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Exam 12: S Corporations

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Question 41

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A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14.By the end of the year,$60,000 of these receivables are collected.Calculate any built-in gains tax,assuming that there is sufficient taxable income.

A) $0.
B) $10,000.
C) $21,000.
D) $35,000.
E) Some other amount.

F) A) and E)
G) A) and D)

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Question 42

Multiple Choice

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Which item is not included in an S corporation's nonseparately computed income?

A) Net sales.
B) Cost of goods sold.
C) Dividends received.
D) Depreciation recapture.

E) A) and B)
F) None of the above

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Question 43

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You are given the following facts about a 40% owner of an S corporation,and you are asked to prepare her ending stock basis. $\begin{array}{ll}\text { Beginning stock basis } & \$ 36,800 \\\text { Increase in AAA } & 32,000 \\\text { Increase in OAA } & 6,300 \\\text { Payroll tax penalty } & 2,140 \\\text { Tax-exempt interest income } & 4,800 \\\text { Insurance premiums paid(nondeductible) } & 2,700 \\\text { Purchases of additional stock } & 22,000\end{array}$

Separately stated items are listed on Schedule _________________________ of the Form 1120S. K

Tax-exempt income at the S corporation level flows through as taxable to the shareholder.

Advise your client how income,expenses,gain,and losses are allocated to shareholders of an S corporation.

S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis).

What statement is correct with respect to an S corporation?

For a new corporation,a premature S election may not be effective.

The corporate-level tax on recognized built-in gains applies in 2013 when an S corporation disposes of an asset in a taxable disposition within 5 tax years after the date on which the S election took effect.

Which statement is incorrect with respect to the number-of-shareholders test in filing an S election?

Any excess of S corporation losses or deductions over the shareholder's combined stock and debt basis is suspended until there is a subsequent stock or debt basis.

Some ____________________ taxation rules apply to an S corporation. partnership,C corporation

Towne,Inc.,a calendar year S corporation,holds AAA of $627,050 at the beginning of 2013.During the year,the following items occur. Calculate Towne's ending AAA balance.

There is no need formally to elect to treat ____________________ members as a single shareholder. family

Beginning in 2013,the AAA of Amit,Inc.,an S corporation,has a balance of $614,000.During the year,the following items occur. Amit's ending AAA balance is:

Identify a disadvantage of being an S corporation.

Pepper,Inc.,an S corporation,reports sales revenues of $400,000,taxable interest of $380,000,operating expenses of $250,000,and deductions attributable to the interest income of $140,000.What is Pepper's passive income penalty tax payable,if any?

An S shareholder's basis is increased by stock purchases and capital contributions.

An S corporation reports a recognized built-in gain of $110,000 and taxable income of $98,000.The company carries an $8,000 NOL carryforward from a C corporation year,and a $7,000 business credit carryforward from a C corporation year.The built-in gains tax liability is: