accounting mcq quiz 70 questions

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1)

Chris owns 70 percent of ABC Corporation. ABC Corporation
had acquired land known as Parcel A in 1984 for $68,000 and held Parcel A for
investment purposes. During the current taxable year, ABC Corporation sold
Parcel A to Chris for $65,000 which amount was equal to the fair market value
of Parcel A. Shortly after receiving Parcel A, Chris sold Parcel A to his
friend from college for $73,000. How much gain or loss is realized and
recognized by the respective parties as a result of each of the sales?

A. ABC Corporation
realized a loss of $3,000 and recognized a loss of $3,000 on the distribution;
Chris realized a gain of $8,000 and recognized a gain of 8,000 on the sale.

B. ABC Corporation
realized a loss of $3,000 and recognized a loss of 3,000 on the distribution;
Chris realized a gain of $5,000 and recognized a gain of $5,000.

C. ABC Corporation
realized a loss of $3,000 and recognized a loss of 0; Chris realized a gain of
$8,000 and recognized a gain of $5,000.

D. ABC Corporation
realized a loss of $3,000 and recognized a loss of 0; Chris realized a gain of
$5,000 and recognized a gain of$5,000.

Question 2

For the current taxable year, HIJ Inc. had gross receipts
from operations of $230,000, operating and other expenses of $310,000, and
$120,000 of dividends that it received from a 45 percent-owned domestic
corporation. For the current taxable year, HIJ Inc. has taxable income or a net
operating loss of what amount?

A. $8,000 taxable
income.

B. $40,000 taxable
income.

C. $56,000 net
operating loss. Verified

D. $80,000 net
operating loss.

Question 3

NOP Inc. had the following income and expenses during the
current taxable year. Its income from operations was $250,000, its expenses
from operations were $120,000, its dividends received (from a 30 percent-owned
corporation)) were $80,000, and it made cash charitable contributions of
$30,000

How much is NOP Inc.’s charitable contribution deduction for
the current taxable year?

A. $14,600.

B. $21,000.

C. $26,000.

D. $30,000.

Question 4

For the current taxable year, RST Inc.’s gross income from
operations was $1,000,000 and its expenses from operations were $1,500,000. RST
Inc. also received a $600,000 dividend from a 10 percent-owned corporation. How
much is RST Inc.’s dividends-received deduction?

A. 0.

B. $70,000.

C. $320,000.

D. $420,000.

Question 5

Books and Toys Corporation, a calendar year corporation, had
a net operating loss of $50,000 for 2011. Books and Toys Corporation made a
proper election to forego the carryback period. For 2012, Books and Toys
Corporation correctly deducted $40,000 of the 2011 loss. Books and Toys
Corporation will lose the remaining $10,000 of the loss if the loss cannot be
deducted by the end of which tax year?

A. 2018.

B. 2021.

C. 2026.

D. 2031.

Question 6

LMN Inc. liquidated. As part of the liquidation, one
shareholder, Larry, who owned 30 percent of the stock of LMN Inc., received as
a distribution in exchange for all of his stock in the corporation, inventory
worth $90,000 that had a basis to the corporation of $70,000. How much gain was
recognized by LMN Inc. as a result of this liquidating distribution and what
was the character of the gain?

A. $0 gain.

B. $20,000 capital
gain.

C. $20,000 ordinary
income.

D. $20,000 Section
1231 gain.

Question 7

Ben and John formed BCD Inc., a corporation, in 2012. Ben
received 80% of the voting common stock, the only class of stock and John
received the remaining 20% of the stock. In 2013, Ben transferred additional
property to BCD Inc. The property had an adjusted basis to Ben of $40,000 and a
fair market value of $50,000 on the date of the transfer. On the same day, and
in exchange for the property he transferred to BCD Inc., Ben received cash of
$15,000 and additional stock worth $35,000. How much gain was recognized by Ben
as a result of this transaction?

0.

$10,000.

C. $15,000.

D. $25,000.

Question 8

Sue transferred a building to her newly formed corporation,
RSTU Inc. The building had an adjusted basis to Sue of $75,000 and a fair
market value of $150,000 on the date of the transfer. The building was
encumbered by a mortgage of $100,000, which RSTU Inc. assumed. On the same day,
and in exchange for the building she transferred to RSTU Inc., Sue received 100
percent of RSTU Inc.’s only class of stock. The fair market value of the stock
at the date of transfer was $50,000. How much gain was recognized by Sue as a
result of this transaction?

A. 0.

B. $25,000.

C. $50,000.

D. $75,000.

Question 9

Bob created MNO Inc. several years ago and has owned all 10
outstanding shares of MNO Inc. since the creation of MNO Inc. The fair market
value of those shares is now $50,000. Bob’s friend, Lee, owns a building having
a fair market value of $80,000 and an adjusted basis to Lee of $20,000. The
building is encumbered by a $30,000 mortgage. Earlier this month, Bob and Lee
discussed Lee’s becoming involved in the business of MNO Inc., and as a result
of these discussions, Lee transferred the building to MNO Inc. and in exchange
for the building, MNO Inc. transferred to Lee 10 shares of authorized but not
previously issued stock of MNO Inc. After the transaction there were 20 shares
of stock issued and outstanding. How much gain was realized and recognized by Lee
as a result of this transaction?

