1. A corporation that elected S status in 20X2 has C corporation earnings and profits of $50,000 from its C corporation years. During 20X5 the corporation's gross receipts are $120,000, which includes $75,000 of interest income. Expenses related to the interest income are $10,000. The corporation's excess passive investment income would be:
a. $45,000. b. $35,000. c. $39,000. d. $20,000.
2. A calendar-year S corporation has a balance in its AAA and accumulated E&P of $3,000 and $20,000, respectively, at the beginning of 20X4. During 20X4, the corporation has tax-exempt income of $5,000 and ordinary income of $10,000. Also during 20X4, the corporation makes a $15,000 distribution to its shareholders. If a bypass election is properly made for 20X4, what is the corporation's balance in its AAA and accumulated E&P at the beginning of 20X5?
a. $13,000 and $5,000, respectively. b. $18,000 and $5,000, respectively. c. $0 and $18,000, respectively. d. $3,000 and $20,000, respectively.
3. What is Gerald Germain's basis in an S corporation assuming he is the sole shareholder and his capital account has a balance of $15,000, the corporation has $5,000 in liabilities, $2,000 in previously taxed income, and $1,000 in accumulated earnings and profits?
a. $23,000 b. $22,000 c. $18,000 d. $17,000 e. None of the above
4. Which of the following items are eligible for immediate expensing and 180-month amortization? (1.) Fee to CPA to handle Subchapter S election (2.) Refreshments served at organizational meetings (3.) Underwriting commission
(4.) Legal fees in connection with incorporation (5.) Recording fees upon transfer of assets to corporation
a. (2), (4), and (5) b. (1), (2), and (5) c. (1), (2), (3), (4), and (5) d. (1), (2), and (4)
5. Sandra Sherman incorporates her apartment building. It has a basis of $50,000, a value of $150,000, is subject to a mortgage of $70,000 and has a depreciation recapture potential of $12,000. If Sandra receives stock worth $80,000, she will recognize:
a. No gain. b. $30,000 of gain, $12,000 of which is ordinary. c. $12,000 of ordinary income. d. $20,000 of gain, $12,000 of which is ordinary.
6. Hoover, Inc. had gross receipts from operations of $230,000, operating and other expenses of $310,000, and dividends received from a 45 percent-owned domestic corporation of $120,000. Hoover's tax position for the year is:
a. $8,000 taxable income b. $56,000 net operating loss c. $40,000 taxable income d. $80,000 net operating loss
7. During 2010, Norman Newhouse sold equipment used in his business for $11,000. The equipment cost $10,000 and Norman had properly claimed MACRS deductions totaling $4,000. Straight-line depreciation, if it had been used, would have been $2,500. What is the amount of gain that should be reported under Sections 1231 and 1245?
a. Section 1231: $5,000; Section 1245: $0 b. Section 1231: $3,500; Section 1245: $1,500 c. Section 1231: $1,000; Section 1245: $4,000 d. Section 1231: $0; Section 1245: $5,000 e. None of the above
8. Real property where Paul Peterson's warehouse is located is completely destroyed by fire on November 23, 2010. Paul purchased the warehouse in 2004 for $800,000; its adjusted basis in the warehouse is $420,000. He receives $1 million from the insurance company on March 5, 2011. What amount must Paul reinvest in qualified replacement property and be able to defer the entire $580,000 realized gain from the condemnation?
a. $420,000. b. $520,000. c. $800,000. d. $1,000,000.
9. Anderson Company exchanged land used in its business for another parcel of land with a fair market value of $160,000. In addition, Anderson received $40,000 in cash. Anderson will use the new parcel of land in its business. The land that Anderson gave in exchange had an adjusted basis of $230,000 at the time of the exchange. What is Anderson's adjusted basis in the new land it received in the exchange?
a. $160,000. b. $190,000. c. $230,000. d. $260,000.
10. Gloria Gates sold the building in which she operated her business. Gloria had acquired the property many years ago for $150,000 and over this period had made major improvements costing $180,000. Gloria had claimed $60,000 in straight-line depreciation at the time of the sale. The selling expenses paid by Gloria amounted to $40,000. Bill purchased the property by (1) giving Gloria $170,000 in cash; (2) giving Gloria unlike property with a fair market value of $180,000; (3) assuming Gloriaâ??s mortgage on the property of $140,000; and (4) paying a delinquent real estate tax bill on the property of $50,000. What is Gloria's gain on the sale?
a. $40,000 b. $180,000 c. $220,000 d. $230,000 e. $270,000
11. John Baker, a cash basis calendar year taxpayer, paid the following during the year:
Social security tax (withheld from wages) Real estate taxes State income tax Special assessment for installation of sidewalks Penalty on tax underpayment
Flat fee for automobile registration
What itemized deduction may John claim for taxes on his return?
a. $7,700 b. $8,000 c. $11,190 d. $6,600 e. None of the above
$4,500 $3,200 $3,400 $1,140
12. Cathy buys a house (her principal residence) for $2,000,000, paying $500,000 down and borrowing the other $1,500,000 at 5% interest. If her interest expense for the year is $75,000, how much will her deduction for interest expenses be?
a. $75,000 b. $50,000 c. $55,000 d. $0
e. None of the above
13. Ann Jones uses a dry cleaning machine in her business, and it was partially destroyed by fire. At the time of the fire, the adjusted basis was $20,000 and its fair market value was $18,000. The adjusted basis after the fire is $10,000 and the fair market value after the casualty is $10,000. How much is the casualty loss?
a. $10,000 b. $8,000 c. $18,000 d. $20,000
14. On June 3, 2010, Leon Wren, an electrician, was injured in an accident during the course of his employment. As a result of injuries sustained, he received the following payments during 2010:
Damages for $8,000 personal injuries
Worker's compensation Reimbursement from his employer's accident and health plan for medical expenses paid by Wren
The amount to be included in Wren's 2010 gross income should be:
a. $0 b. $1,200 c. $3,000 d. $12,200
15. Victor and Claire Anet, residents of a separate property state, were divorced in February 2010. Specific requirements of the divorce decree and Mr. Anet's performance of those requirements follow: Transfer title in their personal residence to Claire as part of a lump-sum property settlement. On the day of the transfer, Victor's basis in the house was $38,000, the fair market value was $42,000, and the property was subject to a mortgage of $20,000.
Make the mortgage payments on the 20-year mortgage. He paid $2,500 from March 1, 2010, through December 31, 2010. Repay to Claire a $3,000 loan, which he did on April 1, 2010. Pay Claire $700 per month of which $200 is designated as child support. He made ten such payments in 2010.
Assuming that Claire has no other income, her 2010 gross income should be:
a. $7,500 b. $9,500 c. $12,500 d. $16,000
16. Leonard Lambert's commercial building, which had an adjusted basis of $500,000, was partially destroyed by fire. The fair market value was $800,000 just before the fire and $600,000 immediately after. Leonard received $150,000 insurance proceeds and deducted a $50,000 casualty loss. What is Leonard's basis in the building before any repairs are made?
a. $300,000 b. $350,000 c. $450,000 d. $500,000 e. $600,000
Taxation corporations expenses are examined.