ACC 455 Final Exam

ACC 455 Final Exam 1) Which of following statements regarding proposed regulations is not correct? A. Proposed and temporary regulations are generally issued simultaneously. B. Proposed regulations do not provide any insight into IRS's interpretation of tax law. C. Proposed regulations expire after 3 years. D. Practitioners and other interested parties may comment on proposed regulations. 2) Regulations are A. presumed to be valid and to have almost same weight as IRC B. equal in authority to legislation if interpretative C. equal in authority to legislation D. equal in authority to legislation if statutory 3) Which of following courts is not a trial court for tax cases? A. U.S. Tax Court B. U.S. Court of Federal Claims C. U.S. Bankruptcy Court D. U.S. District Court 4) Which of following statements is incorrect? A. Limited partners' liability for partnership debt is limited to their amount of investment. B. In a general partnership, all partners have unlimited liability for partnership debts. C. In a limited partnership, all partners participate in managerial decision-making. D. All of statements are correct. 5) Which of following is an advantage of a sole proprietorship over other business forms? A. Low tax rates on dividends B. Ease of formation C. Tax-exempt treatment of fringe benefits D. deduction for compensation paid to owner 6) Which of following statements is correct? A. S shareholders are taxed on their proportionate share of earnings that are distributed. B. S shareholders are taxed on their proportionate share of earnings whether or not distributed. C. An owner of a C corporation is taxed on his or her proportionate share of earnings. D. S shareholders are only taxed on distributions. 7) Three members form an LLC in current year. Which of following statements is incorrect? A. LLC can elect to be taxed as a C corporation with no special tax consequences. B. If LLC elects to use its default classification, it can elect to change its status to being taxed as a C corporation beginning with third tax year after initial classification. C. LLC's default classification under check-the-box rules is as a partnership. D. LLC can elect to have its default classification ignored. 8) Identify which of following statements is true. A. Under check-the-box regulations, an LLC that has one member (owner) may be disregarded as an entity separate from its owner. B. An unincorporated business may not be taxed as a corporation. C. A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership) in its first year of operations. entity is prohibited from changing its tax classification at any time in future. D. All are false. 9) Identify which of following statements is true. A. check-the-box regulations permit an LLC to be taxed as a C corporation. B. Under check-the-box regulations, an LLC that has only two members (owners) default classification is as a partnership. C. Once an election is made to change its classification, an entity cannot change again for 60 months. D. All of statements are true. 10) Rose and Wayne form a new corporation. Rose contributes cash for 85% of stock and Wayne contributes services for 15% of stock. tax effect is A. Rose and Wayne are not required to recognize their realized gains. B. Wayne must report FMV of stock received as capital gain. C. Rose and Wayne must recognize their realized gains, if any. D. Wayne must report FMV of stock received as ordinary income. 11) Matt and Sheila form Krupp Corporation. Matt contributes property with a FMV of $55,000 and a basis of $35,000. Sheila contributes property with a FMV of $75,000 and a basis of $40,000. Matt sells his stock to Paul shortly after exchange. transaction will A. qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not B. qualify under Sec. 351 if Matt can show sale to Paul was not part of a prearranged plan C. not qualify under Sec. 351 D. qualify under Sec. 351 only if an advance ruling has been obtained 12) For Sec. 351 purposes term property does not include A. inventory B. accounts receivable C. cash D. services rendered 13) Identify which of following statements is true. A. In computing an NOL for current year, a deduction is allowed for NOLs from previous years. B. An election to forgo an NOL carryback must be made on or before return due date (including extensions) for year in which NOL is incurred. C. A corporate NOL can be carried back 2 years and forward 15 years. D. All are false. 14) A new corporation may generally select one of following accounting methods with exception of A. retail method B. accrual method C. cash method D. hybrid method 15) Identify which of following statements is false. A. A new corporation can elect a fiscal year that runs from February 16 to February 15 of following year. B. A fiscal year may not end on December 31. C. A corporation's fiscal year generally must end on last day of month. D. A corporation's first tax year may not cover a full 12-month period. 