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Exam 15: S Corporations

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Question 41

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Explain the OAA concept.

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S corporations report changes in the AAA...

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Question 42

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Which item does not appear on Schedule K of Form 1120S?

A) Tax-exempt interest income.
B) Section 1231 gain.
C) Section 179 depreciation deduction.
D) Depreciation recapture income.
E) All of the above appear on Schedule K.

F) B) and D)
G) All of the above

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Question 43

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The choice of a flow-through entity for a closely-held corporation often is between a(n) ____________________ (a Federal tax entity) and a(n) ____________________ (a state tax entity).

An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.

For a new corporation, a premature S election may not be effective.

Only 51% of the shareholders must consent to an S election.

Individuals Adam and Bonnie form an S corporation, with Adam contributing cash of $100,000 for a 50% interest, and Bonnie contributing appreciated ordinary income property with an adjusted basis of $20,000 and a fair market value of $100,000. a.Determine Bonnie's initial basis in her stock, assuming that she receives a 50% interest. b.​The S corporation sells the property for $120,000. Determine Adam's and Bonnie's stock basis after the sale. c.Determine Adam's and Bonnie's gain or loss if the company is liquidated.

You are given the following facts about a 40% owner of an S corporation, and you are asked to prepare her ending stock basis. ​

What method is used to allocate S corporation income or losses (unless an election to the contrary is made) ?

On January 2, 2015, David loans his S corporation $10,000. By the end of 2015 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2016, the company's operating income is $10,000. The company makes 2016 distributions to David of $11,000. David reports a(n) :

Which item is not included in an S corporation's nonseparately computed income?

A newly formed S corporation does not receive any tax benefit from an NOL incurred in its first tax year.

An S shareholder's stock basis does not include a ratable share of S corporation liabilities.

Which, if any, of the following items decreases an S corporation's AAA?

When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.

____________________ husband and wife must consent to an S election if they own their stock jointly.

Which statement is incorrect?

Pepper, Inc., an S corporation in Norfolk, Virginia, has revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. Calculate any passive investment income penalty tax payable by this corporation.

Kinney, Inc., an electing S corporation, holds $5,000 of AEP and $9,000 in AAA at the beginning of the calendar tax year. Kinney has two shareholders, Eric and Maria, each of whom owns 500 shares of Kinney's stock. Kinney's taxable income is $6,000 for the year. Kinney distributes $6,000 to each shareholder on February 1, and it distributes another $3,000 to each shareholder on September 1. How is Erin taxed on the distribution?

An item that appears in the "Other Adjustments Account" affects stock basis, but not AAA, such as tax-exempt interest.