Question

Please answer the Multiple choice questions below to the best of your knowledge. This is another chance for those students did not participate in previous questions. 
Some Terms you might need to know

Other Adjustments Account (OAA)

Accumulated Adjustments Account (AAA)

Previously Taxed Income (PTI)

Accumulated Earnings and Profits (AE&P)         

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

             Section 1245 gain $21,000
             Payroll tax penalty 4,200
             Tax-exempt interest 5,300
             Nontaxable life insurance proceeds 4,100
             Insurance premiums paid (nondeductible) 2,900
             a. $1,300.
             b. $6,500. 
             c. $23,300.
             d. $27,500.
             e. None of the above.

2.  A cash basis calendar year C corporation in Athens, Georgia, has $100,000 of accounts receivable on the date of its conversion  to an S   corporation on February 14. By the end of the year, $60,000 of these receivables are collected. Calculate any built-in   gains  tax, assuming that there is sufficient taxable income.
          a. $0.
          b. $21,000. 
          c. $28,000.
          d. $35,000.
          e. Some other amount.
3. You are given the following facts about a solely owned S corporation, and you are asked to prepare the shareholder’s ending stock basis.
          Increase in AAA $32,000
          Increase in OAA 6,300
          Payroll tax penalty 2,140
          Beginning stock basis 39,800
         Stock purchases 22,000
         Tax-exempt insurance proceeds 4,800
         Insurance premiums paid (nondeductible) 2,700
         a. $61,800.
         b. $68,100.
         c. $100,060.
         d. $100,100. 
         e. Some other amount.

4.  On January 1, Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight. The dirt    company has a $60,000 loss for a non-leap year. On the 219th day of the year, Bobby sells his one-half of the stock to his son,  Paul. How much of the $60,000 loss, if any, is allocated to Bobby?
     a. $0.
     b. $18,000. 
     c. $36,000.
     d. $60,000.
     e. None of the above.

5. An S corporation in Lawrence, Kansas has a recognized built-in gain of $110,000 and taxable income of $90,000.   The company has an $8,000 NOL carryforward from a C corporation year, and a $9,000 business credit carryforward from a  C corporation year. The built-in gains tax liability is:
        a. $0.
        b. $19,700.
        c. $26,700.
        d. $28,700.
        e. None of the above.
6. A C corporation elects S status. The corporation may be subject to a built-in gains tax on which of the following assets?
       a. Securities held for investment.
       b. Goodwill.
       c. Accounts receivables.
       d. Investment land.
       e. All of the above.

7. Who pays tax on the income of an S corporation?
      a. The S corporation
      b. The shareholders
      c. The customers
      d. There is no tax imposed on S corporation income
8. What is the maximum number of shareholders that an S corporation may have?
        a. 10
        b. 25
        c. 35
        d. 100
        e. None of the above
9. Which tax year is not allowed an S corporation?
      a. Calendar year
      b. Fiscal year established by business purpose
      c. Fiscal year that is the same as all the principal owners
      d. None of the above
10. A calendar-year S corporation has a $36,500 operating loss for 20X1. At the beginning of 20X1, S corporation had two equal shareholders:           A   and B. On May 31, 20X1, A sells his shares of stock in the S corporation. How much of the $36,500 loss is allocable to A?
      a. $0.
      b. $4,167.
      c. $7,550. 
      d. $7,604.
      e. $15,100

Answer 1

1.

The correct answer is c) $23,300.

Supporting calculations:

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