FINAL-SPRING-2004

FINAL-SPRING-2004 - Name: Date: 1. In a like-kind exchange,...

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Unformatted text preview: Name: Date: 1. In a like-kind exchange, deferred losses are subtracted from the FMV of the new property to determine its basis. 2. Bent Prezzel Inc. sold a partnership interest that it held for investment for several years. In this transaction, Bent PreZZel received real estate that it will use in its business. The PMS and adjusted bases of the properties are as follows: Adiusted Basis Fair Market Value Real Property $155,000 $80,000 Partnership Interest $15,000 $80,000 What is Bent Prezzel's recognized gain? A) $ -0- B) $ 25,000 C) $ 65,000 D) $ 80,000 3. In a qualifying like-kind exchange, Fox exchanges equipment with an adjusted basis of $430,000 (fair market value of $400,000) for $3,000 in cash and other equipment. How much loss must he recognize? A) $ 3,000 B) $ 30,000 C) $ 430,000 D) $ -0- 4. In a qualifying like-kind exchange, Fox exchanges equipment with an adjusted basis of $430,000 (fair market value of $400,000) for $3,000 in cash and other equipment. What is his basis in the new equipment? A) $ 430,000 B) $ 427,000 C) $ 400,000 D) $ 433,000 5. In a qualifying like~kind exchange, B.J. exchanges investment land with an adjusted basis of $430,000 encumbered with $50,000 of related debt (fair market value of $700,000) for another parcel of investment land. How much gain must B.J. recognize? A) $ 270,000 B) $ 50,000 C) $ -0— D) $ 430,000 Page 1 6. In a qualifying like-kind exchange, Maud exchanges investment land with an adjusted basis of $350,000 encumbered with $40,000 of related debt (fair market value of $300,000) for another parcel of investment land. How much loss must she recognize? A) $ 150,000 B) $ 40,000 ' C) $ 90,000 D) $ 50,000 E) $ —0- 7. In a qualifying like-kind exchange, Dewey exchanges investment land with an adjusted basis of $500,000 (fair market value of $565,000) for $135,000 in stock and another parcel of investment land. How much gain must he recognize? A) $ -0- B) S 135,000 C) $ 565,000 D) $ 65,000 3. In a qualifying like-kind exchange, Dewey exchanges investment land with an adjusted basis of $500,000 (fair market value of $565,000) for $135,000 in stock and another parcel of investment land. What is his basis in the new land? ‘ A) $ 500,000 B) $ 430,000 C) $ 135,000 D) $ 230,000 E) $ 300,000 9. On January 21, 2002, Ron purchased 100 shares of Bad Company common stock for $54,500. Ron sold all of the Bad Company stock on May 18, 2003 for $24,250. On June 30, 2003, Ron repurchased 100 shares of Bad Company stock for $5,000. The new shares are sold on July 31, 2004 for $15,500. How much gain/loss does Ron recognize in 2003 with respect to the Bad Company stock? A) $ 9,750 loss B) $ 11,250 loss C) $ 10,500 gain _ D) $ 30,250 loss E) No gain or loss Page 2 10. On January 21, 2002, Ron purchased 100 shares of Bad Company common stock for $54,500. Ron sold all of the Bad Company stock on May 18, 2003 for $24,250. On June 30, 2003, Ron repurchased 100 shares of Bad Company stock for $5,000. The new shares are sold on July 31, 2004 for $15,500. How much gain/loss does Andy recognize in 2004 with respect to the Bad Company stock? A) $ 9,750 loss B) $ 11,250 loss C) $ 10,500 gain D) $ 30,250 loss E) No gain or loss 11. On January 21, 2000, Ron purchases 100 Shares of Spruce Co. common stock for $34,500. Ron sells all ofthe Spruce C0. stock on May 18, 2003 for $25,000. On June 3, 2003, Ron repurchases 100 shares of Spruce Co. stock for $13,000. The new shares are sold on July 31, 2004 for $15,800. How much gain/loss does Ron recognize in 2003 with respect to the Spruce Co. stock? A) $ 9,500 loss B) $ 8,700 loss C) $ 800 gain D) No gain or loss 12. On October 10, 2004 Harvey sells common stock in Sunshine Inc. and realized a $500 loss. Which of the following purchases will cause the recognition of loss to be deferred? A) Harvey purchases 100 shares of Sunshine Inc. preferred stock on October 10, 2004. B) Harvey purchases 100 shares of Sunshine Inc. common stock on November 15, 2004. C) Harvey purchases 100 shares of Sunshine Inc. preferred stock on September 25, 2004. D) Harvey purchases 100 shares of Sunshine Inc. common stock on September 25, 2004. E) None of these purchasers will cause loss recognition to be deferred. 