not capital) through performance of services, ordinary income is recognized for the value of the interest received. 4. _____ At the beginning of the tax year, Janice has an outside basis of $60,000 in her partnership interest. For the year, she receives a $20,000 pass through share of ordinary partnership income, a guaranteed payment of $40,000, and a cash withdrawal of $50,000 from a partnership. Her outside basis afterward is $70,000. 5. _____ Bill contributes property with a $100,000 value and a $40,000 basis for a 25% interest in a partnership. The property is encumbered by a recourse liability of $60,000. The partnership agreement provides that all recourse liabilities are allocated (before any adjustments in subsequent years) to each partner according to the partner's overall interest in the partnership. Assuming this liability is qualified (encumbers the property prior to two years before contribution or encumbers the property for other allowable reasons), Bill will still have a taxable gain of $5,000 as a result of this contribution. 6. _____ Bill and Barb incorporate their partnership and elect to be taxed as an S Corporation. At the time of incorporation, the partnership owned securities with a basis of $10,000 and a fair market value of $15,000. Two years later the S Corporation sold the securities for $18,000. The S Corporation will have to pay an entity level tax on the built-in gain of $5,000 that existed at the time of incorporation but the remaining $3,000 of gain will be taxable only at the shareholder level. 7. _____ Julie is the sole shareholder of an S Corporation. Julie's salary from the S Corporation is $70,000 and the ordinary income of the S Corporation after deducting all expenses is $30,000. Julie's employment income for FICA purposes is $70,000. 8. _____ Jim is a 20% shareholder in an S corporation. His stock basis before the following event is $50,000. The S corporation was never a C corporation with earnings and profits. As part of a general distribution to its shareholders, the S corporation distributes a total of $100,000 of securities with a basis of $50,000 to its shareholders. Each shareholder receives proportionate value in the securities. As a result of this event, Jim will have a $10,000 gain, a $40,000 basis in his stock, and a $20,000 basis in the securities received. 9. _____ A partnership distributes securities with a basis of $30,000 and a value of $60,000 ratably to its three partners who have a total basis of $90,000 in their partnership interest. The partnership recognizes gain on the distribution, the partners are taxed on the gain, their basis is increased by the gain recognized, and their basis is reduced by the fair market value of the securities received. 10. _____ A C corporation distributes securities with a basis of $30,000 and a value of $60,000 equally to its three shareholders who have a total basis of $90,000 in their stock. The corporation recognizes gain on the distribution and is taxed. The shareholders are taxed on dividend income for the value of the securities. The shareholders' stock bases are unchanged. 11. ____ Rita contributes property with a basis of $200,000 and a value of $300,000 for a 10% interest in the TLJ Limited Liability Company that elects to be treated as a partnership. Because Rita is not in control of the LLC after this contribution, she must recognize $100,000 of income on this contribution. 12. ____ Sally buys Mark's partnership interest in Tarleton Realty, LLC. Tarleton has an inside basis for its assets of $3,000,000 and an estimated fair market value for its assets of $4,000,000. Mark recognized $100,000 of gain on the sale of his interest to Sally. Assuming the LLC is taxed as a partnership, Tarleton can elect to increase the inside basis of its assets to reflect the gain recognized by Mark and the value of the interest purchased by Sally. 13. ____ Generally, a S corporation that was formerly a C corporation cannot use corporate loss carryovers from the C corporation years unless it is used to offset any built-in gains tax. 14. ____ Chuck contributes property with a basis of $150,000 and a value of $200,000 for a 40% interest in the TLM Partnership. Other partners contribute $300,000 of cash. One month later, the partnership distributes $120,000 to Chuck. Based on the facts, it is very likely that this contribution will be treated as a partial sale and partial contribution to the partnership by Don rather than a tax free contribution. 15. _____ Bob has a basis in his partnership interest of $10,000. Bob receives a non-liquidating cash distribution of $5,000 and non-marketable securities with an inside basis of $3,000 and a value of $5,000. As a result of this distribution, Bob must recognize a gain of $2,000 and has a basis in the securities of $5,000. His basis in his partnership interest afterward is $0. 16. _____ Tracey has a $10,000 basis in her partnership interest. At the end of the year, she is allocated $5,000 of partnership profits and is given a cash distribution of $13,000. Tracey will have a capital gain of $3,000 on the distribution because it exceeds her $10,000 basis and will also recognize $5,000 of ordinary income. Part II - Multiple Choice - Place the letter of the best answer on line provided. 