Federal Tax Accounting Ii Week 1 Checkpoint

Pages: 7 (1384 words) Published: March 17, 2013
1.| Question :| (TCO 2) Barry owns a 30% interest in a partnership that earned \$300,000 this year. He also owns 30% of the stock in a C corporation that earned \$300,000 during the year. The partnership did not make any distributions, and the corporation did not pay any dividends. How much income must Barry report from these businesses?|

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| Student Answer:| | \$0 income from the partnership and \$0 income from the corporation | | | | \$0 income from the partnership and \$90,000 income from the corporation | | | | \$90,000 income from the partnership and \$0 income from the corporation | | | | \$90,000 income from the partnership and \$90,000 income from the corporation | | | | None of the above |

| Instructor Explanation:| See Chapter 2. Barry must report his \$90,000 share of the partnership income on his individual tax return. He will not report any income from the corporation, because no dividends were paid during the year.| |

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| Points Received:| 2 of 2 |
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2.| Question :| (TCO 2) Pelican Inc., a closely held corporation (not a PSC), has a \$350,000 loss from a passive activity, \$135,000 of active income, and \$160,000 of portfolio income. How much is Pelican’s taxable income?|

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| Student Answer:| | (\$55,000) |
| | | \$0 |
| | | \$135,000 |
| | | \$295,000 |
| | | \$160,000 |
| Instructor Explanation:| See Chapter 2. A closely held corporation that is not a PSC can deduct passive losses against active income but not portfolio income. Thus, Pelican’s taxable income is \$160,000 [\$135,000 (active income) + \$160,000 (portfolio income) – \$135,000 (passive loss limited to active income)].| |

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| Points Received:| 2 of 2 |
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3.| Question :| (TCO 2) Eagle Corporation owns stock in Hawk Corporation and has taxable income of \$160,000 for the year before considering the dividends received deduction. Hawk Corporation pays Eagle a dividend of \$200,000, which was considered in calculating the \$160,000. Which amount of dividends received deduction may Eagle claim if it owns 15% of Hawk’s stock?|

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| Student Answer:| | \$0 |
| | | \$112,000 |
| | | \$140,000 |
| | | \$160,000 |
| | | None of the above |
| Instructor Explanation:| See Chapter 2. The dividends received deduction depends upon the percentage of ownership by the corporate shareholder. Because Eagle Corporation owns 15% of Hawk Corporation, Eagle would qualify for a 70% deduction. Multiply the dividends received by the \$200,000 x 70% = \$140,000. Multiply the taxable income before the dividends received deduction by the deduction percentage \$160,000 x 70% = \$112,000. Limit the deduction to the lesser of step 1 or step 2, unless subtracting the amount derived in step 1 (\$140,000) from taxable income before the dividends received deduction (\$160,000) generates an NOL (\$160,000 - \$140,000 = \$20,000 taxable income). If so, use the amount derived in step 1 (\$140,000). And in this case, the taxable income limitation applies, and the deduction equals \$112,000.| |

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| Points Received:| 2 of 2 |
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4.| Question :| (TCO 1) Ann, Irene, and Bob incorporate their respective businesses and form Dove Corporation. Ann exchanges her property (basis of \$100,000 and fair market value of \$400,000) for 200 shares in Dove Corporation on March 1, 2007. Irene exchanges her property (basis of \$140,000 and fair market value of \$600,000) for 300 shares in Dove Corporation on April 10, 2007. Bob transfers his property (basis of \$250,000 and fair market value of \$1,000,000) for 500 shares in Dove Corporation on May 15, of this year. Bob's transfer is not part of a prearranged plan with Ann and Irene to incorporate their businesses. Which gain, if any, will Bob recognize on the transfer?|

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| Student Answer:| | \$1,000,000 |
| | | \$750,000 |
| | | \$250,000 |...