A. $30,000 of gain
was realized and recognized.

B. $30,000 of gain
was realized,0 of which was recognized.

C. $60,000 of gain
was realized, $10,000 of which was recognized.

D. $60,000 of gain
was realized and recognized.

Question 10

Al owned all of the outstanding stock of ABC Corporation. Al
transferred a building, cash, and IBM stock to ABC Corporation. The adjusted
basis and the fair market value of the assets transferred to ABC Corporation,
and the amount remaining on the mortgage on the building transferred, were as
follows. A building was transferred by Al to ABC Corporation that had an
adjusted basis to Al of $20,000, a fair market value of $50,000, and a mortgage
of $40,000, that was assumed by the corporation, cash in the amount of $10,000 was
transferred, and IBM stock with an adjusted basis to Al of $15,000 and a fair
market value of $12,000. In exchange for the assets transferred to ABC
Corporation, Al received additional stock of ABC Corporation. How much gain did
Al recognize as a result of this transaction?

A. 0.

B. $10,000.

C. $20,000.

D. $27,000.

Question 11

Fact Pattern for Questions 11 and 12: Sandra owned a rental
apartment building in her sole name for four years. After her business advisors
suggested that she conduct her rental activity in corporate form, she promptly
transferred the apartment building to ABC Rental Corporation, a newly formed
corporation. Sandra received all of the stock of ABC Rental Corporation in
exchange for the apartment building. At the time of the transfer of the
apartment building to ABC Rental Corporation, Sandra’s adjusted basis in the
building was $50,000, the fair market value of the building was $150,000, the
building was subject to a mortgage of $70,000 which ABC Rental Corporation
assumed, and there was depreciation recapture potential of $12,000. Sandra
received stock of ABC Rental Corporation worth $80,000. As a result of the
transaction, how much gain was recognized by Sandra and what was the character
of the gain?

A. 0 gain.

B. $12,000 gain, all
of which was ordinary income.

C. $20,000 gain, at
least $12,000 of which was ordinary income.

D. $30,000 gain, at
least $12,000 of which was ordinary income.

Question 12

Fact Pattern for Questions 11 and 12: Sandra owned a rental
apartment building in her sole name for four years. After her business advisors
suggested that she conduct her rental activity in corporate form, she promptly
transferred the apartment building to ABC Rental Corporation, a newly formed
corporation. Sandra received all of the stock of ABC Rental Corporation in
exchange for the apartment building. At the time of the transfer of the
apartment building to ABC Rental Corporation, Sandra’s adjusted basis in the
building was $50,000, the fair market value of the building was $150,000, the
building was subject to a mortgage of $70,000 which ABC Rental Corporation
assumed, and there was depreciation recapture potential of $12,000. Sandra
received stock of ABC Rental Corporation worth $80,000. As a result of the
transaction, what is the corporation’s basis in the building?

A. $50,000.

B. $70,000.

C. $150,000.

D. $170,000.

Question 13

Larry formed Sleuth Corporation in order to incorporate the
detective agency business that he had been operating for several years as a
sole proprietorship. Larry transferred to Sleuth Corporation the detective
agency’s accounts receivable with an adjusted basis to Larry of $0 and a fair
market value of $6,000, and the office
condominium that Larry owned outright and from which he had operated the
detective agency that had an adjusted basis to Larry of $30,000, a fair market
value of $62,000, and as to which there
was a mortgage payable of $34,000, which was assumed by the corporation. Also transferred to the corporation were
accounts payable in the amount of $3,000.

In exchange for the assets transferred, Larry received 100
percent of the stock of the corporation. Which of the following statements
regarding the tax consequences of the transaction is accurate?

A. Larry recognized
$4,000 of his realized gain.

B. Larry recognized
$7,000 of his realized gain.

C. The corporation’s
basis in the condominium it received from Larry is $30,000.

D. Larry recognized
$6,000 of ordinary income upon the assignment of receivables.

Question 14

ABC Inc. had current earnings and profits of $50,000 when it
distributed to an individual shareholder land that the corporation held as an
investment. On the date the land was distributed, ABC Inc.’s adjusted basis in
the land was $10,000, the fair market value of the land was $50,000, and the
land was encumbered by a $30,000 mortgage, which liability was assumed by the
shareholder. There were no other
transactions that might affect ABC Inc.’s earnings and profits for the year.
What was the amount of ABC Inc.’s earning and profits at the end of the year?

