Q1. Sandra Sherman incorporates her apartment building. It has a basis of $50,000, a value of $150,000, is subject to a mortgage of $70,000 and has a depreciation recapture potential of $12,000. If Sandra receives stock worth $80,000, she will recognize:
a. No gain.
b. $30,000 of gain, $12,000 of which is ordinary.
c. $12,000 of ordinary income.
d. $20,000 of gain, $12,000 of which is ordinary.
Q2. Evan Erman transferred inventory to a corporation in a Code Sec. 351 transaction. His basis in the inventory was $10,000 and its value was $8,000. If he received $2,000 in cash and 100 shares of stock, the resulting bases are:
a. Evan's stock: $8,000; Corporation's inventory: $10,000
b. Evan's stock: $10,000; Corporation's inventory: $10,000
c. Evan's stock: $10,000; Corporation's inventory: $8,000
d. Evan's stock: $8,000; Corporation's inventory: $12,000
Q3. One year Potter, Inc. had gross income from sales of $210,000, business expenses of $230,000, and dividend income from U.S. corporations of $150,000. Potter's 80 percent dividends-received deduction was:
a. $104,000
b. $120,000
c. $0
d. $150,000
Q4. Prior to a charitable gift to the Plato University of land with a basis of $6,000 and a value of $13,000, All-Set, Inc. had taxable income of $50,000. If the dividends-received deduction was $80,000, the charitable contribution deduction is:
a. $5,000
b. $6,000
c. $2,925
d. $5,800
Q5. Exclusive of capital transactions, Pixie Corp. had $100,000 of taxable income. Its capital gains and losses were:
Short-term gain $10,000
Long-term gain 12,000
Short-term loss (20,000)
Long-term loss 5,000
Pixie's taxable income for the year was:
a. $97,000
b. $122,000
c. $100,000
d. $107,000
Q6. Black & White, Inc. has $20,000 in taxable income, plus a long-term capital gain of $10,000. Its tax liability is:
a. $4,500
b. $10,200
c. $5,800
d. $7,500
Q7. The following statements about Code Sec. 1244 are all true, except:
a. Property transferred for Code Sec. 1244 stock includes any property qualifying for Code Sec. 351 treatment.
b. A partnership may be able to fl ow through a Code Sec. 1244 loss to some of its partners, but not to others.
c. Convertible preferred stock may be Code Sec. 1244 stock.
d. Code Sec. 1244 imposes specific passive income limitations on the corporation.
Q8. Hoover, Inc. had gross receipts from operations of $230,000, operating and other expenses of $310,000, and dividends received from a 45 percent-owned domestic corporation of $120,000. Hoover's tax position for the year is:
a. $8,000 taxable income
b. $56,000 net operating loss
c. $40,000 taxable income
d. $80,000 net operating loss
Q9. During 2010, Vera Venture sold her interests in two small business corporations. Her loss on Ballpoint Pen Corporation stock was $120,000 and her loss on Pencils Corporation stock was $20,000. Both losses qualify under Code Sec. 1244. Vera files jointly with her husband. What is the amount and character of Vera's loss to be reported on their joint return for 2010?
a. $140,000 ordinary; $0 capital
b. $100,000 ordinary; $40,000 capital
c. $40,000 ordinary; $100,000 capital
d. $0 ordinary; $140,000 capital
Q10. Comic Books Corporation, a calendar year corporation, had a net operating loss of $50,000 for 2010. Comic Books made a proper election to forgo the carryback period. For 2011, Comic Books correctly deducted $40,000 of the 2010 loss. Comic Books will lose the remaining $10,000 if it cannot be deducted by the end of which tax year?
a. 2017
b. 2020
c. 2025
d. 2030
Q11. Ben Brown transferred property that had an adjusted basis to him of $40,000 and a fair market value of $50,000 to Crackers Corporation in exchange for 100 percent of Crackers's only class of stock and $15,000 cash. At the time of the transfer, the stock had a fair market value of $35,000. What is the amount of gain to be recognized by Ben?
