ACC 334 Exam - Questions and Answers 2022, CHAPTER 2 REVIEW

ACC 334 Exam - Questions and Answers 2022, CHAPTER 2 REVIEW. Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2013. Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year. The corporation distributed $45,000 to Juanita, and the partnership distributed $45,000 to Carlos. Which of the following statements relating to 2013 is incorrect? a. Juanita must report $120,000 of income from the corporation. b. The corporation must pay corporate tax on $200,000 of income. c. Carlos must report $120,000 of income from the partnership. d. The partnership is not subject to a Federal entity-level income tax. e. None of the above. RATIONALE: Shareholders of C corporations report the dividends received from the corporation during the year. Thus, Juanita must report $45,000 of income from the corporation. The other statements are correct. 2. Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2013. He also owns 60% of the stock in a C corporation that earned $150,000 during the year. The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn. How much income must Bjorn report from these businesses? a. $0 income from the S corporation and $30,000 income from the C corporation. b. $30,000 income from the S corporation and $30,000 of dividend income from the C corporation. c. $90,000 income from the S corporation and $0 income from the C corporation. d. $90,000 income from the S corporation and $30,000 income from the C corporation. e. None of the above. RATIONALE: Bjorn must report his $90,000 share ($150,000 × 60%) of the S corporation’s income on his individual tax return. He will report $30,000 of dividend income from the C corporation. 3. Rachel is the sole member of an LLC, and Jordan is the sole shareholder of a C corporation. Both businesses were started in the current year, and each business has a long-term capital gain of $10,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is correct? a. The C corporation receives a preferential tax rate on the LTCG of $10,000. b. The LLC must pay corporate tax on taxable income of $10,000. c. Jordan must report $10,000 of LTCG on his tax return. d. Rachel must report $10,000 of LTCG on her tax return. e. None of the above. RATIONALE: Under the default rules of the check-the-box Regulations, a single-member LLC is treated as a proprietorship for Federal tax purposes. As such, Rachel reports the $10,000 LTCG on her tax return (Form 1040). A C corporation does not receive preferential tax rate treatment on LTCG (option a.). The LLC is ignored for Federal income tax purposes and its income, gains, deductions, and losses are reported as a proprietorship, not as a corporation (option b.). A C corporation is a separate taxpaying entity (Form 1120) and income of a C corporation is not taxed to its shareholders until distributed as dividends (option c.). This study source was downloaded by from CourseH on :28:01 GMT -06:00 4. Norma formed Hyacinth Enterprises, a proprietorship, in 2014. In its first year, Hyacinth had operating income of $400,000 and operating expenses of $240,000. In addition, Hyacinth had a long-term capital loss of $10,000. Norma, the proprietor of Hyacinth Enterprises, withdrew $75,000 from Hyacinth during the year. Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2014? a. Increases Norma’s taxable income by $157,000 ($160,000 ordinary business income – $3,000 longterm capital loss). b. Increases Norma’s taxable income by $150,000 ($160,000 ordinary business income – $10,000 longterm capital loss). c. Increases Norma’s taxable income by $75,000. d. Increases Norma’s taxable income by $160,000. e. None of the above. RATIONALE: A proprietorship is not a separate taxable entity. As a proprietor, Norma reports profit or loss from Hyacinth on her individual return. Norma’s taxable income for 2014 will be increased by $157,000 ($400,000 – $240,000 = $160,000 net ordinary business income – $3,000 capital loss deduction). The $75,000 she withdrew from Hyacinth has no effect on her taxable income. We offer online tutoring, help with assignments and essay writing for all Majors with a guaranteed pass. For assistance Contact Tutor Lucas: