TCO 1) Hunter and Warren form Tan Corporation. Hunter transfers equipment (basis of $210,000 and fair market value of $180,000), and Warren transfers land (basis of $15,000 and fair market value of $150,000) and $30,000 cash. Each receives 50% of Tan's stock. Which happens as a result of these transfers?
2. (TCO 1) Samantha transferred land worth $200,000 (basis of $40,000) to Lava Corporation, an existing entity, for 300 shares of its stock. Lava Corporation has two other shareholders, Timothy and Brett, each of whom holds 50 shares. Which happens with respect to the transfer?
3. (TCO 2) Pelican Inc., a closely held corporation (not a PSC), has a $350,000 loss from a passive activity, $135,000 of active income, and $160,000 of portfolio income. How much is Pelican's taxable income?
4. (TCO 2) Silver Corporation has average gross receipts of $5.7 million, $4.6 million, and $4.8 million for the last three years, respectively. Silver is _____.
5. (TCO 3) As of January 1, Everest Corporation has a deficit in accumulated E & P of $75,000. For tax year, current E & P (all of which accrued ratably) is $40,000 (prior to any distribution). On July 1, Everest Corporation distributes $60,000 to its sole, noncorporate shareholder. Which is the amount of the distribution that is a dividend?
6. (TCO 3) Parrot Corporation has accumulated E & P of $40,000 on January 1, 20x1. In 20x1, Parrot has current E & P of $45,000 (before any distribution). On December 31, 20x1, the corporation distributes $120,000 to its sole shareholder, Michael (an individual). Which is Parrot Corporation's E & P as of January 1, 20x2?
7. (TCO 4) Cardinal Corporation has 1,000 shares of common stock outstanding. John owns 300 of the shares, John's grandfather owns 200 shares, John's daughter owns 300 shares, and Redbird Corporation owns 200 shares. John owns 60% of the stock in Redbird Corporation. How many shares is John deemed to own in Cardinal Corporation under the attribution rules of §318?
8. (TCO 5) Francis exchanges her 20% interest in Beryl Corporation for 10,000 shares of Pyrite Corporation (value $200,000) and $40,000 cash. Francis's basis in her Beryl stock is $95,000. The accumulated earnings of Beryl are $325,000, and the accumulated earnings of Pyrite are $225,000 at the time of the reorganization. How does Francis treat this transaction for tax purposes?
9. (TCO 6) How are the members of a consolidated group affected by computations related to E & P?
10. (TCO 11) Which statement, if any, does not reflect the rules governing the negligence accuracy-related penalty?
1. (TCO 7) On January 1 of the current year, Rachel and Julio form an equal partnership. Rachel makes a cash contribution of $80,000 and a property contribution (adjusted basis of $110,000, fair market value of $80,000) in exchange for her interest in the partnership. Julio contributes property (adjusted basis of $120,000, fair market value of $160,000) in exchange for his partnership interest. Which statement is true concerning the income tax results of this partnership formation? (Points : 5)
2. (TCO 7) Samantha and Rebecca are equal partners in the S&R Partnership. On January 1 of the current year, each partner's adjusted basis in S&R was $240,000. During the current year, S&R borrowed $180,000 for which Samantha and Rebecca are personally liable. S&R sustained a net operating loss of $30,000 in the current year ended December 31. If liabilities are shared equally by the partners, which is each partner's basis in her interest in S&R on January 1 of the next year? (Points : 5)
3. (TCO 7) Naomi contributed property ($80,000 basis and fair market value of $120,000) to the ABC Partnership in exchange for a 50% interest in partnership capital and profits. During the first year of partnership operations, ABC had net taxable income of $60,000 and tax-exempt income of $56,000. The partnership distributed $24,000 cash to Naomi. Her share of partnership recourse liabilities on the last day of the partnership year was $32,000. Which is Naomi's adjusted basis (outside basis) for her partnership interest at year-end? (Points : 5)
4. (TCO 8) During 20x2, Houston Nutt, the sole shareholder of a calendar-year S corporation, received a distribution of $16,000. On December 31, 20x1, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?
5. (TCO 8) Which statement is correct with respect to an S corporation?
There is no advantage also to elect § 1244 stock.
An S corporation can own 85% of an insurance company.
An estate may be a shareholder.
A voting trust arrangement is not available.
None of the above
6. Which reduces a shareholder's S corporation stock basis?
Depletion in excess of basis of property
Illegal kickbacks
Nontaxable income
Sales
None of the above
7. (TCO 9) Matt and Hillary are husband and wife, and live in Pennsylvania. Using joint funds, in 1990 they purchase an insurance policy on Matt's life and designate their daughter, Sandra, as the beneficiary. The policy has a maturity value of $2,000,000. Matt dies first and the insurance proceeds are paid to Sandra. As to the proceeds,
8. TCO 10) The trustee of the Washington Trust is not required to distribute all of the current-year annual accounting income of the trust to its sole beneficiary, Betty. Which is the trust's personal exemption?
9. (TCO 10) The Jain Trust is required to pay its entire annual accounting income to the Daytona Museum, a qualifying charity. Which is the trust's personal exemption?
10. (TCO 10) Pam makes a gift of land (basis of $313,000; fair market value of $913,000) to her granddaughter, Tracy. As a result of the transfer, Pam paid a gift tax of $45,000. Which is Tracy's income tax basis in the land?