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Exam 12: S Corporations

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Question 1

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Depreciation recapture income is a ________separately, nonseparately) computed amount.

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Question 2

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An S corporation recognizes a________ on any distribution of appreciated property.

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An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

Which of the following items, if any, decreases an S corporation's AAA?

Amit, Inc., an S corporation, holds an AAA balance of $614,000 at the beginning of the tax year. During the year, the following items occur. $\begin{array} { l r } \text { Operating income } & \$ 501,000 \\\text { Interest income } & 6,500 \\\text { Dividend income } & 13,020 \\\text { Municipal bond interest income } & 6,000 \\\text { Long-term capital loss from sale of investment land } & 7,400 \\\text { Section 179 depreciation deduction } & 6,000 \\\text { Charitable contributions } & 19,000 \\\text { Cash distributions } & 57,000\end{array}$ Amit's ending AAA balance is:

A former spouse is treated as being in the same family as the individual to whom he or she was married for purposes of determining the number of S corporation shareholders.

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

Which item does not appear on Schedule K of Form 1120S?

Stock basis first is increased by income items, then __________by distributions, and finally decreased by ____________________.

Which of the following items, if any, has no effect on the stock basis of an S corporation shareholder?

An estate may be a shareholder of an S corporation.

NOL carryforwards from C years can be used in an S corporation year against ordinary income.

At the beginning of the year, the AAA of Rose, Inc. shows a balance of $682,000. During the year, the following items occur. Compute the end-of-year AAA balance. $\begin{array} { l c } \text { Operating income } & \$ 452,000 \\\text { Interest income } & 6,550 \\\text { Dividend income } & 14,050 \\\text { Municipal bond interest income } & 12,000 \\\text { Short-term capital loss from sale of building } & 7,400 \\\text { Section } 179 \text { expense } & 6,500 \\\text { Charitable contributions } & 19,000 \\\text { Cash distributions } & 57,000 \\\text { Depreciation recapture } & 3,500\end{array}$

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

An S election is made on the shareholder's Form 2553.

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

In the case of a complete termination of an S corporation interest, a________ tax year may occur.

Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.

Gene Grams is a 45% owner of a calendar year S corporation during the tax year. His beginning stock basis is $230,000, and the S corporation reports the following items. $\begin{array}{lr}\text { Ordinary income } & \$ 72,000 \\\text { Short-term capital gain } & 16,000 \\\S 1231 \text { loss } & 6,000 \\\text { Tax-exempt interest income } & 5,000\end{array}$ Calculate Grams's stock basis at year-end.

Which statement is incorrect?