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Exam 13: Choice of Business Entity - General Tax and Nontax Factorsformation

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Question 51

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Which of the following is/are correct with respect to limited liability companies (LLCs) ? I.An advantage of an LLC when compared to a regular corporation is the ability to pass through tax attributes to owners. II.A disadvantage of a general partnership when compared with an LLC is the inability of owners to have limited liability.

A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.

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Question 52

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Which of the following will render a corporation ineligible for S corporation status? I.The corporation has 125 stockholders. II.One of the stockholders is another corporation.

A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.

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Question 53

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Corporations generally are required to use the accrual method of accounting.

Milo contributes a building with a fair market value of $400,000 to a new partnership in exchange for a 25% interest.His adjusted basis in the building is $125,000,which is subject to a $100,000 mortgage.The partnership assumes the mortgage.What is Milo's basis in his partnership interest?

Corporations can use a 52- to 53-week fiscal year end,but the year must end on Saturday each year.

Nontax characteristics that should be considered in choosing an entity form include which of the following? I.Number of owners. II.Limited liability for owners. III.Ability to participate in management. IV.Transferability of ownership interests.

Which of the following statements is (are) correct? I.Refiner Group, Inc. must use a calendar year. II.Refiner Group, Inc. may elect to use a fiscal year ending January 31. a.Only statement I is correct. b.Only statement II is correct. c.Both statements are correct. d.Neither statement is correct. -Which of the following businesses can use the cash method? I.The Donner Group,a partnership with 3 equal partners,of which one is The Garden Corporation.Average revenues for the Donner Group,a consulting firm,over the last three years are $4,000,000. II.The Mongoose Corporation,a computer software consultant that has average annual fees from services over the last three years are $2,100,000.

As a limited partner in Technonics,Ltd.,Dave is allowed to participate in the management of the business.

Monica acquires a 25% interest in Terrapin Partnership during 2012 by contributing land with a fair market value of $35,000,an adjusted basis of $18,000,and subject to a mortgage of $12,000.The partnership assumes the mortgage.What is Monica's adjusted basis in her partnership interest? Discuss how you arrived at that adjusted basis amount,and the underlying reasoning behind the rules you applied.

A limited partner I.Can lose any or all of their investment in the partnership. II.Can participate in the management of the partnership.

Julian and Tanya each contribute $50,000 cash to form the M&T Partnership on January 4,2013.Julian and Tanya share profits and losses in the ratio of 60% and 40%,respectively.During 2013,the partnership generates ordinary income of $80,000.A cash distribution of $5,000 is made to Julian in December 2013.How much income must Julian recognize from the partnership in 2013?

Once a corporation is formed,an exchange of the corporation's stock for property is always a nontaxable event.

Santana Corporation operates a golf shop.It properly elected Subchapter S status on March 1 of the current year.Taxable income for the current year is $120,000.What is Santana Corporation's income tax liability?

Limited liability refers to

Paris is a CPA and a partner in a small firm.To limit her liability from the negligence or misconduct of her partners,they can form the firm as a Limited Liability Partnership.

There must be at least one member of a Limited Liability Company who is personally liable for the debts of the business.

S corporation status is attained when a qualifying corporation elects this status.

Discuss what limited liability means.What type of entity (or entities)offers this characteristic to its owners? What type(s)of entity (or entities)do not provide this characteristic?

Rosen Group has a company health-care plan for all employees.Will,an employee,owns 10% of Rosen.The cost to Rosen for Will's health plan is $2,500.What amount must Will report as income if Rosen is a $\begin{array}{ll}\underline {\text { Corporation} } & \underline {\text { Partnership }} \\a.\$ 2,500 & \$ 2,500 \\b.\$-0- & \$-0- \\c.\$-0- & \$ 2,500 \\d.\$ 2,500 & \$-0-\end{array}$

Match each statement with the correct term below. -Limited Liability Partnership