Complete ACC330 Test #2 Study
Guide: Key Topics Midterm &End Exam
Loretta is the sole shareholder of Country Collectibles, a calendar year S
corporation. Although Loretta spends at least 40 hours per week supervising Country
Collectible's employees, she has never drawn a salary from the business. Country
Collectibles has been in existence for five years and has earned a profit every year.
Loretta withdraws $100,000 cash from the S corporation each year. Which of the
following statements accurately describes the tax consequences of these
withdrawals?
A. There is significant risk that the IRS could recharacterize the payments to Loretta
as salary. Such treatment would not change taxable income for Loretta and reduce
taxable income of the S corporation.
B. There is significant risk that the IRS could recharacterize the payments to Loretta
as salary. Such treatment would increase taxable income for both Loretta and the S
corporation.
C. The withdrawals are considered taxable divide - A
Which of the following statements about partnerships is false?
A. A partnership is a legal entity that may enter into valid contracts.
B. Partnerships are unincorporated entities.
C. Only individuals may be partners in a partnership.
D. Partnerships are sometimes referred to as passthrough entities since they do not
pay federal income tax. - C
Which of the following statements regarding the home office deduction is true?
A. The home office deduction is limited to the taxable income of the business before
the deduction.
B. A home office deduction is not allowed for using the home office for administrative
or management activities only.
C. A depreciation deduction is not allowed for a home office.
D. In order to qualify for the deduction, a portion of the taxpayer's home must be
used regularly and exclusively to meet with clients or customers. - A
Which of the following statements regarding limited liability companies is true?
A. Because LLCs are a relatively new organizational form, many tax questions
concerning their operation have yet to be resolved.
, B. Just like an S corporation, an LLC member's share of ordinary income is not
subject to self-employment taxes.
C. Just like a limited partnership, only LLC members who are not actively involved in
the entity's business activities have limited liability for the LLC's debts.
D. Just like an S corporation, an LLC is restricted to 100 members. - A
Perry is a partner in a calendar year partnership. His Schedule K-1 for the current tax
year showed the following:
Ordinary business loss
$(20,000)
Short-term capital gain
2,100
Dividend income
1,600
Cash distribution
5,800
Perry's tax basis in his partnership interest at the beginning of the year was $15,400.
How much of the ordinary loss may he deduct on his Form 1040? Assume the
excess business loss limitation does not apply.
A. $14,000
B. $11,700
C. $10,200
D.$13,300 - D
Max is a 10% limited partner in LMN partnership. His adjusted basis in his
partnership interest was $50,000 at the beginning of the current year. During the
year, the partnership earned $100,000 of ordinary income, incurred a $5,000 capital
loss, and paid $1,000 of nondeductible expenses. Max received a distribution of
$2,000 from the partnership. Calculate Max's ending adjusted basis in his
partnership interest.
A. $57,400
B. $57,500
C. $142,000
D. $59,200 - A
Guide: Key Topics Midterm &End Exam
Loretta is the sole shareholder of Country Collectibles, a calendar year S
corporation. Although Loretta spends at least 40 hours per week supervising Country
Collectible's employees, she has never drawn a salary from the business. Country
Collectibles has been in existence for five years and has earned a profit every year.
Loretta withdraws $100,000 cash from the S corporation each year. Which of the
following statements accurately describes the tax consequences of these
withdrawals?
A. There is significant risk that the IRS could recharacterize the payments to Loretta
as salary. Such treatment would not change taxable income for Loretta and reduce
taxable income of the S corporation.
B. There is significant risk that the IRS could recharacterize the payments to Loretta
as salary. Such treatment would increase taxable income for both Loretta and the S
corporation.
C. The withdrawals are considered taxable divide - A
Which of the following statements about partnerships is false?
A. A partnership is a legal entity that may enter into valid contracts.
B. Partnerships are unincorporated entities.
C. Only individuals may be partners in a partnership.
D. Partnerships are sometimes referred to as passthrough entities since they do not
pay federal income tax. - C
Which of the following statements regarding the home office deduction is true?
A. The home office deduction is limited to the taxable income of the business before
the deduction.
B. A home office deduction is not allowed for using the home office for administrative
or management activities only.
C. A depreciation deduction is not allowed for a home office.
D. In order to qualify for the deduction, a portion of the taxpayer's home must be
used regularly and exclusively to meet with clients or customers. - A
Which of the following statements regarding limited liability companies is true?
A. Because LLCs are a relatively new organizational form, many tax questions
concerning their operation have yet to be resolved.
, B. Just like an S corporation, an LLC member's share of ordinary income is not
subject to self-employment taxes.
C. Just like a limited partnership, only LLC members who are not actively involved in
the entity's business activities have limited liability for the LLC's debts.
D. Just like an S corporation, an LLC is restricted to 100 members. - A
Perry is a partner in a calendar year partnership. His Schedule K-1 for the current tax
year showed the following:
Ordinary business loss
$(20,000)
Short-term capital gain
2,100
Dividend income
1,600
Cash distribution
5,800
Perry's tax basis in his partnership interest at the beginning of the year was $15,400.
How much of the ordinary loss may he deduct on his Form 1040? Assume the
excess business loss limitation does not apply.
A. $14,000
B. $11,700
C. $10,200
D.$13,300 - D
Max is a 10% limited partner in LMN partnership. His adjusted basis in his
partnership interest was $50,000 at the beginning of the current year. During the
year, the partnership earned $100,000 of ordinary income, incurred a $5,000 capital
loss, and paid $1,000 of nondeductible expenses. Max received a distribution of
$2,000 from the partnership. Calculate Max's ending adjusted basis in his
partnership interest.
A. $57,400
B. $57,500
C. $142,000
D. $59,200 - A
