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Exam 22: S Corporations

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Question 1

Multiple Choice

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Which corporation is eligible to make the S election?

A) Non-U.S. corporation.
B) One-person limited liability company.
C) Insurance company.
D) U.S. bank.
E) None of the above can select S status.

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

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Question 2

Multiple Choice

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

A) Operating income.
B) Short-term capital gain.
C) Advertising expenses.
D) Long-term capital loss.
E) The 20% QBI deduction.

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

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E

Question 3

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In the case of a complete termination of an S corporation interest, __________________ a tax year may occur.

A per-day, per-share allocation of flow-through S corporation items must be used.

On January 1, Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight. The entity incurs a $60,000 loss for a non-leap 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?

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.

If the beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance?

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.

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:

Depreciation recapture income is a ___________________ (separately, nonseparately) computed amount.

Compensation for services rendered to an S corporation is subject to FICA taxes.

NOL carryovers from C years can be used in an S corporation year against ordinary income.

If an S corporation's beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance?

Mock Corporation converts to S corporation status in 2019. Mock used the LIFO inventory method in 2018 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election. How much tax must be added to Mock's 2018 corporate tax liability, assuming that Mock is subject to a 21% tax rate.

Stock basis first is increased by income items, then by distributions, and finally decreased by ____________________.

Identify a disadvantage of being an S corporation.

An S shareholder's basis is decreased by distributions treated as being paid from AAA.

A calendar year C corporation reports a $41,000 NOL in 2018, but it elects S status for 2019 and generates an NOL of $30,000 in that year. At all times during 2019, the stock of the corporation was owned by the same 10 shareholders, each of whom owned 10% of the stock. Kris, one of the 10 shareholders, holds an S stock basis of $2,300 at the beginning of 2019. How much of the 2019 loss, if any, is deductible by Kris?