ACCO 340 Lecture Notes - Lecture 2: Pension, Accrual, Payroll Tax
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During the current year, Marlene, Nancy and Olive formed a new SCorporation. Solely in exchange for stock, Marlene and Nancycontributed appreciated property, while Olive contributed services.The exchanges of Marlene and Nancy will be nontaxable if:
Olive receives 30% of the stock | ||
Olive receives 80% of the stock | ||
Olive receives 15% of the stock | ||
Marlene and Nancy together receive 50% of the stock |
In June of 2018, Alice acquired heronly machine for $30,000 to use in her business. The machine isclassified as 5-year property. Aliceâs maximum depreciation(including bonus) on the machine this year is:
$30,000 | ||
$12,000 | ||
$6,000 | ||
$18,000 |
Cactus Corporation, an S Corporation, had accumulated earningsand profits of $200,000 at the beginning of the tax year. Tex andShirley each own 50% of the stock. During the current year Cactushad $100,000 of ordinary income and distributed $10,000 to Tex and$10,000 to Shirley. What is Tex's taxable income for the currentyear?
$10,000 | ||
$0 | ||
$100,000 | ||
$50,000 |
Bristol Corporation was formed as an S Corporation on January 1,2014 and elected S corporation status at that date. Bristol has hadthe same 25 shareholders throughout its existence and has one classof stock. Bristol's S election will terminate if it:
10% of the shareholders vote to revoke the election | ||
to purchase 10 shares | ||
Allows a variation in the voting rights of the stock | ||
Increases the number of shareholders to 125 |
On February 10, 2018, Ace Corporation, a new calendar yearcorporation, elected S corporation status and all shareholdersconsented to the election. There was no change in its shareholdersduring the current year. Ace met all eligibility requirements foran S corporation during the preelection portion of the year. Whatis the earliest date on which Ace can be recognized as an Scorporation?
February 10, 2018 | ||
January 1, 2019 | ||
February 10, 2019 | ||
January 1, 2018 |
In March of 2017 Frederick acquired an passenger automobile for$45,000 and used the automobile 85% for business. Themaximum depreciation deduction for 2017 is:
$3,160 | ||
$11,160 | ||
$8,928 | ||
$9,486 |
In August of 2017, Joseph acquires andplaces into services business equipment costing $300,000. Theequipment is classified as 5-year recovery property. No otheracquisitions are made during the year. Joseph elects to expense themaximum amount under Sec. 179. Josephâs total deductions for theyear are
$60,000 | ||
$500,000 | ||
$100,000 | ||
$300,000 |
For the current tax year, VBN, an S Corporation distributes$100,000 to its sole shareholder, Raymond. His basis in the stockwas $140,000 before the distribution. VBN had once been a regular CCorporation and had remaining accumulated earnings and profits(E&P) from those years of $70,000. However, VBN has no balancein its accumulated adjustment account. How should the distributionof $100,000 be handled?
$100,000 as a taxable distribution
$70,000 as a taxable dividend, and $30,000 has a non taxablereturn of capital
$50,000 as a taxable dividend, and $100,000 as a non taxablereturn of capital
$70,000 as a taxable dividend; and $30,000 as a capital gain
Stahl, an individual who owns 100% of Talon, an S corporation,had a basis of $50,000 at the first of the year. During the yearTalon reported the following: Ordinary Loss of $10,000; Municipalinterest income of $8,000, Long term capital gain of $4,000; andLong term capital loss of $9,000. What was Stahl's basis in Talonat year end?
$56,000 | ||
$65,000 | ||
$53,000 | ||
$43,000 |
Gross Receipts of $70,000; Tax Exempt Interest Income of $4,000;Dividends of $10,000; Supplies Expense of $3,000; and UtilitiesExpense of $1,500. What amount is the S Corporation's ordinarytaxable income?
$75,500 | ||
$79,500 | ||
$70,000 | ||
$65,500 |
Bob and Sam each owned 50% of Lostalot, an S Corporation. Bob'sbasis is $30,000 and Sam's basis is $15,000. The corporation hasoperating loss for the current year of $50,000. Howmuch loss can each shareholder deduct in the current year assumingthey materially participate in the business:
Bob: $25,000; Sam: $15,000 | ||
Bob: $0; Sam: $0 | ||
Bob: $25,000; Sam: $25,000 | ||
Bob: $30,000; Sam: $15,000 |
Terra Corporation, a calendar-yeartaxpayer, purchases and places into service in 2017 machinery witha 7-year life that cost $650,000. The mid-quarter convention doesnot apply. Terraâs taxable income for the year before the Sec. 179deduction is $700,000. What is Terraâs total maximum depreciationdeduction related to this property?
