Taxation Final Exam Review Newest 2026/2027
Questions and Correct Detailed Answers Already
Graded A+
A valuation allowance is recorded against a deferred tax asset when: - CORRECT
ANSWER-it is more likely than not that the deferred tax asset will not be realized
in the future.
Which of the following statements best describes "book equivalent of taxable
income" (BETI)? - CORRECT ANSWER-BETI is book income adjusted for all
permanent differences.
What confidence level must management have that a tax position will be
sustained on audit before it can recognize any portion of the related deferred tax
asset under ASC 740? - CORRECT ANSWER-More likely than not
Which statement best describes the concept of the "double taxation" of
corporation income? - CORRECT ANSWER-Corporate income is taxed when
earned by a C corporation and then a second time at the shareholder level when
distributed as a dividend.
,Which of the following forms of earnings distributions would not be subject to
double taxation at the corporate and shareholder level? - CORRECT ANSWER-
Compensation paid to a shareholder or employee of the corporation.
Which of the following statements best describes the priority of the tax treatment
of a distribution from a corporation to a shareholder? - CORRECT ANSWER-
The distribution is a dividend to the extent of the corporation's E&P, then a return
of capital, and finally gain from sale of stock.
Which of the following statements best describes current E&P? - CORRECT
ANSWER-Current E&P is an ill-defined tax concept in the Internal Revenue Code
and represents a corporation's current-year economic income.
A calendar-year corporation has positive current E&P of $500 and a deficit in
accumulated E&P of ($1,200). The corporation makes a $400 distribution to its
sole shareholder. Which of the following statements is true? - CORRECT
ANSWER-The distribution will be a dividend because current E&P is positive and
exceeds the distribution.
A calendar-year corporation has deficit in current E&P of ($500) and positive
accumulated E&P of $1,000. The corporation makes a $600 distribution to its sole
shareholder. Which of the following statements is true? - CORRECT ANSWER-
, Up to $600 of the distribution could be a dividend depending on net E&P (current
plus accumulated E&P) on the date of the distribution.
Which of the following entities is not considered a flow-through entity? -
CORRECT ANSWER-None of the choices are correct. All are treated as flow-
through entities.
Dana and Mike decide to form their new motorcycle business as a LLC. Each will
receive an equal profits (loss) interest by contributing cash, property, or both. In
addition to the members' contributions, their LLC will obtain a $75,000
nonrecourse loan from First Bank at the time it is formed. Mike contributes cash
of $10,000 and a building he bought as a storefront for the motorcycles. The
building has a FMV of $65,000, an adjusted basis of $35,000, and is secured by a
$40,000 nonrecourse mortgage that the business LLC will assume. What is Mike's
outside tax basis in his LLC interest? - CORRECT ANSWER-$65,000
Andy is talking to his friend Bruce, who has an interest in Arlington, LLC, about
purchasing his LLC interest. Bruce's outside basis in Arlington, LLC is $21,000. This
includes his $5,000 one-fourth share of the LLC's debt. Bruce's 704(b) capital
account is $25,000. If Andy bought Bruce's LLC interest for $18,000, what would
Andy's outside basis be in Arlington, LLC? - CORRECT ANSWER-$23,000
Questions and Correct Detailed Answers Already
Graded A+
A valuation allowance is recorded against a deferred tax asset when: - CORRECT
ANSWER-it is more likely than not that the deferred tax asset will not be realized
in the future.
Which of the following statements best describes "book equivalent of taxable
income" (BETI)? - CORRECT ANSWER-BETI is book income adjusted for all
permanent differences.
What confidence level must management have that a tax position will be
sustained on audit before it can recognize any portion of the related deferred tax
asset under ASC 740? - CORRECT ANSWER-More likely than not
Which statement best describes the concept of the "double taxation" of
corporation income? - CORRECT ANSWER-Corporate income is taxed when
earned by a C corporation and then a second time at the shareholder level when
distributed as a dividend.
,Which of the following forms of earnings distributions would not be subject to
double taxation at the corporate and shareholder level? - CORRECT ANSWER-
Compensation paid to a shareholder or employee of the corporation.
Which of the following statements best describes the priority of the tax treatment
of a distribution from a corporation to a shareholder? - CORRECT ANSWER-
The distribution is a dividend to the extent of the corporation's E&P, then a return
of capital, and finally gain from sale of stock.
Which of the following statements best describes current E&P? - CORRECT
ANSWER-Current E&P is an ill-defined tax concept in the Internal Revenue Code
and represents a corporation's current-year economic income.
A calendar-year corporation has positive current E&P of $500 and a deficit in
accumulated E&P of ($1,200). The corporation makes a $400 distribution to its
sole shareholder. Which of the following statements is true? - CORRECT
ANSWER-The distribution will be a dividend because current E&P is positive and
exceeds the distribution.
A calendar-year corporation has deficit in current E&P of ($500) and positive
accumulated E&P of $1,000. The corporation makes a $600 distribution to its sole
shareholder. Which of the following statements is true? - CORRECT ANSWER-
, Up to $600 of the distribution could be a dividend depending on net E&P (current
plus accumulated E&P) on the date of the distribution.
Which of the following entities is not considered a flow-through entity? -
CORRECT ANSWER-None of the choices are correct. All are treated as flow-
through entities.
Dana and Mike decide to form their new motorcycle business as a LLC. Each will
receive an equal profits (loss) interest by contributing cash, property, or both. In
addition to the members' contributions, their LLC will obtain a $75,000
nonrecourse loan from First Bank at the time it is formed. Mike contributes cash
of $10,000 and a building he bought as a storefront for the motorcycles. The
building has a FMV of $65,000, an adjusted basis of $35,000, and is secured by a
$40,000 nonrecourse mortgage that the business LLC will assume. What is Mike's
outside tax basis in his LLC interest? - CORRECT ANSWER-$65,000
Andy is talking to his friend Bruce, who has an interest in Arlington, LLC, about
purchasing his LLC interest. Bruce's outside basis in Arlington, LLC is $21,000. This
includes his $5,000 one-fourth share of the LLC's debt. Bruce's 704(b) capital
account is $25,000. If Andy bought Bruce's LLC interest for $18,000, what would
Andy's outside basis be in Arlington, LLC? - CORRECT ANSWER-$23,000