16) Edison Corporation is organized on July 31. corporation starts business on August 10. corporation adopts a November 30 fiscal year end. following expenses are incurred during year: Date Type Amount 6-30 Attorneys fees associated with obtaining charter $10,000 7-10 Underwriter fees for stock sale 25,000 7-15 Transfer cost for property contributed to corporation for stock 3,000 6-30 Costs of organizational meetings 2,000 12-6 Legal fees to modify charter 4,000. What is maximum amount of organizational expenditures that can be deducted by corporation for its first tax year ending November 30? A. $5,156 B. $12,000 C. $16,000 D. $800 17) Maxwell Corporation reports following results: Gross income from operations $ 90,000 Dividends received from 18%-owned domestic corporation 70,000 Expenses 100,000 Maxwell's dividends-received deduction is A. $56,000 B. $49,000 C. $42,000 D. $70,000 18) Island Corporation has following income and expense items for year. Gross receipts from sales $60,000 Dividends received from 15%-owned domestic corporation 40,000 Expenses connected with sales 30,000. taxable income of Island Corporation is A. $47,000 B. $70,000 C. $100,000 D. $42,000 19) Which of following is not an adjustment in calculating AMTI? A. Production activities deduction B. regular tax NOL deduction C. Gain on installment sales of noninventory property D. difference between gains for AMTI and regular tax purposes 20) Tax-exempt interest income on state and local municipal bonds which are not a private activity is A. a negative adjustment in calculating alternative minimum taxable income (AMTI) B. a positive adjustment in calculating alternative minimum taxable income (AMTI) C. a tax preference item D. included in calculating ACE (adjusted current earnings) 21) Which of following statements about alternative minimum tax depreciation rules is correct? A. A 31.5-year recovery period is used when calculating commercial real property depreciation deduction for alternative minimum taxable income purposes. B. excess of gain reported on disposition of tangible personal property for income tax purposes over gain reported for alternative minimum tax purposes is a positive adjustment to taxable income in arriving at alternative minimum taxable income. C. MACRS depreciation rules are used to calculate depreciation deduction when calculating alternative minimum taxable income regardless of date property was placed in service. D. No depreciation adjustment is made when computing AMT for real property acquired after 1998. 22) Maxwell Corporation reports following results: Year Current E&P Distributions 2005 $6,000 $4,000 2006 5,000 1,000 2007 1,000 -0- Maxwell's dividends-received deduction is A. $5,000 B. $7,000 C. $0 D. $12,000 23) Grant Corporation sells land (a noninventory item) with a basis of $57,000 for $100,000. Nichole will be paid on an installment basis in five equal annual payments starting in current year. E&P for year of sale will be increased as a result of sale (excluding federal income taxes) by A. $43,000 B. $0 C. $8,600 D. $100,000 24) Identify which of following statements is false. A. At formation, a corporation's E&P depends on amount of capital contributed by shareholders. B. For E&P dividend distribution purposes, property as defined in Sec. 317(a) includes money. C. function of E&P is to provide a measure of a corporation's economic ability to pay dividends. D. Adjustments to taxable income when computing E&P do not include tax exempt interest. 25) Identify which of following statements is true. A. Section 179 property must be expensed ratably over a 5-year period when computing E&P. B. Losses on property sales to related parties are not deductible when computing E&P. C. Distributions made out of accumulated E&P are allocated ratably between multiple distributions made during tax year. D. All are false. 26) Identify which of following statements is true. A. If both current and accumulated E&P have deficit balances, a corporate distribution cannot be characterized as a dividend. B. shareholder's basis in property received in a non liquidating distribution is property's FMV reduced by liabilities assumed by shareholder. C. A corporation recognizes gain when distributing money as a dividend to its shareholders. D. All are false. 