Multiple choice questions
1. Which, if any, of the following statements concerning the shareholders of a Subchapter C corporation is correct?
a. Shareholders are taxed on their proportionate share of earnings and profits as they are earned.
b. Shareholders are taxed on distributions from corporate earnings and profits.
c. Shareholders are never taxed on earnings and profits or distributions from the corporation.
d. None of these statements are correct.
2. Parker Company has earnings and profits of $8,000. It distributes capital gain property with a basis of $2,000 and FMV of $9,000 to Gertrude Parker, its sole shareholder. Gertrude has a basis of $10,000 in her stock. Which of the following statements is true with respect to this transaction?
a. Gertrude will report dividend income of $2,000 and a capital gain of $7,000.
b. Gertrude will report dividend income of $8,000.
c. Gertrude will report dividend income of $8,000 and a nontaxable distribution of $1,000.
d. Gertrude will report dividend income of $9,000.
3. Which of the following is a negative adjustment on Schedule M-1?
a. Federal income tax.
c. Charitable contributions in excess of the 10% limit.
c. Depreciation for books in excess of depreciation for taxes.
d. Tax-exempt interest income.
4. Which of the following is a positive adjustment on Schedule M-1?
a. Excess of capital losses over capital gains.
b. Excess of capital gains over capital losses.
c. Charitable contribution carryover to the current year.
d. Depreciation for taxes in excess of depreciation for books.
5. Banana Company is widely held. It owns 85% of Strawberry Corporation. Two individuals hold the remaining 15%. Which of the following statements is true?
a. Banana and Strawberry must file a consolidated tax return.
b. Banana and Strawberry can elect to file a consolidated tax return.
c. Banana and Strawberry can file a consolidated tax return if the other owners of Strawberry agree.
d. Banana and Strawberry are brother-sister corporations.
6. What missing dollar amounts are correct in the following sentence? The AMT exemption is $_____ for corporations with AMT income of $______ or less.
a. $40,000; $150,000.
b. $40,000; $310,000.
c. $150,000; $310,000.
d. The question cannot be answered with the information given.
7. Which of the following items increase basis for a stockholder of a Subchapter S corporation?
a. Capital contributions.
b. Charitable contributions.
c. Net losses.
d. Distributions from the corporation.
8. Which of the following statements is incorrect?
a. An S corporation can own stock of a C corporation.
b. A C corporation can own stock of an S corporation.
c. An S corporation can be a partner in a partnership.
d. An estate can own stock of an S corporation.
9. Which, if any, of the following statements concerning the shareholders of a Subchapter S corporation is correct?
a. Shareholders are taxed on their proportionate share of earnings that are distributed.
b. Shareholders are taxed on the distributions from the corporation.
c. Shareholders are taxed on their proportionate share of earnings whether or not distributed.
d. None of these statements is correct.
10. Chen received a $10,000 dividend from a Subchapter C corporation. He also owns a 50% interest in a Subchapter S corporation that reported $100,000 of taxable income. He received a distribution of $20,000 from the Subchapter S corporation. How much income will Chen report as a result of these events?
a. $30,000.
b. $40,000.
c. $60,000.
d. $80,000.