ACC 318 FINAL EXAM S-Corps and Partnerships || with Error-
free Answers.
What is a C Corporation? correct answers It is an entity that is taxed when income is earned
What is a S Corporation? correct answers It is a pass thru entity and the income is earned by the
corporation but passes thru the corporation to the shareholders
T/F: S and C Corporations are taxed the same way for federal income tax purposes. correct
answers False
T/F: S and C Corporations are not taxed the same way for federal income tax purposes. correct
answers True
How are personal service corporations treated by the Internal Revenue Code? correct answers
Taxed at 21%
What is the tax advantage of operating as a S Corporation? correct answers It avoids double
taxation
How is the S corporation taxed? correct answers It is not taxed at the corporate level but rather at
a shareholder level
How are shareholders of a S corporation taxed? correct answers The income and losses of the
corporation pass thru to the shareholders where they are taxes on that income respective to their
percentage received relative to the percentage of the company they own
Black Corporation is owned fully owned by Sally. Black Corp. is an S corporation and had
$100,000 of income. What amount of that income is Black Corporation responsible for pay taxes
on? correct answers None
,Black Corporation is owned fully owned by Sally. Black Corp. is an S corporation and had
$100,000 of income. What amount of that income is Sally responsible for pay taxes on? correct
answers All of it
What is the limit of the number of shareholders an S corporation can have? correct answers 100
How are married couples treated for purposes of the 100 shareholder limit for S corporations?
correct answers They are treated as one shareholder
PBJ Corporation has 99 shareholders. Mr. Jones becomes a 1% shareholder in the corporation.
Mrs. Jones, Mr. Jones's wife, also becomes a 1% shareholder. PBJ is an S corporation. How
many shareholders does the company have after both Mr. and Mrs. Jones purchase stock? correct
answers 100
PBJ Corporation has 99 shareholders. Mr. Jones becomes a 1% shareholder in the corporation.
Mrs. Jones, Mr. Jones's wife, also becomes a 1% shareholder. PBJ is an S corporation. Three
years later Mr. and Mrs. Jones got divorced but both are keeping their shares of the company
How many shareholders does the company have after both Mr. and Mrs. Jones divorce? correct
answers 101
Can a corporation own stock in an S Corportion? correct answers Partnerships and C
corporations may not own stock in a S corporation. Only certain individuals, estates, or trusts,
can own stock in an S corporation. A S corp. can own stock in another S corp. if it own 100%.
How many classes of stock may an S corporation have? correct answers 1 class of stock
Are differences in common stock voting rights considered a second class of stock? correct
answers No
Is there any limitation upon the shareholder's deduction of pass-through of losses? correct
answers You can deduct your losses to the extent you have basis
, What effect does the shareholder's guarantee of corporate debt have upon his shareholder?
correct answers The guarantee of a note does not increase stock basis
What are the two sources of income for S shareholders? correct answers 1) Flow-through of
income not distributed
2) Distriution
Are the distribution rules effected by whether the S corporation has earnings and profits? correct
answers Yes, it the S corp. used to be a C corp. then it has E&P and is subject to the rules under
1368 (c). If it was never a C corp. then it has no E&P it is subject to 1368 (b)
What is the LIFO recapture tax? correct answers A) A corporation using the LIFO method for
valuating its inventory in its last taxable year an S election becomes effective, must include in
taxable income for its last C corp. year an additional amount of tax.
B) This amount is called the LIFO recapture amount and equals the excess of the inventory's
value under FIFO over its actual LIFO amount as of the end of the corporations last C corp. year.
During a year when a S corporation trades ownership whether it be a person buying stock from
another or a new person acquiring part of the company how is the shareholder's share of the
company's income and loss allocated to the shareholders. correct answers It is allocated on a pro
rata basis. To make the calculations for ownership of stock for a fraction of the year you do the
following:
Per share per day method:
1) Assign an equal portion of such item to each day of the taxable year. (divide the item by the
number of days in the year).
2) Divide the daily amount for the item among all the shareholders based upon the numbers of
shares of stock outstanding on each day
3) Total the shareholder's daily amounts for the item
free Answers.