27) For purposes of determining current E&P, which of following items cannot be deducted in year incurred? A. Life insurance premiums (in excess of increase in cash surrender value for policy) paid on lives of key employees B. Charitable contribution in excess of 10% limitation C. Capital losses in excess of capital gains D. Dividends-received deduction 28) A corporation distributes land and related liability to Meg, its sole shareholder. land has a FMV of $60,000 and is subject to a liability of $70,000. corporation has current and accumulated E&P of $80,000. corporation's adjusted basis for property is $70,000. What effect does transaction have on corporation? A. No recognized gain or loss and its E&P is reduced by $60,000. B. A recognized loss of $10,000 and its E&P is reduced by $70,000. C. A recognized loss of $10,000 and its E&P is unchanged. D. No recognized gain or loss and its E&P is unchanged by distribution. 29) Hogg Corporation distributes $30,000 to its sole shareholder, Ima. At time of distribution, Hoggs' E&P is $14,000 and Ima's basis in her stock is $10,000. Ima's gain from this transaction is A. $20,000 capital gain B. $6,000 capital gain C. $14,000 capital gain D. $30,000 capital gain 30) One consequence of a property distribution by a corporation to a shareholder is A. shareholder's basis in distributed property is same as distributing corporation's basis B. amount of distribution is increased by any liability assumed by shareholder C. holding period of distributed property includes holding period of distributing corporation D. any liabilities assumed by shareholder do not reduce shareholder's basis 31) Which of following is not a reason for a stock redemption? A. Redemption of shares is a good corporate investment. B. desire by remaining shareholders to retain control C. desire by shareholders to reduce corporate tax liability D. No outside market exists for stock. 32) Elijah owns 20% of Park Corporation's single class of stock. Elijah's basis in stock is $8,000. Park's E&P is $28,000. If Park redeems all of Elijah's stock for $48,000, Elijah must report dividend income of A. $40,000 B. $0 C. $28,000 D. $48,000 33) Which of following is not a condition that permits a stock redemption to be treated as a sale? A. redemption is substantially disproportionate. B. It provides funds for payment of income taxes. C. It is not essentially equivalent to a dividend. D. redemption completely terminates shareholder's interest. 34) Identify which of following statements is true. A. Formation of a partnership requires legal documentation. B. An individual engaged in active conduct of a business must elect not to be taxed as a partnership. C. If two people (or business entities) work together to carry on any business or financial operation with intention of making a profit and sharing that profit as co-owners, a partnership exists for federal income tax purposes. D. All are false. 35) Identify which of following statements is true. A. A partnership can be an S corporation shareholder. B. A nonresident alien can be an S corporation shareholder. C. An S corporation can have more than 100 shareholders since families are treated as a single shareholder. D. All are false. 36) definition of a partnership does not include A. a syndicate B. a group C. a pool D. All are included 37) Which of following items is not separately stated for an S corporation? A. Section 1245 B. Short-term capital gain C. Dividend income D. Charitable contribution 38) Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at beginning of 2008. Tex and Shirley each own 50% of stock. Cactus does not make any distributions during 2008, but had $200,000 of ordinary income. In 2009, ordinary income was $100,000 and distributions were $100,000. What is Tex's ordinary income for 2008? . $100,000 B. $0 . $50,000 . $200,000 39) Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at beginning of 2008. Tex and Shirley each own 50% of stock. Cactus does not make any distributions during 2008, but had $200,000 of ordinary income. In 2009, ordinary income was $100,000 and distributions were $100,000. What is Tex's ordinary income for 2009? . $100,000 B. $0 . $50,000 . $200,000 40) On January 1, Helmut pays $2,000 for a 10% capital, profits and loss interest in a partnership, which has recourse liabilities of $20,000. partners share economic risk of loss from recourse liabilities in same way they share partnership losses. In same year, partnership incurs losses of $6,000 and recourse liabilities increase by $5,000. Helmut and partnership use a calendar tax year-end. Helmut's basis at year-end is . $2,000 B. $3,900 . $1,500 . $3,500 41) On January 2 of current year, Calloway and Taylor contribute cash equally to form CT Partnership. Calloway and Taylor share profits and losses in a ratio of 75% and 25%, respectively. partnership's ordinary income for year was $40,000. Calloway received a distribution of $5,000 during year. What is Calloway's share of taxable income for year? . $10,000 . $30,000 C. $5,000 . $20,000 42) On first day of partnership's tax year, Karen purchases a 50% interest in a general partnership or $30,000 cash and