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Exam 17: Corporations: Introduction and Operating Rules

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Question 31

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Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

A) If a limited liability company with more than one owner does not make an election,the entity is taxed as a corporation.
B) All 50 states have passed laws that allow LLCs.
C) An entity with more than one owner and formed as a corporation cannot elect to be taxed as a partnership.
D) If a limited liability company with one owner does not make an election,the entity is taxed as a sole proprietorship.
E) A limited liability company with one owner can elect to be taxed as a corporation.

F) B) and C)
G) A) and E)

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Question 32

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Beige Corporation,a C corporation,purchases a warehouse on August 1,1999,for $1 million.Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11,2015,for $1.2 million.What is the amount and character of the gain recognized by Beige on the sale of the realty?

A) Ordinary income of $0 and § 1231 gain of $611,750.
B) Ordinary income of $411,750 and § 1231 gain of $200,000.
C) Ordinary income of $82,350 and § 1231 gain of $529,400.
D) Ordinary income of $117,650 and § 1231 gain of $494,100.
E) None of the above.

F) B) and C)
G) C) and E)

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Question 33

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In the current year,Sunset Corporation (a C corporation) had operating income of $200,000 and operating expenses of $175,000.In addition,Sunset had a $30,000 long-term capital gain,a $52,000 short-term capital loss,and $5,000 tax-exempt interest income.What is Sunset Corporation's taxable income for the year?

Ivory Corporation,a calendar year,accrual method C corporation,has two cash method,calendar year shareholders who are unrelated to each other.Craig owns 35% of the stock,and Oscar owns the remaining 65%.During 2015,Ivory paid a salary of $100,000 to each shareholder.On December 31,2015,Ivory accrued a bonus of $25,000 to each shareholder.Assuming that the bonuses are paid to the shareholders on February 3,2016,compute Ivory Corporation's 2015 deduction for the above amounts.

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2014.Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year.The corporation distributed $45,000 to Juanita,and the partnership distributed $45,000 to Carlos.Which of the following statements relating to 2014 is incorrect?

Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2014.He also owns 60% of the stock in a C corporation that earned $150,000 during the year.The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn.How much income must Bjorn report from these businesses?

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

Norma formed Hyacinth Enterprises,a proprietorship,in 2015.In its first year,Hyacinth had operating income of $400,000 and operating expenses of $240,000.In addition,Hyacinth had a long-term capital loss of $10,000.Norma,the proprietor of Hyacinth Enterprises,withdrew $75,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses,how does this information affect her taxable income for 2015?

In 2015,Bluebird Corporation had net income from operations of $100,000.Further,Bluebird recognized a long-term capital gain of $30,000,and a short-term capital loss of $45,000.Which of the following statements is correct?

Carrot Corporation,a C corporation,has a net short-term capital gain of $65,000 and a net long-term capital loss of $250,000 during 2015.Carrot Corporation had taxable income from other sources of $720,000.Prior years' transactions included the following: 2011 Net long-term capital gain $150,000 2012 Net short-term capital gain 60,000 2013 Net short-term capital gain 45,000 2014 Net long-term capital gain 35,000 Compute the amount of Carrot's capital loss carryover to 2016.

Pablo,a sole proprietor,sold stock held as an investment for a $40,000 long-term capital gain.Pablo's marginal tax rate is 33%.Loon Corporation,a C corporation,sold stock held as an investment for a $40,000 long-term capital gain.Loon's marginal tax rate is 35%.What tax rates are applicable to these capital gains?

Flycatcher Corporation,a C corporation,has two equal individual shareholders,Nancy and Pasqual.In the current year,Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder.Regardless of any tax consequences resulting from their interests in Flycatcher,Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket.With respect to the current year,which of the following statements is incorrect?

A corporation with $5 million or more in assets must file Schedule M-3 (instead of Schedule M-1).

Elk,a C corporation,has $370,000 operating income and $290,000 operating expenses during the year.In addition,Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss.Elk's taxable income is:

During the current year,Woodchuck,Inc. ,a closely held personal service corporation,has $115,000 of net active income,$40,000 of portfolio income,and $135,000 of passive activity loss.What is Woodchuck's taxable income for the current year?

Schedule M-3 is similar to Schedule M-1 in that the form is designed to reconcile net income per books with taxable income.However,an objective of Schedule M-3 is more transparency between financial statements and tax returns than that provided by Schedule M-1.

Copper Corporation,a C corporation,had gross receipts of $5 million in 2012,$6 million in 2013,and $3 million in 2014.Gold Corporation,a personal service corporation (PSC) ,had gross receipts of $4 million in 2012,$7 million in 2013,and $5 million in 2014.Which of the corporations will be allowed to use the cash method of accounting in 2015?

Rachel is the sole member of an LLC,and Jordan is the sole shareholder of a C corporation.Both businesses were started in the current year,and each business has a long-term capital gain of $10,000 for the year.Neither business made any distributions during the year.With respect to this information,which of the following statements is correct?

On December 31,2015,Peregrine Corporation,an accrual method,calendar year taxpayer,accrued a performance bonus of $100,000 to Charles,a cash basis,calendar year taxpayer.Charles is president and sole shareholder of the corporation.When can Peregrine deduct the bonus?

Lucinda is a 60% shareholder in Rhea Corporation,a calendar year S corporation.During the year,Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition,the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year,Rhea Corporation distributed $50,000 to Lucinda.With respect to this information,which of the following statements is correct?