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Exam 12: S Corporations

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Question 1

True/False

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A distribution of cash or other property by an S corporation to shareholders that does not exceed the balance of AAA during a one-year period following an S election termination receives special capital gain treatment.

A) True
B) False

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Question 2

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Several individuals acquire assets on behalf of Skip Corporation on May 28, purchased assets on June 3 and began business on June 11. They subscribe to shares of stock, file articles of incorporation for Skip, and become shareholders on June 21. The S election must be filed no later than 2 1/2 months after:

A) May 28.
B) June 3.
C) June 11.
D) June 21.
E) December 31.

F) A) and B)
G) D) and E)

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Question 3

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Estella, Inc., a calendar year S corporation, incurred the following items during the tax year. $\begin{array}{lr}\text { Municipal bond interest } & \$ 7,000 \\\text { Sales } & 120,000 \\\text { Depreciation recapture income } & 14,000 \\\text { Long-term capital gain } & 20,000 \\\text { Cost of goods sold } & (42,000) \\\text { Administrative expenses } & (15,000) \\\text { Depreciation expense } & (13,000) \\\text { Charitable contributions } & (10,000)\end{array}$ ​ Calculate Estella's nonseparately computed income.

An S corporation must possess which of the following characteristics?

Voting common stock and voting preferred stock (with a preference on dividends) would be treated as ____________________ class(es) of stock.

Randall owns 800 shares in Fabrication, Inc., an S corporation in Moss Hill, Texas. For this tax year, the basis in his stock is $30,000, before the adjustment for this year's losses. Randall's share of the corporation's ordinary loss is $20,000, and his share of its capital loss is $15,000. How much can Randall deduct due to these losses?

On January 2, 2015, David loans his S corporation $10,000. By the end of 2015 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2016, the company's operating income is $10,000. The company makes 2016 distributions to David of $11,000. David reports a(n) :

An S corporation recognizes a ____________________ on any distribution of appreciated property.

A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14. By the end of the year, $60,000 of these receivables are collected. Calculate any built-in gains tax, assuming that there is sufficient taxable income.

When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.

Alomar, a cash basis S corporation in Orlando, Florida, holds the following assets and liabilities on January 1, 2016, the date the S election is made. $\begin{array}{lrr} & \text { Adjusted Basis } & \text { Fair Market Value } \\\text { Cash } & \$ 200,000 & \$ 200,000 \\\text { Accounts receivable } & -0- & 105,000\\\text { Equipment } & 110,000 & 100,000 \\\text { Land } & 1,800,000 & 2,500,000 \\\text { Accounts payable } & -0- & 110,000\end{array}$ ​ During 2016, Alomar collects the accounts receivable and pays the accounts payable. The land is sold for $3 million, and the taxable income for the year is $590,000. Calculate any built-in gains tax.

You are given the following facts about a solely owned S corporation. What is the shareholder's ending stock basis? $\begin{array}{lr}\text { Increase in } A A A & \$ 31,000 \\\text { Increase in } O A A & 6,300 \\\text { Payroll tax penalty } & 2,140 \\\text { Beginning stock basis } & 39,800 \\\text { Stock purchases } & 22,000 \\\text { Tax-exempt insurance proceeds } & 4,800 \\\text { Insurance premiums paid (nondeductible) } & 2,700\end{array}$ ?

Which statement is incorrect with respect to the number-of-shareholders test in filing an S election?

Which, if any, of the following can be eligible shareholders of an S corporation?

Realized gain is recognized by an S corporation on its distribution of ____________________ property.

Arizona is a(n) ____________________ property state for purposes of the S corporation requirements.

Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?

Which corporation is eligible to make the S election?

An S corporation does not recognize a loss when distributing assets that are worth less than their basis.

If a resident alien shareholder moves outside the U.S., the S election is terminated.