ACC 350 Study Guide - Lection, Limited Liability, C Corporation

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30 Oct 2014

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#1-1chapter 10chapter 10sole proprietorships, sole proprietorships, partnerships, partnerships, llcsllcsand s corporationsand s corporationshighlights. Explain effect of sole proprietorship on individual tax return. Differentiate between partnership distributive income versus cash flow. Contrast basis limits for s corporations versus partnerships. C corporation is taxed first, then shareholders may be taxed on distributions (potential double taxation). Certain llcs may be taxed as c corporations. Schedule c, filed with the individual form 1040. Net income or loss on schedule c is ordinary income or loss; combine this net with other items of gross income. If the schedule c business loss > other sources of income, the nol (net operating loss) can be carried back 2 years and forward 20 years. Computation of a personal nol is subject to many special rules (beyond scope of this course). A portion of the taxpayer"s personal residence may be allowable as a schedule c deduction if: the office is used exclusively on a regular basis.

Related Questions

true and false questions

A redemption is always "essentially equivalent to a dividend"where a corporation's sole stockholder causes part of his shares tobe redeemed by the corporation.

When a partner receives a cash distribution from a partnershipthe partner always recognizes a gain on such distribution.

If a partner receives a non-liquidating cash distribution, thepartner will recognize a loss if the cash distributed is less thanthe partner's outside basis at the time of the distribution.

When a partnerâs share of partnership liabilities and debts isreduced or relieved, such reduction or relief is treated as adeemed cash distribution which increases the partnerâs outsidebasis.

A partner contributes property used in a trade or business to apartnership in return for a partnership interest. The partner heldthe property for 2 years prior to contribution. The partner thensells his partnership interest three weeks later. The contributingpartner will realize a short-term capital gain/loss on the sale ofhis partnership interest.

A distribution by a C-corporation that has Earnings and Profitsis always a dividend.

John is a 30% partner in the ABC Partnership with an outsidebasis of $42,000. ABC partnership distributes $15,000 of cash incomplete liquidation of Johnâs interest. John recognizes anordinary loss of $27,000 on the distribution

Like partnerships, an S corporation shareholder's stock basismust be adjusted annually.

A related party individual that receives a liquidatingdistribution from a corporation can recognize a loss

If a partnership makes a non-liquidating distribution oftangible property, and the inside basis of the property exceeds theoutside basis of the recipient-partner, the partnerâs basis in thedistributed property is equal to his outside basis and he realizesgain on the difference between the inside basis and outsidebasis.

roseskunk442

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 Butterâs 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

Organization of business as partnership or corporationÂ¬Â¬Â¬ On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print childrenâs stories. The contributions of the brothers and their partnership interests are listed below. They share the economic risk of loss from liabilities according to their partnership interests. Individual Asset Basis to Pr FMV Partnership Interest Al Cash 15,000 15,000 15% Bob Accts Receivable -0- 20,000 20% Clay Office Equipment 13,000 15,000 15% Dave Land 50,000 15,000 15% Ed Building 15,000 150,000 20% Fred Services ? 15,000 15% The following other information about the contributions may be of interest: â¢ Bob contributes accounts receivable from his proprietorship, which uses the cash method of accounting. â¢ Clay uses the office equipment in a small business he owns. When he joins the partnership, he sells the remaining business assets to an outsider. He has claimed $8,000 of MACRS depreciation on the office equipment. â¢ The partnership assumes a $130,000 mortgage on the building Ed contributes. Ed claimed $100,000 of straight-line MACRS depreciation on the commercial property. â¢ Fred, an attorney, drew up all the partnership agreements and filed the necessary paperwork. He receives a full 15% capital and profits interest for his services. 1. How much gain, loss, or income must each partner recognize as a result of the formation? 2. How much gain, loss, or income must the partnership recognize as a result of the formation? 3. What is each partnerâs basis in his partnership interest? 4. What is the partnershipâs basis in its assets? 5. What is the partnershipâs initial book value of each asset? 6. What effects do the depreciation recapture provisions have on the property contributions? 7. What are the tax consequences to the partners and the partnership when the partnership sells for $9,000 the land contributed by Dave? Prior to the sale, the partnership held the land as an investment for two years.

Now answer the same questions assuming that this is the organization of a corporation instead of a partnership.

ACC 350 Study Guide - Lection, Limited Liability, C Corporation

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