Busn 379 Week 6 Taxation Of S Corporations And Their Shareholders

BUSN 379 Week 6 : Taxation of S Corporations and Their Shareholders – Homework

***100% All correct answers***

1. (TCOs 1 and 8) Kim owns 100% of the stock of Cardinal Corporation. In the current year Kim transfers an installment obligation, tax basis of $30,000, and fair market value of $200,000 for additional stock in Cardinal worth $200,000. As a result of the transfers, (Points : 5)
Kim recognizes no taxable gain on the transfer.
Kim has a taxable gain of $170,000.
Kim has a taxable gain of $180,000.
Kim has a basis of $200,000 in the additional stock she received in Cardinal Corporation.
None of the above

2. (TCOs 1 and 8) Carl transfers land to Cardinal Corporation for 90% of the stock in Cardinal Corporation worth $20,000 plus a note payable to Carl in the amount of $40,000 and the assumption by Cardinal Corporation of a mortgage on the land in the amount of $100,000. The land, which has a basis to Carl of $70,000, is worth $160,000.
Amount realized:
Stock $20,000
Note $40,000
Release of mortgage $100,000
Less: Basis of land ($70,000)
Realized gain $90,000
Recognized gain ($30,000 + $40,000) $70,000

Cardinal Corporation will have a basis of $140,000 in the land [$70,000 (Carl’s basis in the land) + $70,000 (gain recognized by Carl with respect to the transfer of the land)]. (Points : 5)
Carl will have a gain on the transfer of $70,000.
Carl will have a gain on the transfer of $30,000.
Cardinal Corporation will have a basis in the land transferred by Carl of $70,000.
Cardinal Corporation will have a basis in the land transferred by Carl of $160,000.
None of the above

3. (TCOs 1, 8, and 9) Eagle Corporation owns stock in Hawk Corporation and has taxable income of $160,000 for the year before considering the dividends received deduction. Hawk Corporation pays Eagle a dividend of $200,000, which was considered in calculating the $160,000. What amount of dividends received deduction may Eagle claim if it owns 15% of Hawk’s stock? (Points : 5)
None of the above

4. (TCOs 1 and 8) During 2010, Sparrow Corporation, a calendar year C corporation, had operating income of $510,000, operating expenses of $370,000, a short-term capital loss of $25,000, and a long-term capital gain of $80,000. How much is Sparrow’s tax liability for 2010? (Points : 5)
None of the above

5. (TCOs 1 and 9) Beige Corporation (a calendar year taxpayer) has taxable income of $150,000, and its financial records reflect the following for the year.
Federal income taxes paid $75,000
Net operating loss carry forward deducted currently $35,000
Gain recognized this year on an installment sale from a prior year $22,000
Depreciation deducted on tax return (ADS depreciation would have been $5,000) $20,000
Interest income on Iowa state bonds $4,000

What is Beige Corporation’s current E & P? (Points : 5)
None of the above

6. (TCOs 1 and 9) Yellow Corporation has a deficit in accumulated E & P of $600,000 and has current E & P of $450,000. On July 1, Yellow distributes $500,000 to its sole shareholder, Eugene, who has a basis in his stock of $105,000. As a result of the distribution, Eugene has (Points : 5)
dividend income of $450,000 and no adjustment to stock basis.
dividend income of $105,000 and reduces his stock basis to zero.
dividend income of $450,000 and reduces his stock basis to $55,000.
no dividend income, reduces his stock basis to zero, and has a capital gain of $500,000.
None of the above

7. (TCOs 1 and 10) Identify a disadvantage of an S corporation. (Points : 5)
Generally, trusts cannot be shareholders.
Losses flow through to the shareholders.
The AMT on corporations is avoided.
Tax-exempt income flows through to the shareholders.
None of the above

8. (TCOs 1 and 10) Samantha owned 1,000 shares in Evita, Inc. an S corporation, that uses the calendar year. On October 11, 2010, Samantha sells all of her Evita stock. Her basis at the beginning of 2010 was $60,000. Her share of the corporate income for 2010 was $22,000, and she receives a distribution of $37,000 between January 1 and October 11, 2010. What is her basis at the time of the sale? (Points : 5)

9. (TCOs 1 and 10) Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama. At a time when his stock basis is $10,000, the corporation distributes appreciated property worth $100,000 (basis of $10,000). There is no built-in gain. What is Fred’s taxable gain? (Points : 5)
None of the above

10. (TCOs 1 and 10) Apple, Inc. a cash basis S corporation in Orange, Texas, formerly was a C corporation. Apple has the following assets and liabilities on January 1, 2010, the date the S election is made:
Adjusted Basis Fair Market Value
Cash $200,000 $200,000
Accounts receivable -0- $105,000
Equipment $110,000 $100,000
Land $1,800,000 $2,500,000
Accounts payable -0- $110,000

During 2010, Apple collects the accounts receivable and pays the accounts payable. The land is sold for $3 million, and taxable income for the year is $590,000. What is Apple’s built-in gains tax?
(Points : 5)
None of the above

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