A. $30,000.

B. $50,000.

C. $60,000.

D. $70,000.

Question 15

EFG Inc. distributed land to an individual shareholder in a
nonliquidating distribution. On the date the land was distributed, EFG Inc.’s
adjusted basis in the land was $20,000, the fair market value of the land was
$75,000, and the land was encumbered by a $35,000 mortgage, which liability was
assumed by the shareholder. The corporation’s earnings and profits were
$300,000 on the last day of the year in which the distribution was made after
taking into effect any impact of the distribution on the corporation’s earnings
and profits. As a result of the distribution, how much is the amount of
dividend income to the shareholder, and what is the shareholder’s basis in the
distributed property?

A. Dividend income
of $20,000 and basis of $20,000.

B. Dividend income
of $40,000 and basis of $20,000.

C. Dividend income
of $40,000 and basis of $40,000.

D. Dividend income
of $40,000 and basis of $75,000.

Question 16

XYZ Corporation distributed land Jim, its sole shareholder,
in a liquidating distribution. At the time of the distribution, the land had a
fair market value of $120,000 and XYZ Corporation’s adjusted basis in the land
was $100,000. The land was encumbered by a $140,000 mortgage, which mortgage
was assumed by the shareholder. How much gain did XYZ Corporation recognize as
a result of the distribution?

A. 0.

B. $20,000.

C. $40,000.

D. $100,000.

Question 17

FAS Inc. had one class of stock outstanding. The one class
of stock was owned 50 percent by Fred and 25 percent by each of Fred’s two
sons. In the current taxable year, FAS Inc. redeemed 25 percent of Fred’s 50
percent, and in exchange for the stock, FAS Inc. distributed to Fred a building
that had an adjusted basis to FAS Inc. of $10,000 and a fair market value of
$50,000. Assume that FAS Inc.’s current earnings and profits were $200,000,
there were no accumulated earnings and profits, and Fred’s total basis in his
stock before the redemption was $20,000. What is Fred’s basis in his remaining
stock after the redemption, and what is his basis in the building distributed
to him?

A. Stock basis:
$10,000; building basis: $10,000.

B. Stock basis: $10,000;
building basis: $50,000.

C. Stock basis:
$20,000; building basis: $10,000.

D. Stock basis:
$20,000; building basis: $50,000.

Question 18

A tract of land was distributed by MNO Inc. to its sole
shareholder, Martha, as a dividend. At the time of the distribution, MNO Inc.’s
adjusted basis in the land was $40,000, the fair market value of the land was
$80,000, and the land was encumbered by a $55,000 mortgage. Which of the
following statements is true?

A. The net adjustment to MNO Inc.’s earnings and profits is
an increase of $15,000, (the excess of
the liability over the adjusted basis in the land).

B. The net adjustment to MNO Inc.’s earnings and profits is
an increase of $40,000, (that is, equal to the amount of gain realized by the
corporation).

C. The corporation’s
realized gain of $40,000 is recognized to the extent of the $15,000, (the
excess of the liability over adjusted basis in the land).

D. The shareholder’s
basis in the land distributed by the corporation to the shareholder is $80,000,
(which is the fair market value of the land).

Question 19

XYZ Corporation distributed to its shareholders a total of
$30,000 in cash plus property that had a fair market value of $80,000 and a
basis of $60,000. The corporation’s earnings and profits were $100,000 on the
last day of the year in which the distribution was made after taking into
effect any impact of the distribution on the corporation’s earnings and
profits. How much was the total dividend income received by the shareholders as
a result of the distributions made by XYZ Corporation?

A. $50,000.

B. $90,000.

C. $100,000.

D. $110,000.

Question 20

MJJM Inc. has four equal shareholders who are unrelated.
Each shareholder owns 300 shares of the common stock of MJJM Inc. representing
all of the stock of MJJM Inc. During the taxable year, as part of a single
transaction, MJJM Inc. redeemed stock from three of the shareholders.
Specifically, MJJM Inc. redeemed 150 shares from Michael, 75 shares from
Joseph, and 40 shares from John. The redemption was substantially
disproportionate for:

A. Michael and
Joseph.

B. Michael and John.

C. Joseph only.

D. Michael only.

Question 21

Fact Pattern for Questions 21 and 22. EFG, Inc. is a
calendar year corporation. EFG, Inc. had current earnings and profits of
$100,000 and no accumulated earnings and profits when it distributed a total of $160,000, as a nonliquidating
distribution, to its two equal shareholders, Jane and Joe. On the date of the
cash distribution, Jane’s basis in her EFG, Inc. stock was $10,000 and Joe’s
basis in his EFG, Inc. stock was $35,000. How much is includible by Jane in her
gross income for the current taxable year with respect to the distribution to
her?

