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Exam 12: S Corporations

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Question 51

True/False

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An S corporation with earnings and profits can make a taxable dividend distribution by making a AAA bypass election.

A) True
B) False

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Question 52

Multiple Choice

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Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

A) Charitable contributions.
B) Unreasonable compensation.
C) Payroll tax penalty assessed.
D) Section 1245 income.
E) None of the above.

F) B) and C)
G) C) and D)

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Question 53

Multiple Choice

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During 2008,an S corporation in Gainesville,Florida,incurs the following transactions. The corporation's passive investment income for 2008 is:

Compensation for services rendered to an S corporation is subject to FICA taxes.

Tax-exempt income at the corporate level does flow through to the shareholders.

If the beginning balance in OAA is zero,and the following transactions occur,what is the ending OAA balance?

Stock basis is first increased by income items,then decreased by losses,and then decreased by distributions.

An S corporation may not amortize organization expenses.

_________________________ may not make the AAA negative or increase a negative balance.

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

Which statement is incorrect?

Only 51% of the shareholders must consent to an S election.

S corporation losses are allocated on a ____________________ basis.

Which statement is incorrect with respect to filing for an S election?

On December 31,2007,Erica Sumners owns one share of an S corporation's 10 outstanding shares of stock.The basis of Erica's share is $300.During 2008,the S corporation has no income or deductions,but incurs a loss of $3,650.Using the separate-share approach,determine the amount of the loss allocated to Erica and calculate her stock basis in 2008.

Sloane is a shareholder in a calendar year S corporation.At the beginning of the year,her stock basis is $10,000,her share of AAA is $2,000,and her share of corporate AEP is $5,000.She receives a $6,000 distribution,and her share of S corporation items includes a $2,000 long-term capital gain and a $9,000 ordinary loss.Determine the effects of these events on AAA,stock basis,and AEP.

With respect to passive losses,there are three classes of income,losses,and credits: ___________,___________,and passive.

Match the term with the proper response. There may be more than one responses for each term. a.Includes gross receipts derived from royalties, passive rents, dividends, interest, etc. b.Penalty tax to stop an S corporation from avoiding the corporate tax on disposition of appreciated property. c.Cumulative total of undistributed non-separately stated items. d.Tax-free distribution. e.Generated under old S corporation rules (pre-1983). f.Items that affect basis but not AAA go here. g.Taxed as a dividend. -OAA

Which,if any,of the following can be eligible shareholders of an S corporation?

S corporations are treated as partnerships under state laws.