Federal Tax Accounting Ii Week 1 Checkpoint

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? | | | 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. | | | | Points Received: | 2 of 2 | | Comments: | | | |

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? | | | 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)]. | | | | Points Received: | 2 of 2 | | Comments: | | | |

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