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

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:

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:

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

9.