17. _____ For the year ended December 31, 2015, the partnership of Charles and Paul had book income of $75,000, which included the following: (a) Short-term capital loss, $3,100; (b) Long-term capital gain (on sale of securities), $4,300; (c) Section 1231 gain, $1,500; (d) Ordinary income (Section 1245 recapture), $600; and (e) Domestic dividends on stock investments, $1,000. The partners share profits and losses equally. What is each partner's share of partnership non-separately stated income (ordinary income of partnership)? a. $35,700 b. $37,500 c. $35,650 d. $36,050 18. _____ Chuck is a partner in the Moorland Partnership, a nonrealty related business in which he does not materially participate. Chuck's basis at year end for his partnership interest, after considering all items except for the partnership's loss, is $60,000. Chuck's share of the partnership's ordinary passive loss is ($80,000). His atrisk amount is $50,000, and he has no activities generating passive income. How much of the partnership's losses can Chuck deduct on his tax return? a. $60,000 b. $50,000 c. $0 d. some other amount 19. _____ At January 1, 2016, Lisa's basis in her partnership interest was $25,000. Her share of partnership items for the year is as follows: dividend income of $5,000 and an ordinary loss of $15,000. She received a distribution from the partnership of $20,000 during the year. Assuming she materially participates in the partnership, she reports the following related to these transactions. a. Dividend income of $5,000, a nontaxable distribution of $20,000, and an ordinary loss of $15,000. b. Dividend income of $5,000, a nontaxable distribution of $20,000, a deductible loss of $10,000, and a suspended loss of $5,000. c. Dividend income of $5,000, an ordinary loss of $15,000, a non-taxable distribution of $15,000, and a distribution causing a taxable gain of $5,000. d. None of the above. 20. _____ Bob Barker contributed land and building with an adjusted basis to Bob of $50,000 and a fair market value of $100,000 subject to a mortgage of $30,000 in exchange for a one-third interest in the Alpha Partnership. Alpha will assume the mortgage on the building. What is Bob's basis for his partnership interest? a. $0 b. $20,000 c. $50,000 d. $30,000 21. _____ Refer to the facts of the previous question. What is Alpha's basis in the building contributed by Bob? a. $100,000 b. $20,000 c. $50,000 d. $30,000 22. _____ Refer to the facts of the previous two questions. If Alpha sells the land and building for $120,000, how much gain is allocated to Bob? Ignore any issues regarding depreciation taken by the partnership after contribution. a. $23,333 b. $70,000 c. $36,667 d. $56,667 23. _____ Refer to the facts of the previous question. If Alpha had been an S Corporation and Bob had been a one-third shareholder, what would be the amount of gain allocated to Bob? a. $23,333 b. $70,000 c. $36,667 d. $56,667 24. _____ Jenna Harvey has a $50,000 outside basis in her partnership interest and decides to terminate her interest. She receives the following from the partnership in liquidation of her interest: Item Fair Value Partnership's Basis Cash 30,000 30,000 Securities 15,000 10,000 Inventory 10,000 5,000 As a result of this distribution, she has a zero basis in her partnership interest and --- a. a $5,000 capital loss, a $10,000 basis in securities and a $5,000 basis in inventory b. a $5,000 capital gain, a $15,000 basis in securities and a $10,000 basis in inventory c. no gain or loss, a $10,000 basis in securities and a $10,000 basis in inventory d. no gain or loss, a $15,000 basis in securities and a $5,000 basis in inventory 25. _____ Assume the same facts except as the question above except that Jenna received only the cash and inventory. Jenna would have --a. no gain or loss and a $5,000 basis in the inventory b. a loss of $10,000 and a $10,000 basis in the inventory c. no gain or loss and a $10,000 basis in the inventory d. a $15,000 loss and a $5,000 basis in the inventory 26. _____ LBJ Partnership has the following balances in accounts at year end: Sales Revenues Cost of Goods Sold Operating Expenses $550,0000 $350,000 $50,000 Guaranteed payments to partners $200,000 Interest income Capital gains (long term) Capital losses (long term) Charitable contributions $5,000 $10,000 $5,000 $5,000 The ordinary business income (non-separately stated) for the year is: a. $165,000 b. -$45,000 c. -$50,000 d. $160,000 27. _____ Which of the following entities may select any tax period (calendar or fiscal) without permission? a. b. c. d. S corporation Partnership C Corporation Trust 28. _____ Which of the following statements is false? a. An S corporation cannot have corporate shareholders. b. Allocations of profits and losses by S corporations must follow percentage of stock ownership c. An S Corporation may have any number of individual shareholders d. A C corporation need not liquidate and recognize gains before switching to S corporation status 29. _____ Allotagoinon Partnership has two equal partners with capital accounts as follows: Jillian Jake $10,000 $10,000 The partnership incurs $10,000 of loss for tax accounting purposes and makes a special tax allocation of $3,000 of the loss to Jillian and $7,000 of the loss to Jake. For partnership book accounting purposes, the loss is only $9,000 and $2,700 of this amount is allocated to Jillian's capital account and the remainder to Fred's capital account. Which of the following is true about the partnership's allocation of loss? a. b. c. d. This tax allocation appears to be an acceptable special allocation. The partnership cannot allocate the loss this way because this partnership must allocate losses equally. The tax allocation cannot be allowed because it lacks economic effect None of the above. 