Acct424_Quizzes 1 and 2

Acct424_Quizzes 1 and 2 - QUIZ 1 Grade Details 1. Question:...

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Unformatted text preview: QUIZ 1 Grade Details 1. Question: (TCO 2) Norm is the sole shareholder of Elk, Inc., a C corporation. Maxine is the sole shareholder of Moose, Inc., an S corporation. Both businesses were started in 2008, and each business sustained a $10,000 capital loss for the year. Which of the following statements is correct? Your Answer: Norm can offset the $10,000 loss against his capital gains for the year. If he has no capital gains, he may deduct a $3,000 capital loss in 2008. INCORRECT Elk, Inc., can carry the capital loss forward for up to five years. CORRECT ANSWER Moose, Inc., can carry the capital loss forward for up to five years. Maxine can offset the $10,000 loss against her capital gains for the year. If she has no capital gains, she may deduct a $10,000 capital loss in 2008. None of the above Instructor Explanation: A C corporation cannot deduct a capital loss in the year incurred but is allowed to carry such loss back 3 years and forward 5 years. Elk, Inc., was started in 2008, so there is no carryback period. Therefore, the loss may be carried forward five years. Individuals cannot carry capital losses back. If Maxine has any capital gains, she can offset the capital loss against other capital gains. If she has a net capital loss after offsetting the capital loss against capital gains, she may deduct $3,000 of the loss in 2008. Points Received: 0 of 2 2. Question: (TCO 2) Penguin Corporation, a C corporation, has two equal shareholders, Bob and Leo. Penguin earned $100,000 net profit during its first year of operations and paid a dividend of $50,000 to each shareholder. Before considering the dividend, Bob is in the 10% marginal tax bracket and Leo is in the 28% marginal tax bracket. Which of the following statements is incorrect? Your Answer: Instructor Explanation: To the extent Bob's dividend income would otherwise be taxed at 105 and 15%, the preferential rate on his dividend is 0%. thus, bob will not pay tax on some of his dividend income and to that extent not all $100,000 is subject to double taxation. REF: p. 2-4 / p. 2-5 Points Received: 0 of 2 3. Question: (TCO 2) Intergalactic Corporation, a personal service corporation, had $50,000 of active income, $90,000 of portfolio income, and a $160,000 passive loss during the year. How much of the passive loss is deductible? Your Answer: Instructor Explanation: A personal service corporation may not offset passive loss against active income or portfolio income. Points Received: 2 of 2 4. Question: (TCO 2) Star Corporation, a cash basis and calendar year taxpayer, was formed and began operations on July 1, of the current year. Star incurred the following expenses during its first year of operations (July 1-July 1, of the current year....
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Acct424_Quizzes 1 and 2 - QUIZ 1 Grade Details 1. Question:...

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