13. The earnings of a C corporation are taxed at the shareholder level. Page 3 14. Kelly was paid $60,000 during 2003. Her federal income tax withholding rate was 20%, and the following employment tax rates were in effect: State unemployment taxes, 2.7% of first $7,000 of wages Federal unemployment taxes, 1.0% of first $7,000 of wages FICA taxes, social sec. component, 6.2% of first $87,000 of wages FICA taxes, Medicare component, 1.45% What is the total amount that her employer should withhold in 2003? A) $ 16,590 ' B) $ 15,720 C) $ 15,979 D) $ 16,849 15. Which one of the following statements about partnerships is FALSE? A) A partnership is a distinct legal entity that may enter into valid contracts. B) Partnerships are unincorporated entities. C) Only individuals may be partners in a partnership. . D) Partnerships are sometimes referred to as "passthrough entities" since they are reporting entities that do not pay taxes. 16. A partnership was formed on January 1 with cash contributions of $600,000 and $200,000 from two partners who share profits and losses in the ratio of their initial capital contributions. The partnership immediately borrowed $800,000. Morris contributed the $600,000. What is his tax basis in the partnership? A) $ 1,200,000 B) S 600,000 C) $ 800,000 D) $ 1,400,000 17. Bryan contributed $50,000 in cash to a partnership for a 50% interest. During the year the partnership had a $100,000 profit, made a $10,000 contribution to the United Way, and made cash distribution to Bryan of $25,000: His basis in the partnership at year end is A) $ 80,000 E) $ 95,000 C) $ 70,000 D) $ 55,000 E) $ 100,000 Page 4 18. Mutt and Jeff are partners and share profits and losses equally. Partnership operations for the current tax year were: Ordinary Profit from Operations $100,000 Long-term Capital Gain $ 10,000 Total distributions to partners ($30,000 each) $ 60,000 Mutt's tax basis in his partnership interest on January 1, 2002, was $12,000. What is his basis on January 1, 2003? A) S 25,000 B) $37,000 C) $ 13,000 D) $27,000 19. Larry, Mary, and Orlando form the LMO Partnership, contributing: Property FMV Basis Larry Cash 15 60,000 $' 60,000 Mary Cash ‘34 60,000 $ 60,000 Orlando Equipment 3: 60,000 S 65,000 During the year the partnership had the following: Loss from operations 15 63,000 Interest income (New York State bonds) $ 3,000 What is Orlando's tax basis in the partnership on December 31 after all appropriate adjustments if the partners share profits and losses equally? A) $ 44,000 B) $ 45,000 C) $ 40,000 D) EB 50,000 Page 5 20. Perry is a partner in a calendar year partnership. His Schedule K—l showed the following: Ordinary Loss 35 20,000 Short—term Capital Gain $ 2,100 Dividend Income $ 1,600 Cash Distribution 34 5,800 Beginning Capital 31' 15,400 How much of the ordinary loss may he deduct on his tax return? A) $ 11,700 B) $ 14,000 C) $ 10,200 D) $ 13,300 21. Which of the following statements is correct in regard to S corporations? A.) The number of shareholders an S corporation may have is limited to 100. B) Any individual, estate, corporation, or trust may be an S cerporation shareholder. C) The S corporation may have only one class of stock. D) Ordinary income of the S corporation is subject to self-employment taxes. 22. XYZ, Inc. wishes to make an election to become an S corporation for federal tax purposes. Which of the following statements regarding the election process is FALSE? A) All of the corporation's shareholders must consent to make an S election. B) Ifa shareholder in an S corporation sells his shares of stock to a nonresident alien, the election will terminate. C) Ifan S corporation loses its election, the shareholders cannot make a new election for five years, without [RS consent. D) In order to voluntarily terminate an S election, all of the shareholders must consent. 23. Johnson owns 100% of the stock in an S corporation. Use the following information for the current tax year to answer this question. Ordinary income 3? 