$585,718 | ||
$521,345 | ||
$92,885 | ||
$500,000 |
Identify which of the following statements is false.
The PTI (previously taxed income) represents the balance ofundistributed net income which were already taxed. | ||
The AAA balance can be negative, but the shareholder's basis inthe S corporation stock cannot be less than zero. | ||
Tax exempt income increase the AAA and the basis of the Scorporation stock. | ||
| An S Corporation may or may not have accumulated Earnings andProfits Elaine owns an unincorporated manufacturing business. In 2017,she purchases and places in service $600,000 of qualifying fiveyear equipment for use in her business. Her taxable income from thebusiness before any section 179 deduction is $100,000. Which of thefollowing statements is true? |
Elaine cannot deduct any Section 179 deduction for 2017 | ||||||||||||||
Elaine can deduct $100,000 as a Section 179 deduction in 2017with a $400,000 carryover to next year. | ||||||||||||||
Elaine can deduct $100,000 as a Section 179 deduction in 2017with a $500,000 carryover to the next year | ||||||||||||||
| Elaine can deduct $500,000 as a section 179 deduction in2017 Charles, an individual, owned 100% of the Alpha, an Scorporation. At the first of the year, Charles' basis in Alpha was$25,000. In the current year, Alpha realized ordinary income of$1,000; and a long term capital gain of $3,000. Alpha distributed$25,000 to Charles at the end of the year. What amount of the$25,000 is taxable to Charles?
|
6. Hasbrooke Corporation has 50,000 shares of $1 par value commonstock and 20,000 shares of cumulative 8%, $100 par preferred stockoutstanding. Hasbrooke has not paid a dividend for the prior year.If Hasbrooke declares a $1.50 per share dividend this year, whatwill be the total amount they must pay their shareholders?
A) $30,000
B) $320,000
C) $395,000
D) $75,000
7. Retained earnings represents:
A) Cash available for dividends.
B) The amount initially invested in the business bystockholders.
C) Cash available for expansion and growth.
D) Income that has been reinvested in the business rather thandistributed as dividends to stockholders.
8. On January 1,2006, Lane Corporation had 50,000 shares of $5 par value commonstock outstanding. On March 31, 2006, Lane issued an additional8,000 shares in exchange for a building. What number of shares willbe used in the computation of basic EPS for the year 2006?
A) 50,000.
B) 58,000.
C) 56,000.
D) 52,000.
9. Mirage Corporation's financial statements for the current yearinclude the following:
Income from continuingoperations............................................................... | $620,000 |
Prior period adjustment (increase in prior year net | 190,000 |
Cash dividends paid to preferredstockholders............................................................ | 202,000 |
Gain on sale of discontinued operations (net oftaxes)...................................................................... | 410,000 |
Operating loss on discontinued operations (net of taxes) | 320,000 |
Extraordinary loss (net of taxbenefit)................................................................... | 95,000 |
On the basis of this information, net income for the current yearis:
A) $1,007,000.
B) $ 620,000.
C) $1,445,000.
D) $ 615,000.
10. During the year 2007,Moonglow Corporation suffered a $600,000 loss when its factory wasdestroyed in a flood. Assuming the corporate income tax rate is34%, what amount will Moonglow report as an extraordinary loss onits income statement for 2007? Assume floods are not common in thisarea.
A) $600,000
B) $396,000
C) $204,000.
D) Nothing, since this does not qualify as an extraordinaryitem.
11. Galaxy Corporation was organized on January 1 and issued 500,000shares of common stock on that date. On July 1, an additional200,000 shares were issued for cash. Net income for the year was$2,160,000. Net earnings per share amounted to:
A) $4.32.
B) $3.75.
C) $3.09.
D) $3.60.
18. Kims Corporation plansto invest $100 million to earn about 20% before income taxes. Thecompany is considering whether it should raise the $100 million byissuing 10% bonds payable or capital stock. If the company issuesthe bonds, it will probably report:
A) Lower net income and lower income taxes expense than if itissues capital stock.
B) Higher net income and higher income taxes expensethan if it issues capital stock.
C) Lower net income and higher income taxes expensethan if it issues capital stock.
D) Higher net income and lower income taxes expense than if itissues capital stock.
19. The amortization of a bonddiscount:
A) Decreases the carrying value of a bond and increases interestexpense.
B) Decreases the carrying value of a bond and decreasesinterest expense.
C) Increases the carrying value of a bond and increasesinterest expense.
D) Increases the carrying value of abond and decreases interest expense.
