ACCT 616
Individual and Pass-through
Taxation
MIDTERM EXAM REVIEW
©LU 2024/2025
,1. Multiple Choice: Which of the following is not a characteristic of
a pass-through entity?
a) Avoidance of double taxation
b) Ability to pass losses to owners
c) Unlimited liability for all members
d) Flow-through of income and expenses to owners
Answer: c) Unlimited liability for all members
Rationale: Pass-through entities typically provide limited liability
to their members, which means that they are not personally
responsible for the business debts and liabilities of the entity.
2. Fill-in-the-Blank: The ________ method is used to allocate non-
separately stated income and expenses among partners in a
partnership.
Answer: Interim Closing of the Books
Rationale: The Interim Closing of the Books method is one of
the methods used to allocate non-separately stated items among
partners, especially when there are changes in ownership during the
year.
3. True/False: A single-member LLC is taxed as a corporation by
default.
©LU 2024/2025
, Answer: False
Rationale: A single-member LLC is disregarded for tax purposes
and is taxed as a sole proprietorship unless it elects to be taxed as a
corporation.
4. Multiple Response: Select all that apply. Which of the following
are requirements for an S corporation?
a) Must be a domestic corporation
b) Can have a maximum of 100 shareholders
c) Must have only one class of stock
d) Can have non-resident alien shareholders
Answers: a), b), c)
Rationale: S corporations must meet specific requirements,
including being a domestic corporation, having a maximum of 100
shareholders, and having only one class of stock. They cannot have
non-resident alien shareholders.
5. Multiple Choice: In the context of individual taxation, which of
the following is considered a 'below-the-line' deduction?
a) Standard deduction
b) Trade or business expenses
c) Alimony payments
d) Charitable contributions
©LU 2024/2025
, Answer: a) Standard deduction
Rationale: 'Below-the-line' deductions are those taken from
adjusted gross income to arrive at taxable income. The standard
deduction is a common below-the-line deduction.
6. Fill-in-the-Blank: The tax benefit rule requires that a refund of
an amount previously deducted should be included in income in
the year the refund is ________.
Answer: received
Rationale: The tax benefit rule states that if a taxpayer receives a
refund of an amount that was previously deducted and resulted in a
tax benefit, the refund should be included in income in the year it
is received.
7. True/False: The qualified business income deduction allows a
20% deduction on qualified business income for certain pass-
through entities.
Answer: True
Rationale: The qualified business income deduction, introduced
by the Tax Cuts and Jobs Act, allows eligible taxpayers to deduct
up to 20% of their qualified business income from certain pass-
through entities.
8. Multiple Response: Which of the following statements about
partnership taxation are true?
©LU 2024/2025
Individual and Pass-through
Taxation
MIDTERM EXAM REVIEW
©LU 2024/2025
,1. Multiple Choice: Which of the following is not a characteristic of
a pass-through entity?
a) Avoidance of double taxation
b) Ability to pass losses to owners
c) Unlimited liability for all members
d) Flow-through of income and expenses to owners
Answer: c) Unlimited liability for all members
Rationale: Pass-through entities typically provide limited liability
to their members, which means that they are not personally
responsible for the business debts and liabilities of the entity.
2. Fill-in-the-Blank: The ________ method is used to allocate non-
separately stated income and expenses among partners in a
partnership.
Answer: Interim Closing of the Books
Rationale: The Interim Closing of the Books method is one of
the methods used to allocate non-separately stated items among
partners, especially when there are changes in ownership during the
year.
3. True/False: A single-member LLC is taxed as a corporation by
default.
©LU 2024/2025
, Answer: False
Rationale: A single-member LLC is disregarded for tax purposes
and is taxed as a sole proprietorship unless it elects to be taxed as a
corporation.
4. Multiple Response: Select all that apply. Which of the following
are requirements for an S corporation?
a) Must be a domestic corporation
b) Can have a maximum of 100 shareholders
c) Must have only one class of stock
d) Can have non-resident alien shareholders
Answers: a), b), c)
Rationale: S corporations must meet specific requirements,
including being a domestic corporation, having a maximum of 100
shareholders, and having only one class of stock. They cannot have
non-resident alien shareholders.
5. Multiple Choice: In the context of individual taxation, which of
the following is considered a 'below-the-line' deduction?
a) Standard deduction
b) Trade or business expenses
c) Alimony payments
d) Charitable contributions
©LU 2024/2025
, Answer: a) Standard deduction
Rationale: 'Below-the-line' deductions are those taken from
adjusted gross income to arrive at taxable income. The standard
deduction is a common below-the-line deduction.
6. Fill-in-the-Blank: The tax benefit rule requires that a refund of
an amount previously deducted should be included in income in
the year the refund is ________.
Answer: received
Rationale: The tax benefit rule states that if a taxpayer receives a
refund of an amount that was previously deducted and resulted in a
tax benefit, the refund should be included in income in the year it
is received.
7. True/False: The qualified business income deduction allows a
20% deduction on qualified business income for certain pass-
through entities.
Answer: True
Rationale: The qualified business income deduction, introduced
by the Tax Cuts and Jobs Act, allows eligible taxpayers to deduct
up to 20% of their qualified business income from certain pass-
through entities.
8. Multiple Response: Which of the following statements about
partnership taxation are true?
©LU 2024/2025