50,000 Dividend Income $ 21,000 Cash distribution (not W2) $ 30,000 Salary income (W2) 3 20,000 Iris’ beginning basis $ 5,600 What is Johnson's tax basis in her stock on December 31, after all adjustments? A) ft": 6,600 B) S 66,600 C) S 76,600 D) $ 46,600 I Page 6 24. Brace, Inc. owns 90% of West common stock. During the current year Brace had income before dividends of $50,000 and received dividends from West of $10,000. Brace's taxable income is ' A) $ 53,000. B) $ 58.000. C) $ 50,000. D) $ 52,000. E) $ 57,000. 25. Westside, Inc. owns 15% of Innsbrook's common stock. During the current year Westside had income before dividends of $50,000 and received dividends from Innsbrook of $20,000. Westside‘s taxable income is ' ' A) $ 56,000. E) $ 66,000. C) $ 50,000. D) $ 54,000. E) $ 64,000. 26. Poppy, Inc.'s book income of $739,300 includes a net long—term capital loss of $42,000 and federal income taxes of $170,000. Taxable income shown on the Schedule M-l would be A) $ 739,3 00. B) $ 951,300. C) $ 909,300. D) $ 781,300. 27. J ohn's, Inc. manufactures and sells fine furniture. What is John's regular tax liability if it had taxable income of $40,000,000? A) $ 14,000,000 B) $ 13,600,000 C) $ 15,600,000 28. Which of the following could cause a corporation's alternative minimum taxable income to be lower than regular taxable income? A) The current year's percentage depletion is smaller than its cost depletion. B) ADS depreciation is larger than MACRS depreciation. C) The company is entitled to the AMT exemption. Page 7 29. Which of the following is a true statement about the calculation of alternative minimum taxable income? A) Percentage depletion is a positive adjustment to AMTI. B) The AMT net operating loss can reduce AMTI to zero. C) The AMTI exemption for all corporations is $40,000. D) The minimum tax credit can be carried back two years. 30. Vermin, Inc. had the following results for its first two years of operation: 2002 2003 Reguhrlax $23L200 $130300 Alternativa Minimum Tax S 158,000 $ 150,000 Which of the following is a true statement? A) There is no AMT credit‘carryback. B) Ifthe AMT tax liability in 2003 is caused by preferences there is an AMT credit carryback to 2002. C) Ifthe AMT tax liability in 2003 is caused by adjustments there is an AMT credit can'yback to 2002. D) If the AMT tax liability in 2003 is caused by the basic exemption there is an AMT credit carryback to 2002. 31. If a business is formed as a regular corporation, the income may be subject to double taxation. 32. A family partnership can be used to shift a portion of the income fiom a capital- intensive manufacturing business to a taxpayer‘s young children. 33. Limited Liability Companies (LLCs) provide owners the tax advantages of a passthrough entity and the limited liability protection of corporations. Page 8 34. Sue, John, and Joseph plan to open Second Hand Rose, a clothing store. Each has contributed $75,000. to the operation. They have the following projections: Year Gross Income Allowable Deductions 1 $ 320,000 $ 410,000 2 490,000 420,000 Which of the following statements is true? A) If the business is a regular corporation, it will not have a regular tax liability during the first two years. B) Ifthe business is a general partnership, it will owe taxes in Year 2. C) Ifthe business is an S corporation, the Year 1 loss can be allocated entirely to Sue. 35. A business generates profits of $100,000. The owner has a 35% MTR. What is the total amount of taxes paid if the business is a regular corporation and no income is distributed? Corporate Taxes Individual Taxes A) $ 22,250 $ 35,000 B) $ 22,250 $ -0- C) $ -0- $ 35,000 D) $ 22,250 $ 27,213 36. Homer currently Operates a successful S corporation. He would like to bring his two teenage children into the business. Ifhe gives each child 10% of the stock, which of the following statements is true? 7 _ A) Since the children did not pay for the stock, Homer will still be taxed on the full income of the corporation under the assignment of income doctrine. B) Homer must receive a reasonable salary. C) Both statements are true. D) Neither