A. $50,000 dividend income and 0 capital gain.

B. $80,000 dividend income and 0 capital gain.

C. 0 dividend income
and $70,000 capital gain.

D. $50,000 dividend income and $20,000 capital gain.

Question 22

Fact Pattern for Questions 21 and 22. EFG, Inc. is a
calendar year corporation. EFG, Inc. had current earnings and profits of
$100,000 and no accumulated earnings and profits when it distributed a total of
$160,000 to its two equal shareholders, Jane and Joe. On the date of the cash
distribution, Jane’s basis in her EFG, Inc. stock was $10,000 and Joe’s basis
in his EFG, Inc. stock was $35,000. What is Joe’s adjusted basis in his EFG,
Inc. stock after the distribution?

A. $0.

B. $5,000.

C. $15,000.

D. $35,000.

Question 23

Mary received a liquidating distribution from ABC
Corporation as part of the redemption of all of the ABC Corporation’s stock and
the complete liquidation of ABC Corporation. Mary’s basis for her ABC
Corporation stock was $10,000. In exchange for her stock, Mary received a
payment of $15,000 and property that had an adjusted basis to ABC Corporation
of $10,000, a fair market value of $25,000, and that was encumbered by a $12,000
mortgage which Mary assumed. How much gain did Mary recognize as a result of
this transaction?

A. $3,000.

B. $18,000.

C. $30,000.

D. $42,000.

E. None of the
above.

Question 24

Ann and Irene form AIB Corporation transferring their
respective business assets to AIB Corporation. Ann exchanges her property with
a basis to Ann of $100,000 and fair market value of $400,000 for 200 shares in
AIB Corporation on March 1, 2009. Irene exchanges her property with a basis of
$140,000 and fair market value of $600,000 for 300 shares in AIB Corporation on
April 11, 2009. Bob transfers his property with a basis of $250,000 and fair
market value of $1,000,000 for 500 shares in AIB Corporation on May 15, 2011.
Bob’s transfer is not part of Ann and Irene’s plan to incorporate their
businesses. What gain, if any, will Bob recognize on the transfer?

A. $0.

B. $250,000.

C. $750,000.

D. $1,000,000.

Question 25

Tom and George form T and G Corporation. Tom transfers
machinery worth $100,000 with a basis to
Tom of $40,000, while George transfers land worth $90,000 with a basis to
George of $20,000 and services rendered in organizing the corporation worth
$10,000. Each is issued 25 shares in T and G Corporation. With respect to the
transfers:

A. Tom has no
recognized gain; George recognizes gain/income of $80,000.

B. Neither Tom nor
George recognizes gain or income.

C. T and G
Corporation has a basis of $30,000 in the land.

D. George has a basis
of $30,000 in the shares of T & G Corporation.

Question 26

The stock of Kenny Corp. is owned equally by two brothers.
During 2008, they transferred land (which had a basis of $300,000 and a fair
market value of $320,000) as a contribution to capital to Kenny Corp. During
September, 2013, Kenny Corp. adopted a plan of complete liquidation and
subsequently made a pro rata distribution of land back to the brothers. At the
time of the liquidating distribution, the land had a fair market value of
$180,000. What amount of loss can be recognized by Kenny Corp. on the distribution
of land?

A. $0.

B. $20,000.

C. $120,000.

D. $140,000.

Question 27

Henry, Emmy, and Frannie, unrelated individuals, own all of
the stock in New Corporation with earnings and profits of $1,200,000 as
follows: Henry own 1,300 shares; Emmy owns 400 shares; and Frannie owns 300
shares. New Corporation redeems 300 of Henry’s shares with a basis of $60,000
for $450,000. With respect to the distribution in redemption of the stock:

A. Henry has a
capital gain of $390,000.

B. Henry has
dividend income of $450,000.

C. Henry has
dividend income of $390,000.

D. Henry has a
capital gain of $450,000.

Question 28

Lucinda owns 1,100 shares of Old Corporation stock at a time
when Old Corporation has 2,000 shares of stock outstanding. The remaining
shareholders are unrelated to Lucinda. The corporation redeems 400 shares from
Lucinda. Does the transaction qualify as substantially disproportionate
redemption as to Lucinda?

A. We do not have
sufficient information.

B. No.

C. Yes.

D. This is not a
transaction that could qualify for sale or exchange treatment.

Question 29

Helen, Greg, and Wanda own the stock in HGW Corporation with
earnings and profits of $900,000 as follows: Helen, 600 shares; Greg, 400
shares; and Wanda, 1,000 shares. Greg is Helen’s son, and Wanda is Helen’s
sister. HGW Corporation redeems 400 of Helen’s shares with a basis of $55,000
for $240,000. Helen purchased the stock three years ago as an investment. With
respect to the stock redemption, Helen has:

A. Dividend income of $185,000.

B. Dividend income of $240,000.

C. Long-term capital gain of $185,000.

D. Long-term capital gain of $240,000.

Question 30

JKL Corporation has earnings and profits of $800,000 and has
1,000 shares of stock outstanding. That stock is held 550 shares by Anna and
450 shares by Ellen, who are unrelated individuals. JKL Corporation redeems 200
of Anna’s shares for $1,000 per share. Anna paid $300 per share for her JKL
Corporation stock nine years ago. Which of the following statements is correct
with respect to the stock redemption?

