Incremental Analysis Multiple Choice Questions Homework Help Online
- July 12, 2017
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- Category: Accounting QA
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1) BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year. What is the nature of the book-tax difference created by the net operating loss deduction in the current year?
A. Temporary; unfavorable
B. Permanent; favorable
C. Permanent; unfavorable
D. Temporary; favorable
2) A calendar-year corporation has negative current E&P of $(500) and accumulated positive E&P of $1,000. The corporation makes a $600 distribution to its sole shareholder. Which of the following statements is true?
A. Up to $600 of the distribution could be a dividend depending on the balance in accumulated earnings and profits on the date of the distribution.
B. $500 of the distribution will be a dividend because total earnings and profits is $500.
C. $0 of the distribution will be a dividend because current earnings and profits is negative.
D. $600 of the distribution will be a dividend because accumulated earnings and profits is $1,000.
3) Studios reported a net capital loss of $30,000 in year 5. It reported net capital gains of $14,000 in year 4 and $27,000 in year 6. What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover?
A. $16,000 favorable
B. $11,000 unfavorable
C. $11,000 favorable
D. $16,000 unfavorable
4) Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband Tommy. Which of the following statements is true?
A. A stock redemption that completely terminates Tammy’s direct interest in a corporation will be treated as a dividend if Tammy waives the family attribution rules and files a “triple i” agreement with the IRS.
B. A stock redemption that completely terminates Tammy’s direct interest in a corporation will be treated as an exchange for tax purposes.
C. A stock redemption that completely terminates Tammy’s direct interest in a corporation will be treated as a dividend for tax purposes.
. A stock redemption that completely terminates Tammy’s direct interest in a corporation will be treated as an exchange if Tammy waives the family attribution rules and files a “triple i” agreement with the IRS.
5) El Toro Corporation declared a common stock dividend to all shareholders of record on June 30, 2010. Shareholders will receive 1 share of El Toro stock for each 2 shares of stock they already own. Raoul owns 300 shares of El Toro stock with a tax basis of $60 per share. The fair market value of the El Toro stock was $100 per share on June 30, 2010. What are the tax consequences of the stock dividend to Raoul?
A. $15,000 dividend and a tax basis in the new stock of $100 per share
B. $0 dividend income and a tax basis in the new stock of $100 per share
C. $0 dividend income and a tax basis in the new stock of $60 per share
D. $0 dividend income and a tax basis in the new stock of $20 per share
6) Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, 2010. Pam’s income tax basis in each share is $500. Comet has total E&P of $250,000. What are the tax consequences to Pam as a result of the stock redemption?
A. $50,000 dividend and a tax basis in each of her remaining shares of $50
B. $25,000 capital gain and a tax basis in each of her remaining shares of $500
C. $25,000 capital gain and a tax basis in each of her remaining shares of $100
D. $50,000 dividend and a tax basis in each of her remaining shares of $100
7) Under which of the following circumstances will a partner recognize a loss from an operating distribution?
A. A partner will recognize a loss from an operating distribution when the partnership distributes money in an amount that is greater than the partner’s basis in the partnership interest.
B. A partner will never recognize a loss from an operating distribution.
C. A partner will recognize a loss from an operating distribution when the partnership distributes property other than money with an inside basis greater than the partner’s basis in the partnership interest.
D. A partner will recognize a loss from an operating distribution when the partnership distributes money in an amount that is less than the partner’s basis in the partnership interest.
8) Which of the following statements regarding disproportionate distributions is false?
A. Disproportionate distributions will only occur in liquidating distributions.
B. A disproportionate distribution occurs when a partner receives more than his or her proportionate share of the partnership’s hot assets.
C. A disproportionate distribution occurs when a partner receives less than his or her proportionate share of the partnership’s hot assets.
D. The tax provisions related to disproportionate distributions attempt to preserve the partners’ share of ordinary income potential.
9) Tone Loc and 89 of his biggest fans formed an S corporation, 2hit, Inc., as the original ninety shareholders. Tone then transferred some of his stock to his grandfather, four of Tone’s cousins, five of Tone’s children, three of Tone’s grandchildren, and 2 close friends. For the S corporation shareholder limit rules, how many shareholders does 2hit, Inc. have?
A. 97
B. 90
C. 92
D. 95
10) Clampett, Inc. (an S corporation) previously operated as a C corporation. Distributions from Clampett, Inc. are deemed to be paid in the following order:
A. Shareholder’s remaining stock basis, prior C corporation earnings and profit, the AAA account
B. Prior C corporation earnings and profit, the AAA account, shareholder’s remaining stock basis
C. Shareholder’s remaining stock basis, the AAA account, prior C corporation earnings and profit
D. The AAA account, prior C corporation earnings and profit, shareholder’s remaining stock basis
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11) Clampett, Inc. has been an S corporation since its inception. On July 15, 2011, Clampett, Inc. distributed $50,000 to J.D. His basis in his Clampett, Inc. stock on January 1, 2011, was $45,000. For 2011, J.D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is the amount of income J.D. recognizes related to Clampett, Inc. in 2011?
A. $60,000
B. $20,000
C. $50,000
D. $10,000
12) Clampett, Inc. has been an S corporation since its inception. On July 15, 2011, Clampett, Inc. distributed $50,000 to J.D. His basis in his Clampett, Inc. stock on January 1, 2011, was $45,000. For 2011, J.D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is J.D.’s basis in his Clampett, Inc. stock after all transactions in 2011?
A. $40,000
B. $20,000
C. $30,000
D. $5,000
13) Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members’ contributions, their LLC will obtain a $50,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $5,000 and a building he bought as a storefront for the motorcycles. The building has an FMV of $45,000, an adjusted basis of $30,000, and is secured by a $35,000 nonrecourse mortgage that the business LLC will assume. What is Brett’s outside tax basis in his LLC interest?
A. $37,500
B. $42,000
C. $40,000
D. $45,000
14) Gerald received a 33% capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with an FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ, LP assumed at the time the property was contributed. What is Gerald’s outside basis immediately after his contribution?
A. $6,000
B. $21,000
C. $9,000
D. $24,000
15) Sue and Andrew form SA general partnership. Each person receives an equal interest in the newly created partnership. Sue contributes $10,000 of cash and land with a FMV of $55,000. Her basis in the land is $20,000. Andrew contributes equipment with a FMV of $12,000 and a building with a FMV of $33,000. His basis in the equipment is $8,000, and his basis in the building is $20,000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?
A. $0
B. $48,000
C. $4,000
D. $52,000
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