statement is true. 37. Chad is the President and sole shareholder of Greenfield, Inc., a regular corporation. The corporation reported taxable income of $575,000 after deducting his $900,000 salary. If the IRS disallowed $550,000 as unreasonable compensation, Chad's taxable income will A) increase by $550,000. B) decrease by $550,000. C) stay the same. Page 9 38. The three Crosby children intend to form a business. The business will borrow $900,000 from a local bank. Which of the following statements is true? A) Regardless of whether the business is a partnership or an S corporation, the owners will count the bank debt in basis. B) From a liability standpoint, the owners should be indifferent as to whether they are a general partnership or an S corporation. C) Ifthe business is an S cerporation, the owners can allocate income and losses in any reasonable manner. D) If the business is a partnership the owners can allocate income and losses in any reasonable manner. 39. Ivy Inc. and Laurel Corporation exchanged two pieces of equipment in a qualifying like— 40. kind exchange. Ivy Inc. Laurel Corporation Eguipment Eguigment Original purchase 6/1/2000 10/5/2001 Adjusted basis on exchange date 33 50,000 $ 65,000 FMV on exchange date ‘5 75,000 $ 70,000 Boot (cash) ‘35 -0- $ 5,000 a. Calculate Ivy Inc‘s realized and recognized gain on this transaction and basis in the new property. b. Calculate Laurel Corporation's realized and recognized gain on this transaction and basis in the new property. Shoe Corporation and Sock, Inc. exchanged two pieces of property in a qualifying like- kind exchange. Stuff'l‘hnt Stuff That Shoe Exchanged Sock Exchanged Original purchase 4/1/98 11/15/97 Adjusted basis on exchange date $ 410,000 $805,000 FMV on eXChange date 13 630,000 $765,000 Boot $ 135,000 $-O- (a) Calculate Shoe Corporation's realized and recognized gain or loss on this transaction and basis in the new property. . (b) Calculate Sock, Inc.'s realized and recognized gain or loss on this transaction and basis in the new property. Page 10 Answer Key 1. False 2. C 3. D 4. B 5. B 6. E 7. D 8. B 9. D 10. C 11. D 12. D 13. False 14. A 15. C 16. A 17. C 18. B 19. B 20. D 21. C 22. D 23. D 24. C 25. A 26. B 27‘. A 28. B 29. A 30. A 31. True 32. True ‘33. True 34. A 35. B 36. B 37. C 38. D Page 1 1 39. Ivy has a $25,000 realized gain ($75,000 ~ $50,000) On this transaction. Since it is a qualifying like-kind exchange, gain will be recognized only to the extent of boot received—$5,000 in this case. The FMV of Ivy's new equipment ($70,000) Will be decreased by the gain deferred ($20,000), so its basis in the new property will be $50,000. Laurel Corporation has a realized gain of $5,000 ($70,000 a $65,000) on this transaction. Since it is a qualifying like-kind exchange, gain will be recognized only to the extent of boot received—none in this case. Laurel's new basis will be the $70,000. The FMV of the new qualifying property ($75,000) will be decreased by the gain deferred ($5,000). Alternately, original basis of $65,000 increased by boot given of $5,000. 40. Shoe Corporation has a $220,000 realized gain ($630,000 - $410,000) on this transaction. Since it is a qualifying like-kind exchange, gain will be recognized only to the extent ofboot received—none in this case. The FMV of Shoe's new property ($765,000) will be decreased by the gain deferred ($220,000), so its basis in the new property will be $545,000 (alternatively, $410,000 original basis plus boot given up of $135,000). Sock, Inc. has a realized loss of $40,000 ($765,000 - $805,000) on this transaction. ' Since it is a qualifying like-kind exchange, none of the loss will be recognized. Sock‘s new basis will be the $670,000. The FMV of the new qualifying property ($630,000) increased by the loss deferred ($40,000). Page 12 ...
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This note was uploaded on 04/14/2008 for the course ECON 138A taught by Professor Schneider during the Spring '08 term at UCSB.

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FINAL-SPRING-2004 - Name: Date: 1. In a like-kind exchange,...

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