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Tax 4001

Fall 2015
Exam 3 Practice Questions
Hampton
1. Which of the following (a-c) is not correct with respect to limited liability companies?
a. An advantage of an LLC when compared to a C corporation is the ability to
pass tax attributes through to the owners.
b. A disadvantage of a partnership when compared with an LLC is the inability of
all the owners to have limited liability.
c. An LLC has greater flexibility than does an S Corporation in terms of the
number of owners, type of owners, special allocation opportunities and capital
structure.
d. All of the above (a-c) are correct.
e. None of the above (a-c) is correct.
2. Maize Corporation had net operating income of $450,000 for 2015. In addition,
Maize owns 50% of the stock in Blue Corporation and Blue Corporation paid Maize a
dividend of $150,000. Maize has no other items of income and expense for the year.
Compute Maize Corporations taxable income.

3. Kristy and Karla are equal partners in K&K Partnership. On January 1, 2015, each
partners adjusted basis in K&K was $120,000. During 2015, K&K borrowed $180,000
(recourse debt). Also, during 2015, K&K had an ordinary loss of $30,000; and a Net
Long Term Capital Gain of $10,000. Considering these activities, compute each
partners basis in her partnership interest at 12/31/2015.

4. Carole is a partner in CDE partnership. Her allocable share of CDEs passive


ordinary losses from a non-realty activity for 2015 is ($40,000). Caroles basis in her
CDE partnership (before consideration of the loss) is $30,000. Her amount at-risk is
$25,000. She also has $50,000 of passive income from other sources. How much of
her allocated loss can she deduct in 2015?

5. Which of the following (a-d), if any, is an eligible S Corporation shareholder?


a.
b.
c.
d.
e.

A resident alien.
A Partnership.
A Foreign corporation.
A nonqualifying trust.
None of the above (a-d) is an eligible S Corporation shareholder.

6. Which of the following items (a-d) is not separately stated on an S Corporations


Schedule K?
a.
b.
c.
d.
e.

Interest Income.
Advertising expenses.
Foreign taxes paid.
Section 1231 gain.
All of the above (a-d) are separately stated.

7. Manning Corporation, a personal service corporation, reported the following items of


income and expense for 2015:
Gross Profit
$1,250,000
Dividends Received (from < 20% owned Domestic corps)
150,000
U.S. Treasury Bond Interest
25,000
LTCG
60,000
STCL
15,000
City of Indianapolis Bond Interest
20,000
Officer Salary
150,000
Salary Expense
610,000
Bad Debt Write-Offs
75,000
Change in Balance of Allow for Doubtful Accts
+9,000
Book Depreciation Expense
35,000
MACRS Depreciation Expense
59,000
Charitable Contributions
45,000
Key-Man Life Insurance Premiums
12,000
Other Expenses
170,000
Dividends Paid/Distributions to Owners
50,000
A. Compute Manning's 2015 C Corp Taxable Income.
B. Assume instead that Manning is a Partnership with two equal partners, Eli and
Peyton. Also assume that the Officer Salary is instead guaranteed payments of
$100,000 to Peyton and $50,000 to Eli; and that in addition each partner received a
$25,000 distribution from the partnership. Determine the Partnerships Ordinary Income
and Separately Stated Items. Also indicate how much income Peyton would report on
his individual income tax return as a result of partnership activities.
C. Assume instead that Manning Corporation is an electing S Corporation owned 100%
by Peyton, whose basis in his shares is $120,000 at 1/1/2015. Determine the S
Corporations Ordinary Income and separately-stated items, and Peytons 12/31/2015
basis for his S Corporation Shares.