CER - devry -acct424.Mid-term&week5

CER - devry -acct424.Mid-term&week5 - Mid-term 4....

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Mid-term 4. Question: (TCO 4) Emily makes a gift of § 306 stock in Tan Corporation to her son, Matt. At the time of the gift, Emily’s basis in the stock was $75,000, and it had a fair market value of $100,000. When the stock was issued to Emily, her share of Tan Corporation’s E & P was $80,000. At a time when Tan’s E & P is $300,000, the corporation redeems all of Matt’s stock for $100,000. With respect to the redemption of the stock: Your Answer: Matt recognizes dividend income of $100,000. CORRECT ANSWER Instructor Explanation: Although the gift of § 306 stock does not trigger income recognition for Emily, the § 306 taint remains for the stock in Matt’s hands. A redemption of § 306 stock results in dividend income to the shareholder to the extent of the corporation’s E & P at the time the stock is redeemed. Therefore, Matt recognizes dividend income of $100,000 on the redemption. Points Received: 0 of 4 1. Question: (TCO 8) Which, if any, of the following can be eligible shareholders of an S corporation? Your Answer: A child, age 10. A resident alien. A voting trust. An estate of a deceased shareholder. All of the above can own stock CORRECT Points Received: 4 of 4 2. Question: (TCO 8) Which statement is incorrect? Your Answer:
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Points Received: 4 of 4 3. Question: (TCO 8) Which corporation is eligible to make the S election? Your Answer: Points Received: 4 of 4 4. Question: (TCO 8) Which transaction affects the Other Adjustments Account on an S corporation’s Schedule M-2? Your Answer: Points Received: 4 of 4 5. Question: (TCO 8) Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder? Your Answer: Instructor Explanation: Options a. and b. increase stock basis, and options c. and d. are stock basis decreases. Points Received: 4 of 4 6. Question: (TCO 8) An S corporation is allowed to claim a(n): Your Answer: Points Received:
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0 of 4 7. Question: (TCO 8) On January 1, Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight. The dirt company has a $60,000 loss for a non-leap year. On the 219th day of the year, Bobby sells his one-half of the stock to his son, Paul. How much of the $60,000 loss, if any, is allocated to Bobby? Your Answer: Instructor Explanation: $18,000 ($60,000X.50X219/365). Points Received: 4 of 4 8. Question: (TCO 8) An S corporation in Lawrence, Kansas has a recognized built-in gain of $110,000 and taxable income of $90,000. The company has an $8,000 NOL carryforward from a C corporation year, and a $9,000 business credit carryforward from a C corporation year. The built-in gains tax liability is: Your Answer: Instructor Explanation: Taxable income (less than built-in gain) $90,000 Less: NOL (8,000 ) Tax base $82,000 Rate X 35% Gross tax due $28,700 Less: Business credit (9,000 ) Tax liability $19,700 Points Received: 4 of 4
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9. Question:
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CER - devry -acct424.Mid-term&week5 - Mid-term 4....

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