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Exam 15: S Corporations

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Question 1

True/False

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NOL carryovers from C years can be used in an S corporation year against ordinary income.

A) True
B) False

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False

Question 2

Multiple Choice

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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 C)
G) A) and E)

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Question 3

True/False

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A newly formed S corporation does not receive any tax benefit from an NOL incurred in its first tax year.

Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama.At a time when his stock basis is $20,000, the corporation distributes appreciated property worth $100,000 (basis of $20,000) .Fred's taxable gain is:

Gene Grams is a 45% owner of a calendar year S corporation during the tax year.His beginning stock basis is $230,000, and the S corporation reports the following items. $\begin{array} { l r } \text { Ordinary income } & \$ 72,000 \\\text { Short-term capital gain } & 16,000 \\\S 1231 \text { loss } & 6,000 \\\text { Tax-ex empt interest income } & 5,000\end{array}$ ​ Calculate Grams's stock basis at year-end.

Bidden, Inc., a calendar year S corporation, incurred the following items. $\begin{array}{lr}\text { Sales } & \$ 130,000 \\\text { Depreci ation recapture income } & 12,000 \\\text { Short-term capital gain } & 30,000 \\\text { Cost of goods sold } & (42,000) \\\text { Municipal bond interest income } & 7,000 \\\text { Administrative expenses } & (15,000) \\\text { Depreciation expense } & (17,000) \\\text { Charitable contributions } & (14,000)\end{array}$ ​ Calculate Bidden's nonseparately computed income.

Which, if any, of the following can be eligible shareholders of an S corporation?

The LIFO recapture tax is a variation of the passive investment income penalty tax.

Only 51% of the shareholders must consent to an S election.

Depreciation recapture income is a Schedule K item on the Form 1120S.

Which, if any, of the following can be eligible shareholders of an S corporation?

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

Which, if any, of the following items decreases an S corporation's AAA?

An S shareholder's stock basis can be reduced below zero.

Pepper, Inc., an S corporation in Norfolk, Virginia, has 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 this corporation.

Which item does not appear on Schedule K of Form 1120S?

?At the beginning of the year, the AAA of Rose, Inc.shows a balance of $682,000.During the year, the following items occur. ? $\begin{array} { l r } \text { Operating income } & \$ 452,000 \\\text { Interest income } & 6,550 \\\text { Dividend income } & 4,050 \\\text { Municipal bond interest income } & 12,000 \\\text { Short-term capital loss from sale of building } & 7,400 \\\text { Section } 179 \text { expense } & 6,500 \\\text { Charitable contributions } & 19,000 \\\text { Cash distributions } & 57,000 \\\text { Depreciation recapture } & 3,500\end{array}$

Stock basis first is increased by income items, then ____________________ by distributions, and finally decreased by ____________________.

Most limited liability partnerships can own stock in an S corporation.

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