A. Anna has dividend
income of $200,000.

B. Anna has a
long-term capital gain of $140,000.

C. Anna’s basis in
her remaining 350 shares is $60,000.

D. JKL Corporation
reduces its E & P by $200,000.

Question 31

Evan transferred real estate to a corporation in a Code
Section 351 transaction. The real estate was a capital asset in Evan’s hands
and will also be a capital asset when held by the corporation. Evan’s basis in the real estate was $10,000
and the value of the real estate was $8,000 on the date of the transfer. If
Evan received $2,000 in cash and 100 shares of stock from the corporation in
exchange for the real estate, the resulting bases for Evan’s stock and the
corporations real estate are:

A. Evan’s stock basis
is $8,000; Corporation’s basis in the real estate is $8,000

B. Evan’s stock basis
is $10,000; Corporation’s basis in the real estate is $10,000

C. Evan’s stock basis
is $10,000; Corporation’s basis in the real estate is $8,000

D. Evan’s stock basis
is $6,000; Corporation’s basis in the real estate is $12,000

Question 32

MNOP, Inc. redeemed 100 shares of Julia’s shares. The
redemption did not satisfy all the requirements and thus was treated as a
dividend for tax purposes. Julia’s basis in the 100 shares redeemed:

A. Disappears forever.

B. Transfers to her remaining shares in MNOP Inc.

C. Reduces her dividend income by her adjusted basis in the
shares.

D. None of the above.

Question 33

Pursuant to a plan of corporate reorganization which
qualified as an A reorganization, Lou
received one share of stock of X
Corporation worth $65 and cash of $20 in exchange for a share of stock in Y
Corporation with a $95 basis to Lou. What is Lou’s recognized gain or loss on
this exchange?

A. 0.

B. $10 loss.

C. $10 gain.

D. $20 gain.

Question 34

Pursuant to a plan of corporate reorganization, Pat
exchanged 1,000 shares of Stream Corporation stock that she had purchased for
$60,000, for 1,200 shares of Creek Corporation voting stock having a fair
market value of $70,000, and $10,000 in cash. What is Pat’s recognized gain on
the exchange, and what is her basis in the Creek Corporation’s stock?

A. $10,000 gain;
$60,000 basis.

B. $10,000 gain;
$70,000 basis.

C. $20,000 gain;
$60,000 basis.

D. $20,000 gain;
$70,000 basis.

Question 35

Which of the following statements is true concerning all
types of tax-free corporate reorganizations?

A. Assets are
transferred from one corporation to another.

B. Stock is
exchanged between the shareholders of at least two corporations.

C. Liabilities that
are assumed when cash is also used as consideration will always be treated as
boot.

D. None of the above
statements is true.

Question 36

Dick, Bev and Mollie form Murphy Corporation. Dick transfers
land worth $80,000 (adjusted basis is $25,000) for 80 shares, Mollie transfers
$40,000 cash for 40 shares and Bev transfers equipment worth $40,000 (adjusted
basis is $16,000) and $40,000 of services for 80 shares. Bev’s tax consequences
are:

A. $64,000
recognized gain; basis in 80 shares of $80,000

B. $40,000
recognized gain; basis in 80 shares of $56,000

C. $24,000
recognized gain; basis in 80 shares of $40,000

D. $0
recognized gain; basis in 80 shares of $16,000

Question 37

Best Company, Inc. had gross receipts of $400,000, cost of
goods sold of $110,000, other expenses of $100,000 and a $90,000 net capital
loss. Its taxable income is:

A. $210,000.

B. $200,000.

C. $190,000.

D. $100,000.

Question 38

Smith owns 85 percent of Smith Sisters Company, Inc. On March 8, 2013, she contributed land to the
firm. Her adjusted basis in the land was $60,000 and its fair market value on
March 8 was $140,000. Smith did not receive anything in return for the
contribution. As a result of this transaction, Smith Sisters Company, Inc.
will:

A. recognize a gain of $80,000 and will take a basis in the
land of $80,000.

B. recognize a gain of $140,000 and will take a basis in the
land of $140,000.

C. not recognize a gain and will take a basis in the land of
$60,000.

D. not recognize a gain and will take a basis in the land of
$140,000.

Question 39

Jessica owns 60 percent of Hudson Company, Inc. The firm
needs some assets and all of the shareholders are considering contributing
assets in a prearranged plan that would qualify all of them for Code Section
351 treatment. There has been no
agreement among the parties as to the assets each would contribute, but it has
been agreed that the fair market value of the assets contributed by each of
them will be $150,000. Jessica is considering contributing 100 shares of XYZ
Company, Inc. stock. Her basis in the shares is $200,000 and their fair market
value is $150,000. Jessica is uncertain about the transaction. She is also
considering selling the shares and contributing
cash. Which of the following statements is correct?