she materially participates in operation of partnership for entire year. partnership has $40,000 in recourse liabilities when Karen enters partnership. Partners share economic risk of loss from recourse liabilities in same way they share partnership losses. There is no minimum gain related to nonrecourse liability. During year partnership incurs a $120,000 loss and a $20,000 increase in liabilities. How much of loss can Karen report on her tax return for current year? A. $40,000 B. $60,000 C. $30,000 D. $50,000 43) total bases of all distributed property in partner's hands following a nonliquidating distribution is limited to A. FMV of property distributed B. predistribution FMV of partner's partnership interest C. partner's predistribution basis in his partnership interest D. partnership's bases in distributed property 44) Internal Revenue Code includes which of following assets in definition of Sec. 751 properties? A. Cash . Sec. 1231 assets . Inventory, which is substantially appreciated . Capital assets 45) Identify which of following statements is true. A. If a partner sells property received in a partnership distribution for a gain and property was inventory in hands of distributing partnership, partner will always recognize ordinary income. B. primary purpose of Sec. 751 is to prevent partnerships from converting capital gains into ordinary income. C. Unrealized receivables include rights to payments on sale of a capital asset. D. All are false. 46) Which of following conditions will not cause an S election to be terminated? A. Creating a second class of stock having a dividend preference . Failing to file a timely tax return . Exceeding 100 shareholder limit . Selecting an improper tax year 47) Identify which of following statements is true. A. All of shareholders of an S corporation must consent to a revocation of S election. B. A revocation of an S corporation election can be retrospective to any date. . An S election will not be terminated due to excess passive income if corporation does not have ubchapter C E&P. . All are true. 48) Identify which of following statements is false. . If termination of an S election is considered to be inadvertent, then election is permitted to continue in place as if termination had never occurred. . A corporation can obtain relief for a late S election if IRS consents. C. A C corporation short year income tax liability must be determined on an annualized asis. . If an S election is terminated and termination is not considered to be inadvertent, a 10-tax-year aiting period is required before making a new election. 1. Audiences can be measured according to _______________, which is number of physical units arrying advertising. a.) irculation b.) lighting c.) effective audience d.) effective ad-exposed audience e.) continuity 2. Audience size can be measured according to how many people with right target characteristics are exposed to ad. This is called _____________. a.) circulation b.) audience c.) effective audience d.) effective ad-exposed audience e.) bottom-line measure 3. If a 30-second advertisement during an old Seinfeld rerun costs $160,000 and reaches 8,000,000 people, cost per thousand for a Coca-Cola ad would be _______________. a.) $2.00 b.) $5.00 c.) $12.50 d.) $15.00 e.) $20.00 4. The media timing pattern in which advertising is run evenly throughout a given period is called _______________. a.) flighting b.) concentration c.) pulsing d.) bursting e.) continuity 5. A Thai restaurant buys an ad in every issue of its small town’s weekly newspaper, and two lunchtime ads every day on local radio station. owner has used this pattern of advertising for many years. Which of following terms best describes Thai restaurant’s media timing? a.) flighting b.) concentration c.) pulsing d.) bursting e.) continuity 6. Which of following calls for spending all of advertising dollars in a single period? a.) bursting b.) continuity c.) pulsing d.) concentration e.) flighting 7. An advertiser on a limited budget that schedules media so that a heavy dose of advertising is followed by a period of no advertising is using a pattern called _______________. a.) bursting b.) continuity c.) pulsing d.) concentration e.) flighting 8. __________ is a media timing approach that involves continuous advertising at low-weight levels, reinforced periodically by waves of heavier activity. a.) Bursting b.) Continuity c.) Pulsing d.) Concentration e.) Flighting 9. _______________ is a key ingredient in many marketing campaigns and consists of a diverse collection of incentive tools, mostly short term, designed to stimulate trial, or quicker or greater purchase, of particular products or services by consumers or trade. a.) Advertising b.) Public relations c.) Sales promotion d.) Personal selling e.) Market segmentation