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ACCT414 Lecture Notes - Lecture 7: Retained Earnings, Dividend Tax, Deferred Compensation

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redwalrus66
13 Nov 2020
School
University of Delaware
Department
Accounting
Course
ACCT414
Professor
Scott Somerville

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Document Summary

Question 3: if you have a mortgage, that is a debt/liability, and you must subtract it from the basis. Ace"s basis in the building was ,000 (,000-,000) Question 4: lind"s basis in the stock was ,000 (,000 property basis - ,000 mortgage) Question 5: an ordinary gain is recognized, and the transaction is taxable since the partner contributing property only owns 70% and 30% partner did not contribute property. Start with financial statement income and convert it to taxable income. Sales or exchanges of property: net capital gains = any net long-term capital gains greater than net short-term capital gains, taxes on these gains is higher than normal corporate tax (23. 8) so c-corps don"t really want capital gains. If there is a net capital loss, then it cannot be deducted currently. Code section 162: we can deduct all ordinary and necessary expenses. Section 195 start-up expenses: any expenses incurred before a business starts receiving revenue.

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Related Questions

11. Bread Corporation is a C corporation with earnings of $150,000. It paid $60,000 of dividends to its sole shareholder, Gerald. Gerald also owns 100% of Butter, an S Corporation. Butter had net taxable income of $40,000 and made a $30,000 distribution to Gerald. What total income will Gerald report from Bread and Butter’s activities?

$90,000

$190,000

$150,000

$100,000

12. At the first of the year, Arch and Bean contribute cash equally to form the JK partnership. Arch and Bean share profits and losses in a ratio of 75% to 25% respectively. For the current year, the partnership's ordinary income was $40,000. A distribution of $5,000 was made to Arch during the current year. What amount of ordinary income should Bean report from the JK partnership?

$5,000

$20,000

$10,000

$40,000

13. Identify which of the following statements is true.
All cash distributions from a partnership require the partners to pay taxes on those distributions.

Distribution of partnership income in the form of cash to partners is generally taxable to the

partners as long as there is sufficient basis.

If property distributions exceed the partner's basis in the partnership interest, a partner would not have to recognize gain on a distribution from the partnership.

All of the above are true.

14. Stan had a basis in his 50% partnership interest at the beginning of this year of $20,000 in a partnership in which he actively participates. There was no change in partnership liabilities during the year. The partnership's ordinary loss this year was $60,000 and the partnership had no separately stated items. The deductible loss from the partnership reported on Stan's personal income tax return this year is

$20,000

$0


$60,000

$30,000

15. The Qualified Business Income Deduction applies to individuals who own an interest in a:

C Corporation

Both a Partnership and an S Corporation

A partnership

S Corporation

Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund current operating expenses. The partnership agreement provides that depreciation will be allocated 80% to Bryan and 20% to Cody. All other items of income and loss will be allocated equally between the partners.

Upon liquidation of the partnership, property will be distributed to the partners in accordance with their capital account balances. Any partner with a negative capital account must contribute cash in the amount of the negative balance to restore the capital account to $0.

In its first year, the partnership reported an ordinary loss (before depreciation) of $80,000 and depreciation expense of $36,000. In its second year, the partnership reported $40,000 of income from operations (before depreciation), and it reported depreciation expense of $57,600.

a. Calculate the partners' bases in their partnership interests at the end of the first and second tax years.

Bryan's Basis Cody's Basis
Capital contribution-Year 1 $ $
Loss allocation-Year 1 $ $
Depreciation allocation-Year 1 $ $
Basis at the end of Year 1 $ $
Income allocation-Year 2 $ $
Depreciation allocation-Year 2 $ $
Basis at the end of Year 2 $ $

Are any losses suspended for either partner?
No/Yes

b. Does the allocation provided in the partnership agreement have an "economic effect"?
No/Yes , because (1) gains, income, loss, etc., allocations are/are not reflected in capital account balances, (2) liquidating distributions are in accordance with average/beginning/end capital account balances, and (3) deficit capital accounts/outstanding loan balances must be restored.

Thomas and Miles are equal partners in a​ partnership, whichuses the calendar year as its tax year. On September​ 1, this​year, Katie contributed​ $60,000 cash for a​ one-third interest inthe partnership. The partnership reports a​ $24,000 ordinary lossfor the tax year ending on December 31 of this year. The lossallocation to Katie​ (new partner) is

A. ​$0.
B. ​$2,667.
C. ​$4,000.
D.​$8,000.

A corporation has the following capital gains and losses duringthe current​ year: ​LTCG: ​$25,000 ​LTCL: ​15,000 ​STCG: 8,000​STCL: 4,000 The tax result to the corporation is
A. $10,000 NLTCG included in gross income and taxed at ordinary​rates; $4,000 NSTCG included in gross income and taxed at reducedrates.
B. ​$10,000 NLTCG is included in gross income and taxed at reduced​rates; and​ $4,000 NSTCG included in gross income and taxed atordinary rates.
C. $14,000 included in gross income and taxed at reducedrates.
D.$14,000 included in gross income and taxed at ordinary rates.

Stephanie owns a​ 25% interest in a qualifying S corporation.​Stephanie's basis in the stock was​ $40,000 at the end of the yearafter adjustments are made for capital contributions anddistributions​ (but not operating​ results). Stephanie also loanedthe S corporation​ $10,000 this year. The S corporation incurred a​$240,000 ordinary loss this year. Assume that next year the S​corporation's ordinary income is​ $160,000. ​ Stephanie's basis inher stock at the end of next year is A.$10,000.
B.$20,000.
C. $30,000.
D. ​$40,000.

Tara transfers land with a​ $690,000 adjusted basis and a​$700,000 FMV to a corporation in a Sec. 351 transfer. Immediatelyafter the​ transfer, Tara owns​ 100% of the corporationlongdash—stock with a FMV of​ $615,000. In​ addition, $85,000 ofliabilities are assumed by the corporation with respect to thetransfer. No other property is transferred.​ Tara's recognized gainon the transfer is
A. $15,000.
B. ​$0.
C. $5,000.
D. $10,000.

Jenkins Corporation has the following income and expense itemsduring the current​ year: Net loss from operations​ (beforedividend​ income) ​($ 25,000) Dividends from​ 25% ownedcorporations ​150,000 The allowed​ dividends-received deductionis
A. $125,000.
B. $100,000.
C. ​$150,000.
D. $120,000.