A. If Jessica contributes the shares, then she will be able
to recognize a $50,000 loss.

B. If Jessica sells the shares to Hudson Company, Inc. then
she will be able to recognize $50,000 loss.

C. If Jessica sells the shares on a national stock exchange
and contributes $150,000 of cash to Hudson Company, Inc. she will be able to
recognize a $50,000 loss.

D. None of the above
is correct.

Question 40

A “C” corporation must do which of the following with
respect to its taxable year?

A. The corporation must select a calendar year.

B. The corporation must select a fiscal year if it has a
business reason for selection.

C. The corporation may select a calendar year or fiscal,
regardless of the reason for selection.

D. The corporation must select a year that is the same as
its major shareholders.

Question 41

Paula receives a liquidating distribution from Pell
Corporation as part of a redemption of all of its stock. Paula’s basis for her
Pell stock is $10,000. In exchange for her stock, Paula receives property with
an $8,000 basis and a $15,000 fair market value that is subject to a $2,000
mortgage, and also receives cash of $5,000. How much is Paula’s recognized
gain?

A. $12,000.

B. $10,000.

C. $8,000.

D. $0.

Question 42

Paula receives a liquidating distribution from Pell
Corporation. Paula’s basis for her Pell stock is $10,000. In exchange for her
stock, Paula receives real estate with an $8,000 basis and a $15,000 fair
market value that is subject to a $2,000 mortgage, and also receives cash of
$5,000. What is Paula’s basis in the
real estate she received?

A. $3,000.

B. $8,000.

C. $15,000.

D. $20,000.

Question 43

Ellen sells her Section 306 stock during the year for
$16,000. Her basis in the stock was $2,000. In 2006, when she received the
stock, its fair market value was $12,000 and the corporation’s earnings and
profits were $10,000. Assuming that Ellen retains her common stock, the result
of the sale is:

A. $14,000 ordinary (dividend) income.

B. $14,000 long-term capital gain.

C. $10,000 ordinary (dividend) income and $4,000 long- term
capital gain.

D. $12,000 ordinary (dividend) income and $2,000 long-term
capital gain.

Question 44

Babb Corporation owns 80 percent of Atley Corporation’s
stock and Linda owns the remaining 20 percent of Atley’s stock. Babb
Corporation’s basis for its Atley stock is $300,000 and Linda’s Atley stock has
a basis of $80,000. Pursuant to a plan of complete liquidation of Atley
Corporation, Babb Corporation receives property with a $400,000 adjusted basis
and a $480,000 fair market value, and Linda receives property with a $130,000
adjusted basis and a $120,000 fair market value. The bases of the properties to
Babb Corporation and Linda are:

A. Babb: $480,000; Linda: $120,000.

B. Babb: $400,000; Linda: $130,000.

C. Babb: $300,000; Linda: $80,000.

D. Babb: $400,000; Linda: $120,000.

Question 45

The following statements regarding a corporation’s
liquidating distribution of loss assets to shareholders are all false, except:

A. The liquidating corporation cannot recognize a loss on a
liquidating distribution.

B. A loss can be recognized on a subsidiary liquidating
distribution to which Code Section 332 applies.

C. The liquidating corporation cannot recognize a loss on a
distribution to a shareholder who is a “related taxpayer.”

D. The general rule is that all losses are realized and
recognized, subject to some exceptions.

Question 46

ABC Corporation made cash contributions of $35,000 to
charitable organizations in 2013. ABC Corporation had taxable income of $280,000 without taking
into account its charitable contributions for the taxable year ended December
31, 2013, but after deducting a dividends-received deduction of $34,000. What amount, if any, can ABC Corporation
deduct as charitable contributions for 2013?

A. $32,000

B. $31,400

C. $35,000

D. 0

Question 47

Jack transferred property with an adjusted basis of $45,000
to JKL Corporation. There was a $35,000 mortgage on the property. In exchange for the transferred property,
Jack received stock with a fair market value of $65,000 and $25,000 cash, and
the corporation assumed the liability on the property. How much gain is recognized by Jack?

A. $0

B. $20,000

C. $25,000

D. $35,000

Question 48

Jack transferred to JKL Corporation, real property that had
an adjusted basis to Jack of $45,000. There was a $35,000 mortgage on the
property. In exchange for the
transferred property, Jack received stock with a fair market value of $65,000
and $25,000 cash, and the corporation assumed the liability on the
property. What is Jack’s basis in the
stock he received?

A. $0

B. $20,000

C. $25,000

D. $45,000

Question 49

Jack transferred property with an adjusted basis of $45,000
to JKL Corporation. There was a $35,000 mortgage on the property. In exchange for the transferred property,
Jack received all of the stock of the corporation that had a fair market value
of $70,000 and cash of $25,000, and the corporation assumed the liability on
the property. What is JKL Corporations’ basis in the property
transferred to it by Jack?

