Law question data bank Law question data bank Question 1484. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #36 Kristine owns all of the stock of a C corporation which owns the following assets: Save your time! Proper editing and formatting Free revision, title page, and bibliography Flexible prices and money-back guarantee ORDER NOW Adjusted Basis Fair Market Value Accounts receivable Make sure you submit a unique essay Our writers will provide you with an essay sample written from scratch: any topic, any deadline, any instructions. 100% ORIGINAL ORDER NOW $ –0– $ 60,000 Inventory 20,000 30,000 Machinery and equipment* 50,000 90,000 Buildings** 120,000 170,000 Land 80,000 140,000 $270,000 $490,000 * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Her adjusted basis for her stock is $270,000. Calculate Kristine’s recognized gain or loss and classify it as capital or ordinary if she sells her stock for $500,000. . 1485. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #37 Devon owns 40% of the Agate Company for which his basis is $300,000. He sells one-fourth of his ownership interest to Bernice for $100,000. Which of the following statements is correct? a. If Agate is an S corporation, Devon has a recognized gain of $25,000, some of which may be capital and some of which may be ordinary income. b. If Agate is a C corporation, Devon has a recognized capital gain of $25,000. c. If Agate is a partnership, Devon has a recognized capital gain of $25,000. d. Only b. and c. are correct. e. a., b., and c. are correct. 1486. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #38 Which of the following statements is correct? a. The sale of an unincorporated sole proprietorship is always treated as the sale of the individual business assets. b. The sale of a partnership is treated as the sale of the individual assets only if the sales transaction is structured as the sale of the individual assets. c. The sale of a corporation is either treated as the sale of the corporate stock or as the sale of the individual assets. d. Only a. and b. are correct. e. a., b., and c. are correct. 1487. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #39 Which of the following statements is correct? a. The purchase of an unincorporated sole proprietorship is always treated as the purchase of the individual business assets. b. A taxpayer purchasing a corporation in which the assets are appreciated would prefer to purchase the stock of the corporation. c. The purchase of a corporation is always treated as the purchase of the corporate stock. d. Only a. and b. are correct. e. a., b., and c. are correct. 1488. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MA #1-5 Match the following tax attributes with the different forms. A particular attribute may apply to more than one entity form.S corporationC corporationLimited partnershipGeneral partnershipSole proprietorshipAbility of all owners to have limited liability. Ability of all owners to have limited liability. Ability to pass tax attributes through to the owners. Ability to pass tax attributes through to the owners. Ability to pass tax attributes through to the owners. Right of all owners to participate in the management of the business. Number of owners is limited. Ability to have multiple owners. [a] 1. S corporation [b] 2. C corporation [c] 3. Limited partnership [d] 4. General partnership [e] 5. Sole proprietorship 1489. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MA #6-10 Match the following statements:Sale of the individual assets of an unincorporated sole proprietorship by the owner.Sale of the corporate assets by the C corporation.Sale of corporate stock by the C corporation shareholders.Sale of corporate stock by the S corporation shareholders.Sale of an ownership interest by a partner.Gain or loss is calculated separately for each asset and is subject to single taxation. Subject to double taxation. Transaction in this form enables double taxation to be avoided. Transaction in this form enables double taxation to be avoided. The sale is treated as the sale of a capital asset under § 741 subject to ordinary income potential under § 751. Not subject to double taxation on the sale of corporate stock. [a] 1. Sale of the individual assets of an unincorporated sole proprietorship by the owner. [b] 2. Sale of the corporate assets by the C corporation. [c] 3. Sale of corporate stock by the C corporation shareholders. [d] 4. Sale of corporate stock by the S corporation shareholders. [e] 5. Sale of an ownership interest by a partner. 1490. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MA #11-1 Match the following statements:Organization costsAlternative minimum taxNet capital gainNet capital lossCharitable contributionsMust be capitalized, but can be amortized over 180 months. For the corporate taxpayer, the rate is 20%. For the corporate taxpayer, are taxed using the regular tax rates. For the corporate taxpayer, cannot be deducted at all in the current tax year. For the corporate taxpayer, limited to 10% of taxable income before certain deductions. [a] 1. Organization costs [b] 2. Alternative minimum tax [c] 3. Net capital gain [d] 4. Net capital loss [e] 5. Charitable contributions 1491. