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ACCT 424 Week 5 Checkpoint

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ACCT 424 Week 5 Checkpoint

Question :

(TCO 7) In the current year, Daisy formed an equal partnership with Peter. Daisy contributed land with an adjusted basis of $15,000 and a fair market value of $75,000. Daisy also contributed $25,000 cash to the partnership. Peter contributed land with an adjusted basis of $50,000 and a fair market value of $90,000. The land contributed by Daisy was encumbered by a $10,000 nonrecourse debt. Assume the partners share debt equally. Immediately after the formation, the basis of Peter’s partnership interest is

	Student Answer:		$0.
			$50,000.
			$55,000.
			$95,000.
			None of the above

Question :

(TCO 7) Which decreases a partner’s basis in his or her partnership interest?

	Student Answer:		Exempt income items
			Taxable income items
			Nondeductible expenses
			An increase in a partner’s share of debt
			None of the above

Question :

(TCO 7) On January 1 of the current year, Rachel and Julio form an equal partnership. Rachel makes a cash contribution of $80,000 and a property contribution (adjusted basis of $110,000, fair market value of $80,000) in exchange for her interest in the partnership. Julio contributes property (adjusted basis of $120,000, fair market value of $160,000) in exchange for his partnership interest. Which statement is true concerning the income tax results of this partnership formation?

	Student Answer:		Rachel has a $160,000 tax basis for her partnership interest.
			The partnership has an $80,000 adjusted basis in the property contributed by Rachel.
			Rachel recognizes a $30,000 loss on her property transfer.
			Julio has a $120,000 tax basis for his partnership interest.
			None of the above

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Question :

(TCO 7) Martin is a partner in a continuing partnership. At the end of the current year, the partnership distributed to Martin in a proportionate, nonliquidating distribution cash of $20,000, inventory with a basis to the partnership of $6,000 and a fair market value of $12,000, and a parcel of land with a basis to the partnership of $20,000 and a fair market value of $15,000. Martin’s basis in the partnership interest was $100,000 before the distribution. Which basis does Martin take in the inventory and land, and which is his basis in the partnership interest following the distribution?

Student Answer:

$6,000 basis in inventory, $15,000 basis in land, $59,000 basis in partnership

$6,000 basis in inventory, $20,000 basis in land, $54,000 basis in partnership

$12,000 basis in inventory, $15,000 basis in land, $53,000 basis in partnership

$12,000 basis in inventory, $20,000 basis in land, $48,000 basis in partnership

$12,000 basis in inventory, $68,000 basis in land, $0 basis in partnership

*Martin’s basis in the inventory and land equals the partnership’s basis in these properties. Whether the property is appreciated or depreciated does not matter.

Question :

(TCO 7) Bill received $15,000 cash and a capital asset with a basis and fair market value of $35,000 in a proportionate liquidating distribution. His basis in his partnership interest was $65,000 prior to the distribution. How much gain or loss does Bill recognize, and which is his basis in the capital asset received in the distribution?

	Student Answer:		$0 gain or loss, $35,000 basis
			$15,000 loss, $35,000 basis
			$15,000 gain, $35,000 basis
			$15,000 gain, $50,000 basis
			$0 gain or loss, $50,000 basis

Question :

(TCO 8) Which corporation is eligible to make the S election?

	Student Answer:		Foreign corporation
			A 100%-owned corporation
			An insurance company
			A U.S. bank
			None of the above

Question :

(TCO 8) During 20×2, Houston Nutt, the sole shareholder of a calendar-year S corporation, received a distribution of $16,000. On December 31, 20×1, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?

	Student Answer:		Nutt recognizes a $1,000 LTCG.
			Nutt’s stock basis will be $2,000.
			Nutt’s ordinary income is $15,000.
			Nutt’s return of capital is $11,000.
			None of the above

Question :

(TCO 8) Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama. At a time when his stock basis is $10,000, the corporation distributes appreciated property worth $100,000 (basis of $10,000). There is no built-in gain. Fred’s taxable gain is

	Student Answer:		$0.
			$10,000.
			$90,000.
			$100,000.
			None of the above

Question :

(TCO 8) Nicole is a shareholder in Shaquille Inc., an S corporation in Tazewell, Tennessee. She has a $15,000 stock basis and a $10,000 basis in debt owed to her by Shaquille Inc. For the current, Nicole’s pro rata share of the S corporation’s nonseparately computed loss was $30,000, and a separately stated capital loss was $10,000. Which statement is false?

	Student Answer:		Nicole may recognize only $18,750 of the nonseparately computed loss.
			Nicole may recognize only $6,250 of the capital loss.
			Nicole may carry forward $11,250 of the disallowed nonseparately computed loss.
			Nicole may carry forward only $4,350 of the disallowed capital loss.
			None of the above

10.

Question :

(TCO 8) Excess net passive income of an S corporation is $40,000, and taxable income is $32,000. Assuming that there is $50,000 of accumulated earnings and profits from a C corporation year, calculate any passive income penalty tax.

	Student Answer:		$0
			$4,500
			$10,500
			$11,200
			Some other amount

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ACCT 424 Week 5 Checkpoint

ACCT 424 Week 5 Checkpoint

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