A. $45,000

B. $65,000

C. $70,000

D. $90,000

Question 50

Jack and Jill each own one-half of the stock of JJ
Corporation, which corporation has earnings and profits of $15,000. JJ Corporation distributed to its two
shareholders property with a total fair market value of $24,000 and an adjusted
basis to the corporation of $24,000. The
amount taxable to each shareholder as a dividend is

A. $0

B. $7,500

C. $12,000

D. $15,000

Extra Credit (Maximum of 20 points).

The following 20 questions are extra credit. Each correct answer is worth one point.

You will not lose credit on the regular portion of Test One
for wrong answers on the extra credit portion.

The answer sheet for the extra credit is the second page of
the answer sheet for Test One.

If you choose to do the extra credit question, your answers
are due by 11 p.m. on May 17.

1. Future,
Inc. reported the following results for the year:

Net income per books $110,000

Federal income taxes 36,170

Life insurance proceeds on key employee 15,000

Tax-exempt interest income 13,000

Net capital loss
25,000

Future’s taxable income for the year was:

a. $123,170

b. $143,170

c. $72,000

d. $135,000

e. $107,000

2. Schedule
M-3 is used to reconcile:

a. uncertain
tax positions

b. U.S. GAAP
and IFRS differences

c. Schedule
M-1 and Schedule M-2 differences

d. Book income
and taxable income differences

3. Assume
corporate tax rates are a constant 35%. Elco started operations at the
beginning of this year. Its book income is $10 million and its taxable income
is $13 million. The difference will give rise to

a. deferred
tax liability of $1,050,000

b. deferred
tax asset of $1,050,000

c. income
taxes payable of $3,500,000

d. income tax
expense of $4,550,000

4. Which of
the following items are eligible for immediate expensing and 180-month
amortization?

(1.) Fee to CPA
to handle Subchapter S election

(2.)
Refreshments served at organizational meetings

(3.)
Underwriting commission

(4.) Legal fees
in connection with incorporation

(5.) Recording
fees upon transfer of assets to corporation

a. (2), (4),
and (5)

b. (1), (2), and (5)

c. (1), (2),
(3), (4), and (5)

d. (1), (2),
and (4)

5. When
comparing corporate and individual taxation the following statements are true,
except:

a. Individuals
have exemptions and a standard deduction, corporations do not.

b. Both types
of taxpayers have percentage limitations on the charitable contribution
deduction, coupled with a carryover of the excess contribution.

c. All
taxpayers may carry net operating losses back two years, forward 20.

d. Both
corporate and individual taxpayers may have a long-term capital loss
carryforward.

6. Algernon
transferred the following to his controlled corporation in exchange for stock:

Basis Value Amount Remaining on Mortgage

Building $20,000 $50,000

Mortgage on the building $40,000

Cash 10,000 10,000

IBM stock
15,000 12,000

Algernon must recognize a gain of:

a. $20,000

b. $0

c. $10,000

d. $27,000

7. Minerva,
Inc. has one class of stock, owned 20 percent by Mr. Peters, 20 percent by Mrs.
Peters, 15 percent by Mrs. Peters’s brother, 10 percent by Mr. & Mrs.
Peters’ grandchild, and 35 percent by an irrevocable trust with Mrs. Peters’
son from a previous marriage as

beneficiary. Mr. and Mrs. Peters own the following
percentage of Minerva, Inc. directly and constructively:

a. Mr. Peters: 50%; Mrs. Peters: 100%

b. Mr. Peters: 50%; Mrs. Peters: 85%

c. Mr. Peters: 65%; Mrs. Peters: 85%

d. Mr. Peters: 65%; Mrs. Peters: 100%

8. Harold owns
100 percent of Clawson Company. Clawson’s E&P is $500,000. Harold needs to
withdraw $100,000 from the company. Which of the following transactions might
be reclassified as a constructive (disguised) dividend?

a. $100,000
bonus; Harold’s compensation (before the bonus) is $350,000, relatively equal
to what other presidents of similarly sized companies earn.

b. $100,000 in
return for a promissory note from Harold, due upon demand but not having a
fixed due date.

c. $100,000 in
return for property Harold would lease to the corporation.

d. $100,000
gift from the corporation to Harold.

e. All of the
above.

