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Exam 12: S: Corporations

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Question 21

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Randall owns 800 shares in Fabrication, Inc., an S corporation in Moss Hill, Texas. In 2011, his basis in his stock is $30,000, before the adjustment for this year's losses. During 2011, Randall's share of the corporation's ordinary loss is $20,000 and his share of its capital loss is $15,000. How much can Randall deduct due to these losses?

A) None.
B) $15,000 ordinary loss; $10,000 capital loss.
C) $17,143 ordinary loss; $12,857 capital loss.
D) $20,000 ordinary loss; $15,000 capital loss.
E) Some other amounts.

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

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Question 22

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Identify a disadvantage of S corporation status.

A) Most trusts can be shareholders.
B) Losses flow through to the shareholders.
C) The ACE adjustment is avoided.
D) Tax-exempt income flows through to the shareholders.
E) None of the above is a disadvantage of the S election.

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

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Question 23

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Which type of distribution from an S corporation is taxed at the 0/15% Federal income tax rate?

In the case of a complete termination of an S corporation interest, a ____________________ tax year may occur.

An S corporation may be subject to the following tax:

Which statement is true?

Which statement is false?

Blue Corporation elects S status effective for tax year 2011. As of January 1, 2011, Blue's assets were appraised as follows. In each of the following situations, calculate any built-in gains tax, assuming that the highest corporate tax rate is 35%. C corporation taxable income would have been $100,000.

During 2011, Ms. Rasic, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2010, Ms. Rasic's stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. Calculate the amount and type of income Ms. Rasic recognizes in 2011, assuming there is no C corporation AEP.

Differences in distribution or liquidation rights among shareholders do not create a second class of stock.

A limited liability company can make an S election.

The alternative minimum tax does not apply to an S corporation.

A distribution of cash or other property by an S corporation to shareholders that does not exceed the balance of AAA during a one-year period following an S election termination receives special capital gain treatment.

Pepper, Inc., an S corporation in Norfolk, VA, generates revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. Calculate any passive investment income penalty tax payable by Pepper.

Which statement is incorrect with respect to an S shareholder's consent?

Form 1120S provides a shareholder's computation of his or her stock basis.

A maximum dollar sales limitation applies to an S corporation.

A limited liability company can own S corporation stock.

A per-day, per-share allocation of flow-through S corporation items must be used, unless the shareholder disposes of the entire interest in the entity.

An S corporation's separately stated items generally are identical to those separately stated by _________________________.