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Exam 15: S Corporations

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Question 41

Multiple Choice

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

A) Payroll penalty.
B) Unreasonable compensation.
C) Life insurance proceeds (nontaxable to the recipient S corporation) .
D) Taxable interest.

E) C) and D)
F) A) and B)

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Question 42

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An S corporation shareholder's stock basis includes his or her direct investments plus a ratable share of any corporate liabilities.

A) True
B) False

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Question 43

Multiple Choice

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Pepper, Inc., an S corporation, holds a $1 million balance in accumulated E&P.It reports sales revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000.What is Pepper's passive income penalty tax payable, if any?

What method is used to allocate S corporation income or losses (unless an election to the contrary is made) ?

Depreciation recapture income is a Schedule K item on the Form 1120S.

S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis).

A calendar year C corporation reports a $41,000 NOL in 2019, but it elects S status for 2020 and generates an NOL of $30,000 in that year.At all times during 2020, the stock of the corporation was owned by the same 10 shareholders, each of whom owned 10% of the stock.Kris, one of the 10 shareholders, holds an S stock basis of $2,300 at the beginning of 2020.How much of the 2020 loss, if any, can she deduct?

An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.

A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14.By the end of the year, $60,000 of these receivables have been collected.Calculate any built- in gains tax, assuming that there is sufficient taxable income.

A corporation can revoke its S election as of a future date.

Tax-exempt income at the corporate level flows through as exempt income to S shareholders.

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

An S corporation's LIFO recapture amount equals the excess of the inventory's value under ____________________ over the ____________________ value.

You are given the following facts about a solely owned S corporation.What is the shareholder's ending stock basis? Increase in AAA $31,000 Increase in OAA 6,300 Payroll tax penalty 2,140 Beginning stock basis 39,800 Stock purchases 22,000 Tax-exempt life insurance proceeds 4,800 Life insurance premiums paid (nondeductible) 2,700

Shareholders owning a(n) of shares (voting and nonvoting) may ____________________ revoke an S election.

The Section 179 expense deduction is a Schedule K item on the Form 1120S.

A corporation may alternate between S corporation and C corporation status each year depending on which results in more tax savings.

An item such as tax-exempt interest that appears in the Other Adjustments Account affects stock basis, but not AAA.

A distribution from the other adjustment account (OAA) is not taxable to an S shareholder.

If an S corporation's beginning balance in OAA is zero and the following transactions occur, what is the ending OAA balance?