30. _____ Wholardo, an S corporation, has accumulated E&P of $20,000 from its former C Corporation days and a balance of $60,000 in its AAA account. Wholardo distributes $70,000 to its shareholders. The shareholders should treat the distribution as a. b. c. d. $70,000 non-taxable return of capital $20,000 dividend and $50,000 non-taxable return of capital. $60,000 non-taxable return of capital and $10,000 dividend income. Like money from heaven Use the following information for Questions 31 and 32. Walton Properties, Inc. is an S corporation with a sole shareholder, Bill Walton. Walton owns and operates multiple rental properties throughout the town. Robert and Rachel Wright, a married couple, have owned and operated a rental property for a number of years. The Wrights have decided that they will acquire one of the rented properties owned by Walton and to give their property in exchange. Both properties will be treated as rentals by their new owners. Walton and the Wrights execute an exchange where the properties, multiple liabilities, and cash are exchanged. The properties GIVEN by each taxpayer in the exchange (along with the liabilities attached to those properties) appear below each taxpayer. Walton Properties Land and Building Liability on property assumed by the Wrights on transfer Basis $480,000 FMV $660,000 $300,000 The Wrights Land and Building Cash given Liability on property assumed by Walton on transfer Basis $410,000 $50,000 FMV $550,000 $50,000 $240,000 31. ______Select the correct answer for the results to Walton on this exchange. a. Walton has a recognized gain of $180,000 and a basis of $550,000 in the new property. b. Walton has a recognized gain of $110,000 and a basis of $480,000 in the new property. c. Walton has a recognized gain of $50,000 and a basis of $480,000 in the new property. d. Walton has a recognized gain of $50,000 and a basis of $530,000 in the new property. 32. ______ Select a correct result for the Wrights on this exchange. a. The Wrights have a $520,000 basis in the new property received b. The Wrights have a deferred (postponed) gain of $110,000 on the exchange c. The Wrights have a $460,000 basis in the new property received d. The Wrights have a recognized gain on the exchange Part III - Problem (16 points total) ANSWERS TO THE FOLLOWING 4 QUESTIONS SHOULD BE PREPARED USING EXCEL YOUR ANSWERS SHOULD BE SUBMITTED IN GOOD FORM WITH ALL ITEMS LABELED AND IN A FORMAT THAT IS EASY TO FOLLOW. YOU HAVE BEEN GIVEN MODELS FOR HOW TO STRUCTURE YOUR ANSWERS! YOUR ANSWERS SHOULD BE SUBMITTED ON SEPARATE SHEET(S) OF PAPER THAT ARE STAPLED TO THIS EXAM (FIND A STAPLER BEFORE CLASS!!). WITH YOUR NAME TYPED ON THE FRONT SHEET. PLEASE USE A FONT OF AT LEAST 11 SIZE. Use the following information for the four questions below. Fred, Ethel, and Regina contribute the following properties to the FER Partnership: Owner Fred Ethel Regina Total Property Cash Equipmen t Cash Inventory Cash Basis 26,000 48,000 60,000 20,000 20,000 174,00 0 Value at Contributio n 26,000 54,000 60,000 40,000 20,000 200,000 Fred has a 40% profits and capital interest in this partnership while Ethel and Regina each have a 30% interest in the same. The partners agree that all capital, profits, losses, and recourse liabilities will be shared according to their respective capital interests. Within days of formation, the partnership also borrows $100,000 on a recourse liability (4 points) Question 1: What is each partner's outside basis at formation (including the liability assumption)? (6 points) Question 2: Assume that the following occur in the first year of operations: a) The partnership sells the inventory contributed by Regina for $50,000. All of this amount has been collected. b) The partnership depreciates the equipment. Assume that the equipment is depreciated straight line over 3 years for both book and tax purposes. c) The partnership purchases an additional $80,000 of inventory and sells $60,000 of that amount for $120,000. Inventory purchased has been paid for by the end of the year and all the sales revenue has been collected. d) The partnership has operating expenses (other than depreciation and cost of goods sold) of $40,000 and all of these are paid in cash. e) $30,000 of the $100,000 loan has been repaid by year end. f) A cash distribution of $24,000 is made to Fred and distributions of $18,000 each are made to Ethel and Regina. Required: Illustrate the ending partnership balance sheet containing assets, liabilities, and capital accounts in conformity with the worksheet introduced in class. Also include inside and outside basis as illustrated in the spreadsheet. (Of course, it will be helpful if you construct the initial balance sheet first!) (2 points) Question 3: Assume instead that FER was organized as an S corporation instead of a partnership. What are the initial stock bases of Fred, Ethel, and Regina? (4 points) Question 4: Assume instead that FER was organized as an S corporation instead of a partnership. What are the stock bases of Fred, Ethel, and Regina at the end of the Year 1 events described in Question #2