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Tax Accounting Chapter 22 Quiz

Terms in this set (15)

Which of the following is prohibited from being an S corporation shareholder?

-Foreign citizens that are U.S. residents
-U.S. citizens
-C corporations
-51 unrelated individuals
-None of the choices are correct.
C corporations
Which of the following is a requirement to be an S corporation?

-Be a domestic or foreign corporation
-Have only one class of stock
-Have fewer than 75 shareholders
-Have at least one corporate shareholder
-None of the choices are correct.
Have only one class of stock
If Annie and Andy (each a 30 percent shareholder in a calendar-year S corporation) file a revocation statement on March 20, 2021, to terminate their S corporation's S election, what is the effective date of the S corporation termination (assuming they do not specify one)?

-January 1, 2021
-March 18, 2021
-January 1, 2022
-March 16, 2022
-None of the choices are correct.
January 1, 2022


Because more than 50 percent of the shareholders make a valid S termination election after two and a half months of the current year have passed, the election is valid as of the beginning of the next year.
Assume Joe Harry sells his 25 percent interest in Joe's S Corporation, to Tyrone on January 29. Using the daily allocation method, how much income does Joe Harry report if Joe's S Corporation, earned $225,000 from January 1 to January 29 and a total of $2,372,500 from January 1 through December 31 (365 days)?

-$47,125
-$56,250
-$182,000
-$225,000
-None of the choices are correct.
$47,125


($2,372,500/365 days) × 29 days × 25%
Assume Joe Harry sells his 25 percent interest in Joe's S Corporation, to Tyrone on January 29. Using the specific identification allocation method, how much income does Joe Harry report if Joe's S Corporation, earned $185,000 from January 1 to January 29 and a total of $730,000 from January 1 through December 31 (365 days)?

-$46,250
-$185,000
-$14,000
-$56,000
-None of the choices are correct.
$46,250


$185,000 × 25%
Which of the following is not a separately stated item for S corporations?

-Dividends
-Interest income
-Charitable contributions
-Investment interest expense
-All of the choices are separately stated items.
All of the choices are separately stated items.
Vanessa contributed $20,000 of cash and land with a fair market value of $100,000 and an adjusted basis of $40,000 to Cook, Incorporated (an S corporation) when it was formed. The land was encumbered by a $30,000 mortgage executed two years before. What is Vanessa's tax basis in her Cook, Incorporated, stock after formation?

-$20,000
-$30,000
-$60,000
-$80,000
-$120,000
$30,000


$20,000 cash + $40,000 land − $30,000 mortgage
Which of the following is not an adjustment to an S corporation shareholder's stock basis?

-Increase for any contributions to the S corporation during the year
-Increase for shareholder's share of ordinary business income
-Decrease for shareholder's share of nondeductible items
-Increase for distributions during the year
-None of the choices are correct.
Increase for distributions during the year


Distributions decrease basis.
Suppose that at the beginning of 2021 Jamaal's basis in his S corporation stock was $27,000 and Jamaal has directly loaned the S corporation $10,000. During 2021, the S corporation reported an $80,000 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50 percent of the S corporation?

-$10,000
-$27,000
-$37,000
-$40,000
-None of the choices are correct.
$37,000


Losses are limited to stock basis ($27,000) plus debt basis ($10,000).
Suppose that at the beginning of 2021 Jamaal's basis in his S corporation stock was $35,500 and Jamaal has directly loaned the S corporation $9,840. During 2021, the S corporation reported an $91,500 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50 percent of the S corporation?

-$9,840
-$35,500
-$45,340
-$45,750
-None of the choices are correct.
$45,340


Losses are limited to stock basis ($35,500) plus debt basis ($9,840).
Which of the following is the correct order in which loss limitation rules are applied?

-Basis rules first, at-risk rules second, passive loss rules third
-Passive loss rules first, at-risk rules second, basis rules third
-Basis rules first, passive loss rules second, at-risk rules third
-Passive loss rules first, basis rules second, at-risk rules third
-None of the choices are correct.
Basis rules first, at-risk rules second, passive loss rules third
Which of the following income items from an S corporation is not considered investment income for purposes of the net investment income tax?

-Passive income
-Investment interest income
-Dividends
-Short-term capital gains
-All of these choices are considered investment income for the net investment income tax.
All of these choices are considered investment income for the net investment income tax.
Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2022, Clampett, Incorporated, distributed $67,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2022, was $70,500. For 2022, J.D. was allocated $13,000 of ordinary income from Clampett, Incorporated, and no separately stated items. What is J.D.'s basis in his Clampett, Incorporated, stock after all transactions in 2022?

-$54,000
-$41,000
-$28,000
-$16,500
-None of the choices are correct.
$16,500


$70,500 original basis + $13,000 increase in basis from his distributive share of income − $67,000 distribution
Clampett, Incorporated, converted to an S corporation on January 1, 2021. At that time, Clampett, Incorporated, had cash ($40,000), inventory (FMV $60,000, basis $30,000), accounts receivable (FMV $40,000, basis $40,000), and equipment (FMV $60,000, basis $80,000). What is Clampett, Incorporated's built-in gain or loss on January 1, 2021?

-$30,000 net built-in gain
-$10,000 net built-in gain
-$0 net built-in gain
-$20,000 net built-in loss
-None of the choices are correct.
$10,000 net built-in gain


$30,000 built-gain from inventory less $20,000 built-in loss from equipment.
Which of the following statements is correct regarding S corporation estimated taxes?

-S corporations never pay estimated taxes.
-S corporations with a federal income tax liability of $500 due to the built-in gains tax or excess net passive income tax must pay estimated taxes.
-S corporations that owe $5,000 in LIFO recapture tax only must pay estimated taxes.
-S corporations with a federal income tax liability of $100 due to the excess net passive income tax must pay estimated taxes.
-None of the choices are correct.
S corporations with a federal income tax liability of $500 due to the built-in gains tax or excess net passive income tax must pay estimated taxes.
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