Cannon Trust School I — Spring 2026 Exam Prep Miscellaneous High-Volume Certifications Exam Ready - Verified Questions And Answers - Comprehensive Latest Version

CANNON TRUST SCHOOL I — SPRING 2026 EXAM PREP MISCELLANEOUS
HIGH-VOLUME CERTIFICATIONS EXAM READY - VERIFIED QUESTIONS AND
ANSWERS - COMPREHENSIVE LATEST VERSION




CANNON TRUST
School 1 — Spring 2026 Exam Prep
Miscellaneous High-Volume Certifications
300 Questions & Answers

1. Which of the following is an income tax benefit of a partnership form of business
ownership?
A. Ordinary losses pass through to the partners.
B. Income is taxed to the partnership.
C. Partnership income is taxed in the year of receipt rather than on the fiscal year of
the partnership.
D. Retained earnings defer income recognition.
✓ ANSWER: A. Ordinary losses pass through to the partners.
2. Your client has invested $100,000 in a limited partnership. The limited
partnership later has a problem and is assessed a claim of $1,000,000. What is your
client's maximum financial exposure to the claim?
A. $0
B. $100,000
C. $1,000,000
D. Unlimited
✓ ANSWER: B. $100,000
3. Which of the following is a business valuation freeze technique for wealth
planning purposes?
A. Employee stock ownership plan (ESOP)
B. S-corporation election

, C. Family limited partnership (FLP)
D. Installment sale
✓ ANSWER: D. Installment sale
4. Which of the following statements about S corporations is CORRECT?
A. S corporations may have an unlimited number of shareholders.
B. S corporations are subject to double taxation.
C. S corporation income passes through to shareholders and is taxed at their individual
rates.
D. S corporations may have both common and preferred stock.
✓ ANSWER: C. S corporation income passes through to shareholders and is
taxed at their individual rates.
5. A general partner in a limited partnership has what type of liability?
A. Limited to the amount invested
B. Limited to twice the amount invested
C. Unlimited personal liability
D. No liability
✓ ANSWER: C. Unlimited personal liability
6. Which business entity provides limited liability for all owners while allowing pass-
through taxation?
A. General partnership
B. C corporation
C. Limited liability company (LLC)
D. Sole proprietorship
✓ ANSWER: C. Limited liability company (LLC)
7. Which of the following is NOT a characteristic of a C corporation?
A. Double taxation of dividends
B. Unlimited number of shareholders
C. Pass-through taxation
D. Perpetual existence
✓ ANSWER: C. Pass-through taxation
8. In a family limited partnership (FLP), the primary estate planning benefit is:
A. Elimination of all estate taxes
B. Valuation discounts on transferred interests
C. Deferral of capital gains indefinitely

, D. Conversion of ordinary income to capital gains
✓ ANSWER: B. Valuation discounts on transferred interests
9. Which of the following best describes a sole proprietorship?
A. Separate legal entity from its owner
B. Provides limited liability protection
C. The simplest form of business with no legal separation from owner
D. Subject to double taxation
✓ ANSWER: C. The simplest form of business with no legal separation from
owner
10. A limited partner's losses are generally limited to:
A. The partner's basis in the partnership
B. Twice the partner's basis
C. The entire partnership loss
D. Zero — limited partners cannot deduct losses
✓ ANSWER: A. The partner's basis in the partnership
11. Which of the following is a disadvantage of forming a C corporation?
A. Limited liability
B. Double taxation on dividends
C. Perpetual existence
D. Ability to raise capital through stock issuance
✓ ANSWER: B. Double taxation on dividends
12. How many shareholders may an S corporation have?
A. Up to 25
B. Up to 50
C. Up to 100
D. Unlimited
✓ ANSWER: C. Up to 100
13. Which entity type is typically used for professional practices such as law or
medicine to provide some liability protection?
A. General partnership
B. Professional corporation (PC) or PLLC
C. Sole proprietorship
D. C corporation
✓ ANSWER: B. Professional corporation (PC) or PLLC

, 14. In a limited partnership, who manages the day-to-day operations?
A. Limited partners
B. General partner
C. Board of directors
D. All partners equally
✓ ANSWER: B. General partner
15. Which of the following is TRUE regarding partnership taxation?
A. The partnership pays tax on its income.
B. Losses cannot be allocated to partners.
C. The partnership files an informational return only (Form 1065).
D. Partners are not required to report their share of income.
✓ ANSWER: C. The partnership files an informational return only (Form 1065).
16. The annual gift tax exclusion per donee (as of recent law) allows a donor to give
up to what amount without gift tax consequences?
A. $10,000
B. $15,000
C. $17,000
D. $25,000
✓ ANSWER: C. $17,000
17. Which trust removes assets from the grantor's estate but allows the grantor to
receive income for life?
A. Revocable living trust
B. Charitable remainder trust (CRT)
C. Special needs trust
D. Testamentary trust
✓ ANSWER: B. Charitable remainder trust (CRT)
18. A bypass trust (credit shelter trust) is designed to:
A. Eliminate income taxes on the estate
B. Utilize the deceased spouse's estate tax exemption
C. Provide income only to charities
D. Defer all estate taxes indefinitely
✓ ANSWER: B. Utilize the deceased spouse's estate tax exemption
19. Which of the following describes a QTIP trust?
A. Provides income to a charity during the grantor's lifetime