Problem 1: What document must LLCs file with the state to organize their business?
A. Certificate of LLC
B. Articles of organization
C. Articles of incorporation
D. Partnership agreement
Problem 2: Which legal entity provides the least flexible legal arrangement for owners?
A. LLC
B. Partnership
C. Corporation
D. Sole Proprietorship
Problem 3: What tax year-end must unincorporated entities with only one owner adopt?
A. The entity must adopt the same year-end as its owner.
B. The entity must adopt a calendar year-end.
C. The entity is free to adopt any tax year-end.
D. The entity may adopt any year-end except for a calendar year-end.
Problem 4: Which of the following requirements do not have to be met in a Section 351 transaction?
A. In the aggregate, the transferors of property to the corporation must collectively control the corporation immediately after the transfers.
B. Each transferor of property must receive stock equal to at least 80 percent of the fair market value of the property transferred.
C. Only property transferred to a corporation is eligible for deferral.
D. All transfers of property to a corporation must be made simultaneously to qualify for deferral.
Problem 5: Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral under Section 351. The corporation assumed a liability of $150 on the property transferred. What is the amount realized by Roberta in the exchange?
A. $400
B. $500
C. $350
D. $250
Problem 6: Which of the following statements best describes the concept of control as it applies to a Section 351 transaction?
A. Control is defined as the ownership of 80 percent or more of the fair market value of a corporation's stock.
B. Control is defined as the ownership of 80 percent or more of a corporation's voting stock.
C. Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the fair market value of a corporation's stock.
D. Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the total number of shares of each class of nonvoting stock.
Problem 7: Grand River Corporation reported taxable income of $500,000 in 2010 and paid federal income taxes of $170,000. Not included in the computation was a disallowed meals and entertainment expense of $2,000, tax-exempt income of $1,000, and deferred gain on an installment sale of $25,000. The corporation's current earnings and profits for 2010 would be
A. $500,000
B. $524,000
C. $354,000
D. $331,000
Problem 8: Coop Inc. owns 40 percent of Chicken Inc., both of which are corporations. Chicken pays Coop a dividend of $10,000 in 2009. Chicken also reports earnings of $20,000 for that year. Assume that Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction)?
A. $2,000 favorable
B. $2,000 unfavorable
C. $10,000 unfavorable
D. $10,000 favorable
Problem 9: A calendar-year corporation has negative current E&P of $(500) and accumulated positive E&P of $1,000. The corporation makes a $600 distribution to its sole shareholder. Which of the following statements is true?
A. $0 of the distribution will be a dividend because current earnings and profits is negative.
B. $500 of the distribution will be a dividend because total earnings and profits is $500.
C. $600 of the distribution will be a dividend because accumulated earnings and profits is $1,000.
D. Up to $600 of the distribution could be a dividend depending on the balance in accumulated earnings and profits on the date of the distribution.
Problem 10: Which of the following statements is true?
A. A stock redemption not treated as an exchange will automatically be treated as a taxable dividend.
B. All stock redemptions are treated as exchanges for tax purposes.
C. All stock redemptions are treated as dividends if received by an individual.
D. A stock redemption is treated as an exchange only if it meets one of three stock ownership tests described in the Internal Revenue Code.
Problem 11: Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, 2010. Pam's income tax basis in each share is $500. Comet has total E&P of $250,000. What are the tax consequences to Pam as a result of the stock redemption?
A. $25,000 capital gain and a tax basis in each of her remaining shares of $100
B. $25,000 capital gain and a tax basis in each of her remaining shares of $500
C. $50,000 dividend and a tax basis in each of her remaining shares of $100
D. $50,000 dividend and a tax basis in each of her remaining shares of $50
Problem 12: El Toro Corporation declared a common stock dividend to all shareholders of record on June 30, 2010. Shareholders will receive 1 share of El Toro stock for each 2 shares of stock they already own. Raoul owns 300 shares of El Toro stock with a tax basis of $60 per share. The fair market value of the El Toro stock was $100 per share on June 30, 2010. What are the tax consequences of the stock dividend to Raoul?
A. $0 dividend income and a tax basis in the new stock of $60 per share
B. $0 dividend income and a tax basis in the new stock of $100 per share
C. $0 dividend income and a tax basis in the new stock of $20 per share
D. $15,000 dividend and a tax basis in the new stock of $100 per share