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Exam 22: S Corporations

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Question 51

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At the beginning of the year, the AAA of Rose, Inc. shows a balance of $682,000. During the year, the following items occur. Compute the end-of-year AAA balance. $\begin{array} { l c } \text { Operating income } & \$ 452,000 \\\text { Interest income } & 6,550 \\\text { Dividend income } & 14,050 \\\text { Municipal bond interest income } & 12,000 \\\text { Short-term capital loss from sale of building } & 7,400 \\\text { Section } 179 \text { expense } & 6,500 \\\text { Charitable contributions } & 19,000 \\\text { Cash distributions } & 57,000 \\\text { Depreciation recapture } & 3,500\end{array}$

A) $1,064,700.
B) $1,185,150.
C) $1,191,150.
D) $1,242,150.

E) A) and B)
F) A) and C)

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Question 52

Multiple Choice

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If the beginning balance in OAA is zero and the following transactions occur, what is the ending OAA balance? $\begin{array}{lc}\text { Depreciation recapture income } & \$ 21,000 \\\text { Payroll tax penalty } & 4,200 \\\text { Tax-exempt interest } & 5,700 \\\text { Nontaxable life insurance proceeds } & 3,900 \\\text { Insurance premiums paid (nondeductible) } & 2,900\\ \text { Charitable contributions}&17,000\\\end{array}$

A) $1,300.
B) $6,700.
C) $23,300.
D) $27,500.

E) All of the above
F) C) and D)

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Question 53

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On January 1, Bobby and Alice equally own all of the stock of an electing S corporation called Prairie Dirt Delight. The entity incurs a $60,000 loss for a nonleap year. On the 200th day of the year (not a leap year) , Bobby sells his one-half of the stock to his son, Saul. How much of the $60,000 loss, if any, is allocated to Bobby?

An S corporation cannot incur a tax liability at the corporation level.

Alomar, a cash basis S corporation in Orlando, FL, holds the following assets and liabilities on January 1, 2020, 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 the year, 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.

The AAA begins with a zero balance on the first day of an S corporation's first tax year.

Pepper, Inc., an S corporation, holds a $1 million balance in accumulated E&P. It reports sales revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. What is Pepper's passive income penalty tax payable, if any?

Which item does not appear on Schedule K of Form 1120S?

Which item is not included in an S corporation's nonseparately computed income?

S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis).

A former spouse is treated as being in the same family as the individual to whom he or she was married for purposes of determining the number of S corporation shareholders.

Distributions of appreciated property by an S corporation are not taxable to the entity.

A capital loss allocated to a shareholder always reduces the Other Adjustments Account.

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 two and one-half months after:

Where the S corporation rules are silent, C corporation provisions apply.

A service-type S corporation shareholder cannot claim the 20% QBI deduction.

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

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

An S corporation shareholder's stock basis includes his or her direct investments plus a ratable share of any corporate liabilities.

You are given the following facts about a 40% owner of an S corporation. Calculate her ending stock basis. $\begin{array}{lr}\text { Owner's beginning stock basis } & \$ 36,800 \\\text { Increase in AAA. } & 32,000 \\\text { Increase in OAA } & 6,300 \\\text { Payroll tax penalty } & 2,140 \\\text { Tax-exempt interest income } & 4,800 \\\text { Life insurance premiums paid } & 2,700\\\text { (nondeductible) }\\\end{array}$