1470. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #22 Barb and Chuck each own one-half of the stock of Wren Inc. a C corporation. Each shareholder has a stock basis of $125 000. Wren has accumulated E & P of $200 000. Wren’s taxable income for the current year is $90 000 and it distributes $60 000 to each shareholder. Barb’s stock basis at the end of the year is: a. $0. b. $65 000. c. $110 000. d. $125 000. e. None of the above. 1471. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #23 Barb and Chuck each own one-half the stock of Wren Inc. an S corporation. Each shareholder has a stock basis of $125 000. Wren has no accumulated E & P. Wren’s taxable income for the current year is $90 000 and it distributes $60 000 to each shareholder. Barb’s stock basis at the end of the year is: a. $0. b. $65 000. c. $110 000. d. $125 000. e. None of the above. 1472. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #24 Barb and Chuck each have a 50% ownership in Wren Partnership. Each partner has a partnership interest basis of $125 000. Wren’s taxable income for the current year is $90 000 and it distributes $60 000 to each partner. Barb’s basis in the partnership interest at the end of the year is: a. $0. b. $65 000. c. $110 000. d. $125 000. e. None of the above. 1473. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #25 Trolette contributes property with an adjusted basis of $80 000 and a fair market value of $100 000 to a newly formed business entity. If the entity is a C corporation and the transaction qualifies under § 351 the corporation’s basis for the property and the shareholder’s basis for the stock are: Asset Basis Stock Basis a. $ 80 000 $100 000 b. $100 000 $ 80 000 c. $ 80 000 $ 80 000 d. $100 000 $100 000 e. None of the above. 1474. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #26 Alanna contributes property with an adjusted basis of $80 000 and a fair market value of $100 000 to a newly formed business entity. If the entity is a partnership and the transaction qualifies under § 721 the partnership’s basis for the property and the partner’s basis for the partnership interest are: Asset Basis Stock Basis a. $ 80 000 $100 000 b. $100 000 $ 80 000 c. $ 80 000 $ 80 000 d. $100 000 $100 000 e. None of the above. 1475. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #27 Marcus contributes property with an adjusted basis of $80 000 and a fair market value of $100 000 to a newly formed business entity. If the entity is an S corporation and the transaction qualifies under § 351 the S corporation’s basis for the property and the shareholder’s basis for the stock are: Asset Basis Stock Basis a. $ 80 000 $100 000 b. $100 000 $ 80 000 c. $ 80 000 $ 80 000 d. $100 000 $100 000 e. None of the above. 1476. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #28 Brenda contributes appreciated property (i.e. adjusted basis of $65 000 and a fair market value of $100 000) to her business entity in a transaction which qualifies for nonrecognition of gain. Brenda’s ownership interest is 60%. The business entity later sells the appreciated property for $110 000. The property is not depreciable. Which of the following statement(s) is correct? a. If the entity is a partnership Brenda’s gross income is increased by $41 000 [($35 000 ´ 100%) ($10 000 ´ 60%)] in the year of the sale of the property by the partnership. b. If the entity is a C corporation the corporation’s gross income is increased by $10 000 in the year of the sale of the property by the corporation. c. If the entity is an S corporation the S corporation’s gross income is increased by $10 000 in the year of the sale of the property by the S corporation and Brenda’s gross income is increased by $6 000 ($10 000 ´ 60%). d. All of the above. e. None of the above. 1477. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #29 Alice contributes equipment (fair market value of $50 000; adjusted basis of $15 000) subject to a $10 000 liability to form Orange Partnership a general partnership. Mary contributes $40 000 cash. Alice and Mary share equally in partnership profits and losses. What is Alice’s and Mary’s basis for their partnership interests? a. $10 000 to Alice $45 000 to Mary. b. $25 000 to Alice $25 000 to Mary. c. $15 000 to Alice $40 000 to Mary. d. $5 000 to Alice $40 000 to Mary. e. $20 000 to Alice $45 000 to Mary. 1478. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #30 Melba contributes land (basis of $190 000; fair market value of $250 000) to a business entity in exchange for 100% of the stock. During the first year of operations the entity earns a profit of $75 000. At the end of the first year the entity has outstanding liabilities of $30 000 ($20 000 recourse and $10 000 nonrecourse). a. If the entity is a C corporation Melba’s basis for her stock at the end of the first year is $265 000 ($190 000 $75 000) and her at-risk basis is $265 000. b. If the entity is a partnership Melba’s basis for her partnership interest (outside basis) at the end of the first year is $355 000 ($250 000 $75 000 $30 000) and her at-risk basis is $345 000 ($250 000 $75 000 $20 000). c. If the entity is an S corporation Melba’s basis for her stock at the end of the first year is $345 000 ($250 000 $75 000 $20 000) and her at-risk basis is $345 000. d. Only a. and c. are correct. e. a. b. and c. are incorrect. 1479. CHAPTER 13—COMPARATIVE FORMS OF DOING BUSINESS Question MC #31 Catfish Inc. a closely held corporation which is not a PSC owns a 45% interest in Trout Partnership which is classified as a passive activity. Trout’s taxable loss for the current year is $250 000. During the year Catfish receives a $60 000 cash distribution from Trout. Other relevant data for Catfish are as follows: Net income from operations $800 000 Dividend income 25 000 Rent income 20 000 How much of Catfish’s share of Trout’s loss may it deduct in calculating its taxable income? a. $0. b. $20 000. c. $45 000. d. $112 500. e. None of the above.