9. Cookies
Corporation distributed land to its sole shareholder. On the date of
distribution, the land had a fair market value of $85,000 and an adjusted basis
to Cookies of $42,000. What is the amount of Cookies’ gain on the distribution?

a. $0

b. $42,000

c. $43,000

d. $85,000

10. Jennifer
owns 1,000 shares of Ernie Company. Her adjusted basis in the shares is
$100,000. Ernie Company has no earnings and profits. It made a cash
distribution to its shareholders, of which Jennifer received $60,000. The
result of this distribution to Jennifer is:

a. Jennifer
must recognize a $40,000 loss and has a zero basis in the stock

b. Jennifer
must recognize $60,000 dividend income and her basis in the stock does not
change

c. Jennifer
has no recognized gain or loss and her basis in the shares is reduced to
$40,000

d. None of the
above

11. Tugboats
Corporation, a calendar year corporation that began doing business on January
1, 2007, had $35,000 in accumulated earnings and profits on January 1, 2013.
Tugboats had an operating loss of $60,000 for the first six months of 2013, but
had $10,000 in earnings for the entire year. Tugboats made a distribution of
$25,000 cash to its stockholders on April 1, 2013. What is the amount of
Tugboat’s accumulated earnings and profits on

January 1, 2014?

a. $0

b. $10,000

c. $20,000

d. $45,000

12. Jones owns
100 percent of X Corporation. X Corporation’s overall marginal tax rate is 35
percent. Jones’ overall marginal tax rate is 30 percent. Jones needs $40,000
from the firm. The firm has decided that it either will declare a dividend of
$40,000 or will pay Jones a performance-based bonus of $40,000.

a. Overall, it
is best if the firm declares the dividend

b. Overall, it
is best if the firm pays a bonus

c. Overall,
both parties should be indifferent regarding what form the distribution takes

13. The Trap
Corporation liquidates. One shareholder, who owned 30 percent of the stock,
receives for the stock, inventory worth $90,000 with a basis of $70,000. Trap
Corporation will recognize:

a. $20,000 of
capital gain

b. $20,000 of
ordinary income

c. $20,000 of
Sec. 1231 gain

d. No gain

14. Mark
receives a liquidating distribution from Arosa Corporation as part of a
redemption of all of its stock. Mark’s basis for his Arosa stock is $10,000. In
exchange for his stock, Mark receives property with a $10,000 basis and a
$25,000 fair market value that is subject to a $12,000 mortgage, and also
receives cash of $15,000. What is Mark’s recognized gain?

a. $42,000

b. $30,000

c. $18,000

d. $3,000

15. Prime
Corporation liquidates its 80%-owned subsidiary, Bass Corp. Bass Corp.
distributes land to its minority shareholder, Shirley, who owns 20% of the Bass
Corp. stock. The land received by Shirley has a $55,000 FMV. The land was used
in Bass Corp.’s business and has an adjusted basis of $50,000 and is subject to
a $10,000 liability which is assumed by Shirley. Shirley’s basis in her stock
is $25,000. What gain will Shirley and Bass Corp.

recognize on the distribution of the land?

Shirley
Bass Corp.

a.
$20,000 gain
$ 0

b.
$20,000 gain
$ 5,000 gain

c.
$30,000 gain
$15,000 gain

d.
$30,000 gain
$ 5,000 gain

16. The
following statements about property distributions in complete liquidations with
liabilities in excess of fair market value are all false, except:

a. A loss may
be recognized.

b. The
shareholder receives a basis in the property equal to the amount of liability.

c. The
distributor recognizes gain equal to the excess of liabilities over basis.

d. Since liabilities exceed fair market
value, no depreciation recapture will occur.

17. The stock of
Hill Corp. is 60 percent owned by Joe and 40 percent owned by Joe’s brother,
Bob. During 2012, Bob transferred land (basis of $300,000; FMV of $320,000) as
a contribution to capital to Hill Corp. During March 2013, Hill Corp. adopted a
plan of liquidation and subsequently made a pro rata distribution of the land
back to the brothers. At the time of the liquidating distribution, the land had
a FMV of $160,000. What amount

of loss can be recognized by Hill Corp. on the distribution
of land?

a. $0

b. $16,000

c. $40,000

d. $60,000

18. Holly
Wreath, a shareholder in the acquired corporation, turned in 100 shares of
common stock with a basis of $4,200. In return she received voting convertible
preferred stock worth $4,700 and a debenture with a face value of $1,000 and a
value of $850. As a result, Holly must recognize a gain of:

a. $1,350

b. $850

c. $800

d. $0

19. The “solely
for voting stock” requirement in Type B reorganizations is met in all the
following cases, except:

a. The
acquiring corporation agrees to assume the acquired corporation’s shareholders’
expenses but only if directly related to the acquisition.

b. The
acquired corporation, on the eve of the acquisition, redeems five percent of
its shares for cash.

c. The
acquiring corporation pays cash in lieu of fractional shares resulting from the
stock for stock exchange.

d. The
acquiring corporation assumes the acquired corporation’s legal expenses
incurred in connection with the acquisition.

20. Kate owns
all the stock in Warbler Corporation. Kate has a basis of $25,000 in the
Warbler stock, which currently has a fair market value of $150,000. Warbler is
merged into Wren Corporation. Kate receives Wren preferred stock worth $100,000
and common stock worth $50,000. Kate recognizes a gain of:

a. $125,000

b. $100,000

c. $50,000

d. $0

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