Chapter17reviewquestions - ch2

Download Document
Showing pages : 1 - 3 of 30
This preview has blurred sections. Sign up to view the full version! View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Corporations: Introduction and Operating Rules CHAPTER 17 CORPORATIONS: INTRODUCTION AND OPERATING RULES TRUE/FALSE 1. Jeff is the sole shareholder of a C corporation. In 2007, the corporation sold a capital asset for a gain of $20,000. Jeff is required to report the capital gain on his individual income tax return for 2007, and the gain is subject to a maximum rate of 15%. ANS: F Shareholders do not report capital gains from a C corporation. PTS: 1 REF: p. 17-6 2. Herman and Henry are equal partners in Badger Enterprises, a calendar year partnership. During the year, Badger Enterprises had $305,000 gross income and $230,000 operating expenses. Badger distributed $20,000 to each of the partners. Herman and Henry each must report $37,500 of income from the partnership. ANS: T The partnership is not a taxpaying entity. Its profit (loss) and separate items flow through to the partners. The partnerships Form 1065 reports net profit of $75,000 ($305,000 income $230,000 expenses). Herman and Henry both receive a Schedule K-1 reporting net profit of $37,500. Each partner reports net profit of $37,500 on his own return. PTS: 1 REF: Example 2 3. Robin is a 50% shareholder in Robin-Wren, an S corporation. Robin-Wren earned net income of $100,000 during the year, and Robin received a distribution of $35,000 from the corporation. Robin must report a $35,000 dividend on his individual Federal income tax return (Form 1040). ANS: F The shareholders of an S corporation report their shares of net income or loss, regardless of how much of the income was withdrawn from the corporation. Robin must report income of $50,000. PTS: 1 REF: p. 17-3 1 17- 2008 Comprehensive Volume/Test Bank 4. Jeff owns a 40% interest in a partnership that earned $200,000 in the current year. He also owns 40% of the stock in an S corporation that earned $200,000 during the year. The corporation did not make any distributions, and the partnership distributed $40,000 to him. Jeff must report $80,000 of income on his individual tax return. ANS: F Jeff must report his $80,000 (40% × $200,000) share of the partnerships income on his individual tax return. Jeff also reports his $80,000 share of the income earned by the S corporation. The $40,000 distribution does not affect his income. PTS: 1 REF: p. 17-3 | p. 17-4 5. Quail Corporation is a C corporation with net income of $400,000 during 2007. If Quail paid dividends of $140,000 to its shareholders, the corporation must pay tax on $260,000 of net income. Shareholders must report the $140,000 of dividends as income. ANS: F Quail Corporation must pay tax on the $400,000 of corporate net income. Shareholders must pay tax on the $140,000 of dividends received from the corporation. This is commonly referred to as double taxation....
View Full Document