a. $0
b. $10,000
c. $15,000
d. $25,000
Q12. Craig Co. is a domestic small business C corporation which has been actively engaged in a trade or business since its incorporation. Kimberly purchased 200 shares of Code Sec. 1202 stock from Craig Co. on September 1, 2006. Kimberly wants to sell the stock (a very large gain would result from the sale) but wants to be sure the gain qualifies for the 50 percent exclusion. When should Kimberly sell the stock in order to qualify for the exclusion?
a. March 3, 2010
b. September 3, 2010
c. September 3, 2011
d. It does not matter. A sale at any time will qualify for the gain exclusion.
Q13. When deciding if a corporate instrument is debt or equity, the IRS will consider:
a. the corporation's debt to equity ratio
b. if the debt is convertible into stock
c. the relationship between stock and debt ownership percentages
d. if the debt is preferred over or subordinate to other debt
e. all of the above
f. none of the above
Q14. A corporation must do which of the following with respect to its accounting period?
a. select a calendar year
b. select a fiscal year if it has a business reason for selction
c. select a calendar year or fiscal, regardless of the reason for selection
d. select a year that is the same as its major shareholders
e. none of the above
Q15. Poco Co. incurs expenses for investigating whether to expand its present business.
a. deduct them when incurred
b. deduct them only if Poco Co. goes through with the expansion
c. capitalize them and amortize them over 60 months
d. capitalize and expense when the firm liquidates
e. none of the above
Q16. Members of a parent-subsidiary controlled group may:
a. file separate tax returns
b. file separate tax returns and may elect a 100 percent dividends-received deduction
c. file a consolidated tax return
d. all of the above
e. none of the above
Q17. The following entities are not subject to double taxation except:
a. partnership
b. sole proprietorship
c. C corporation
d. S corporation
e. all are subject to double taxation
f. none are subject to double taxation
Q18. Absent any special provision (e.g., Code Sec. 351), a transfer of property from a shareholder to a corporation in return for its shares would result in:
a. full gain or loss recognition
b. partial gain or loss recognition
c. no gain or loss recognition
d. none of the above
Q19. Mike and John form Lasveg Corporation. Mike transfers property and receives 75 shares of stock. John performs services and receives 25 shares of stock. The transactions qualify for Code Sec. 351 treatment for:
a. Mike only
b. John only
c. Both Mike and John
d. Neither Mike nor John
Q20. Dave formed Shull Company and transferred land ($100,000 fair market value; $40,000 adjusted basis) and equipment ($50,000 fair market value; $10,000 adjusted basis) in exchange for 100 shares of stock. Shull Company assumes the $45,000 mortgage on the land as part of the transfer. Dave's tax consequences are:
Recognized Basis in Gain 100 shares
a. $0 $50,000
b. $5,000 $0
c. $50,000 $60,000
d. $100,000 $100,000
Q21. In 2008, Larry transferred property with an adjusted basis of $20,000 and a fair market value of $15,000 to a corporation in exchange for stock. Code Sec. 351 applies to the transfer and the stock qualifies as Code Sec 1244 stock. Larry sold the stock this year for $4,000. The result of the sale is:
a. $16,000 long-term capital loss
b. $16,000 ordinary loss
c. $11,000 long-term capital loss and $5,000 ordinary loss
d. $11,000 ordinary loss and $5,000 long-term capital loss
Q22. Staton Inc. is an accrual basis, calendar year taxpayer that was formed on June 1 of this year. It incurred and paid the following expenses during the year:
Expenses incident to printing and issuing stock certificates $30,000
Accounting services incident to organization 15,200
Legal services incident to incorporation 25,000
Fees for incorporating at the state level 4,100
Expenses of organizational meetings and temporary directors 16,000
What is the largest deduction it can claim this year for organizational expenditures?
a. $2,345
b. $3,512
c. $7,151
d. $8,317