What is a C Corporation? correct answers It is an entity that is taxed when income is earned
What is a S Corporation? correct answers It is a pass thru entity and the income is earned by the
corporation but passes thru the corporation to the shareholders
T/F: S and C Corporations are taxed the same way for federal income tax purposes. correct
answers False
T/F: S and C Corporations are not taxed the same way for federal income tax purposes. correct
answers True
How are personal service corporations treated by the Internal Revenue Code? correct answers
Taxed at 21%
What is the tax advantage of operating as a S Corporation? correct answers It avoids double
taxation
How is the S corporation taxed? correct answers It is not taxed at the corporate level but rather at
a shareholder level
How are shareholders of a S corporation taxed? correct answers The income and losses of the
corporation pass thru to the shareholders where they are taxes on that income respective to their
percentage received relative to the percentage of the company they own
Black Corporation is owned fully owned by Sally. Black Corp. is an S corporation and had
$100,000 of income. What amount of that income is Black Corporation responsible for pay taxes
on? correct answers None
,Black Corporation is owned fully owned by Sally. Black Corp. is an S corporation and had
$100,000 of income. What amount of that income is Sally responsible for pay taxes on? correct
answers All of it
What is the limit of the number of shareholders an S corporation can have? correct answers 100
How are married couples treated for purposes of the 100 shareholder limit for S corporations?
correct answers They are treated as one shareholder
PBJ Corporation has 99 shareholders. Mr. Jones becomes a 1% shareholder in the corporation.
Mrs. Jones, Mr. Jones's wife, also becomes a 1% shareholder. PBJ is an S corporation. How
many shareholders does the company have after both Mr. and Mrs. Jones purchase stock? correct
answers 100
PBJ Corporation has 99 shareholders. Mr. Jones becomes a 1% shareholder in the corporation.
Mrs. Jones, Mr. Jones's wife, also becomes a 1% shareholder. PBJ is an S corporation. Three
years later Mr. and Mrs. Jones got divorced but both are keeping their shares of the company
How many shareholders does the company have after both Mr. and Mrs. Jones divorce? correct
answers 101
Can a corporation own stock in an S Corportion? correct answers Partnerships and C
corporations may not own stock in a S corporation. Only certain individuals, estates, or trusts,
can own stock in an S corporation. A S corp. can own stock in another S corp. if it own 100%.
How many classes of stock may an S corporation have? correct answers 1 class of stock
Are differences in common stock voting rights considered a second class of stock? correct
answers No
Is there any limitation upon the shareholder's deduction of pass-through of losses? correct
answers You can deduct your losses to the extent you have basis
, What effect does the shareholder's guarantee of corporate debt have upon his shareholder?
correct answers The guarantee of a note does not increase stock basis
What are the two sources of income for S shareholders? correct answers 1) Flow-through of
income not distributed
2) Distriution
Are the distribution rules effected by whether the S corporation has earnings and profits? correct
answers Yes, it the S corp. used to be a C corp. then it has E&P and is subject to the rules under
1368 (c). If it was never a C corp. then it has no E&P it is subject to 1368 (b)
What is the LIFO recapture tax? correct answers A) A corporation using the LIFO method for
valuating its inventory in its last taxable year an S election becomes effective, must include in
taxable income for its last C corp. year an additional amount of tax.
B) This amount is called the LIFO recapture amount and equals the excess of the inventory's
value under FIFO over its actual LIFO amount as of the end of the corporations last C corp. year.
During a year when a S corporation trades ownership whether it be a person buying stock from
another or a new person acquiring part of the company how is the shareholder's share of the
company's income and loss allocated to the shareholders. correct answers It is allocated on a pro
rata basis. To make the calculations for ownership of stock for a fraction of the year you do the
following:
Per share per day method:
1) Assign an equal portion of such item to each day of the taxable year. (divide the item by the
number of days in the year).
2) Divide the daily amount for the item among all the shareholders based upon the numbers of
shares of stock outstanding on each day
3) Total the shareholder's daily amounts for the item
