FINANCE MISC Test 4 Study Guide Latest 2022/2023

FINANCE MISC Test 4 Study Guide Latest 2022/2023 1. On January 1 of the first year of operation, an investor paid $10,000 for a 20% interest in Biga, an S corporation. During the same year, Biga earned $10,000 taxable income and $2,000 tax-exempt interest. Biga paid dividends totaling $1,000 to its shareholders during the same year. What is the investor’s tax basis in the shares of Biga at the end of the year? $12,200 2. On January 1, 2019, Terry purchased 50% of Halt, an S corporation, for $150,000. At the end of 2019, Halt incurred an ordinary loss of $320,000. How much of the loss can Terry deduct on his personal income tax return for 2019? $150,000 3. Bob and Sally, unmarried taxpayers, each owned 50% of Lostalot, Inc., an S corporation. The corporation had a $50,000 operating loss for the tax year ending December 31, 2019. As of December 31, 2018, Bob’s basis in his stock was $15,000 and Sally’s was $5,000. During the 2019 tax year, Sally mortgaged her home for $25,000 and loaned the money to the corporation. Although not personally liable, Bob told her not to worry and that if anything happened, he would help pay the mortgage debt. Calculate the amount of allowable loss deduction each shareholder would be able to recognize on their individual 2019 tax returns. Bob: $15,000, and Sally: $25,000. 4. XYZ Corporation is a qualified S corporation. In 2019, its books and records reflected the following transactions: I. Business income $500,000 II. Real estate rental loss $(20,000) III. Interest income $5,000 IV. Salaries and wages $(50,000) V. Depreciation (without Section 179 expense) $(40,000) VI. Section 179 expense $(10,000) VII. Other business deductions $(300,000) What is XYZ’s ordinary income (loss) to be reported on its 2019 Form 1120S? $110,000 5. Scorpion Corporation filed its 2019 Form 1120S on April 16, 2020. Scorpion is a calendar-year taxpayer with 60 shareholders. What amount will Scorpion owe for failure to file on time? $24,600 6. A shareholder’s basis in the stock of an S corporation is increased by the shareholder’s pro rata share of income from Tax-Exempt Interest: YES Taxable Interest: YES 7. New Lots Corporation began business operations as an S corporation in 2016. New Lots files its 1120S returns on a calendar-year basis. The current year is 2019. The corporation’s taxable income and capital gains and losses for the years of operation are as follows: Capital gains $2,000 $6,000 $7,000 $4,000 Capital losse 0 0 0 (21,000) Taxable income (loss) 3,000 (12,000) 4,000 4,000 What is the amount of capital loss that is available to New Lots Corporation for carryback from 2019? None of the answers are correct. 8. You own 100% of Ricochet, Inc., an S corporation, filing returns on a calendar year. For tax year 2019, the corporation has an operating loss of $11,000 and separately stated tax-exempt income of $10,000. Your basis on January 1, 2019, is $2,000. What is the basis at the end of 2019? $1,000 9. Sabre Corporation filed its 2019 Form 1120S on January 4, 2021. Sabre is a calendar-year taxpayer with 80 shareholders. What amount will Sabre owe for failure to file on time? $164,000 10. Wanda owns 100% of S corporation, Milk Enterprises. At the beginning of 2019, she had a zero basis and an unused ordinary loss carry over from Milk Enterprises in the amount of $5,000. During the year, Wanda secured a bank loan of $10,000 on her personal residence and made a shareholder loan of that amount to Milk Enterprises. At the end of 2019, Milk Enterprises reported on its Schedule K a $1,000 ordinary loss and a $3,000 cash distribution made to Wanda. Wanda has $10,000 in flow-through reportable income from other S corporations. How much of Milk Enterprises’ ordinary loss can Wanda deduct on her personal return? $6,000 in loss. 11. Bobby owns 50% of Jingles, Inc., an S corporation filing tax returns on a calendar year. For tax year 2019, the corporation has an operating loss of $15,000 and separately stated tax-exempt income of $10,000. Bobby individually loans the corporation $4,000. His basis on January 1, 2019, is $2,000. What is his basis in the stock at year end 2019? $0 12. Foster’s RV Sales, Inc., is an S corporation with the following activity during 2019: I Gross sales of RV’s and campers $500,000 II. Operating expenses 300,000 III. Interest income 1,000 IV. Charitable contributions 3,000