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MA #16-1 Match the following:S corporationC corporationLimited partnershipGeneral partnershipRealized gains on the contribution of appreciated property to the entity are not recognized by the contributor when an 80% control requirement is satisfied. Realized gains on the contribution of appreciated property to the entity are not recognized by the contributor when an 80% control requirement is satisfied. Contribution of appreciated property to the business entity by an owner is never subject to taxation. Contribution of appreciated property to the business entity by an owner is never subject to taxation. Realized losses on the contribution of loss property to the entity are never recognized by the contributor. Realized losses on the contribution of loss property to the entity are recognized by the contributor unless an 80% control requirement is satisfied. Basis of ownership interest to the owner is dependent on whether gain or loss is recognized to the owner on the contribution of assets to the business entity. [a] 1. S corporation [b] 2. C corporation [c] 3. Limited partnership [d] 4. General partnership 1492. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MA #20-2 Match the following statements:Technique for minimizing double taxationAMTS corporationsC corporationsPartnershipsNot making distributions to shareholders. Rate for a corporate taxpayer is 20%. Status applies only if elected by the taxpayer. Subject to double taxation. Eligible for special allocations. [a] 1. Technique for minimizing double taxation [b] 2. AMT [c] 3. S corporations [d] 4. C corporations [e] 5. Partnerships 1493. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #1 Agnes is going to invest $90,000 in a business entity. She will manage the business entity. Her projected share of the loss for the first year is $36,000. Agnes’ marginal tax rate is 33%. Determine the cash flow benefit of the loss to Agnes if the business form is: a. A general partnership. b. An S corporation. c. An LLC. d. A C corporation. 1494. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #2 Candace, who is in the 33% tax bracket, is establishing a business which could have potential environmental liability problems. Therefore, she is trying to decide between the C corporation form and the S corporation form. She projects that the business will generate earnings of about $75,000 each year. Advise Candace on the tax consequences of each tax form. 1495. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #3 Mallard, Inc., is a C corporation that is not eligible for the small business exception to the AMT. Its adjusted current earnings (ACE) and unadjusted alternative minimum taxable income (unadjusted AMTI) for 2011 and 2012 are as follows: 2011 2012 ACE $212,000 $250,000 Unadjusted AMTI 175,000 300,000 Calculate the amount of the ACE adjustment for 2011 and 2012. 1496. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #4 Saul’s AMT base is $300,000. Green, Inc.’s (a C corporation) AMT base also is $300,000. a. Calculate the tentative AMT for Saul. b. Calculate the tentative AMT for Green, Inc. c. Why are the amounts in a. and b. not the same since the AMT base for both is $300,000? d. Would your answer in b. change if Green, Inc. was an S corporation? 1497. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #5 Kirby, the sole shareholder of Falcon, Inc., leases a building to the corporation. The taxable income of the corporation for 2011, before deducting the lease payments, is projected to be $300,000. a. What are the tax consequences to Kirby and to Falcon if Kirby leases a building to the corporation for $280,000? b. Is there a potential pitfall? How would it change the tax consequences to Kirby and to Falcon? 1498. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #6 Blue, Inc., has taxable income before salary payments to its president of $700,000 in 2011. Blue is in the 34% tax bracket, and the president is in the 35% tax bracket. a. Calculate the tax liability to Blue if the president’s salary is $400,000 and if it is $100,000. b. What tax benefit is there of paying the larger salary to the president? c. What negative tax result may occur associated with the payment of the higher salary? 1499. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #7 Albert and Bonnie each own 50% of the stock of Crow, Inc. (a C corporation). To cover what is perceived as temporary working capital needs, each shareholder loans Crow $150,000 with an annual interest rate of 5% (same as the Federal rate) and a maturity date of one year. The loan is made at the beginning of 2011. a. What are the tax consequences to Albert, Bonnie, and Crow if the loans are classified as debt? b. What are the tax consequences to Albert, Bonnie, and Crow if the loans are classified as equity? 1500. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #8 Daisy, Inc., has taxable income of $850,000 during 2011, its first year of operations. Daisy distributes dividends of $200,000 to its 10 shareholders (i.e., $20,000 each). Daisy earmarks $361,000 of its earnings for potential future expansion into other cities. a. Calculate Daisy’s total tax liability associated with the current tax year if the $361,000 is treated as representing reasonable needs of the business. b. Calculate Daisy’s total potential tax liability associated with the current tax year if none of the $361,000 qualifies as reasonable needs of the business. 1501. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #9 Eagle, Inc. recognizes that it may have an accumulated earnings tax problem. According to its calculation, Eagle anticipates it has accumulated taxable income, before reduction for dividends paid, of $600,000 in 2011. Assume that its shareholders are in the 35% marginal tax bracket. a. Calculate the maximum amount of tax that Eagle and its shareholders might pay if the accumulated earnings tax is assessed. b. Calculate the maximum amount of tax that Eagle and its shareholders might pay if it distributes dividends to prevent an accumulated earnings tax assessment from occurring.