This is Part 2 of a slide deck was presented by the University of Illinois Tax School in conjunction with a textbook entitled Limited Liability Companies: Electing Partnership vs. S Corporation Status. The presentation gives good background on various LLC topics (such as LLC formation, LLC operations, Distributions of an LLC, Sale of a Member Interest, Withdrawal of a Member, and Death of a Member). The textbook itself can be purchased at https://taxschool.illinois.edu/.
Partnership revision questions ay 2014 2015JUMA BANANUKA
The practice questions will help the students of Makerere University (MUK & MUBS) to appreciate the theory underlying businesses in Uganda especially the partnership businesses.
This is Part 2 of a slide deck was presented by the University of Illinois Tax School in conjunction with a textbook entitled Limited Liability Companies: Electing Partnership vs. S Corporation Status. The presentation gives good background on various LLC topics (such as LLC formation, LLC operations, Distributions of an LLC, Sale of a Member Interest, Withdrawal of a Member, and Death of a Member). The textbook itself can be purchased at https://taxschool.illinois.edu/.
Partnership revision questions ay 2014 2015JUMA BANANUKA
The practice questions will help the students of Makerere University (MUK & MUBS) to appreciate the theory underlying businesses in Uganda especially the partnership businesses.
FINEX Wealth Management Inc. exclusive "Combined Qualified Pension Plan" designed to include IRC §401h “PRIME”: a separate pooled trust fund of a pension plan used exclusively for retiree health benefits. This unique plan consists of five (5) contribution components: 401(k), Profit Sharing, Cash Balance Defined Benefit, Aggregated “PRIME” Benefit, and Tax Reserve. The key to this design is combining plan attributes in a non-discriminatory manner, cross-testing, and satisfying the concurrent offset rules which allow business owner’s to create a targeted employees only plan.
PARTNERSHIP ACCOUNT
Partnership may be defined as relationship between persons carrying on a business in common with a view of profit.
In a business partnership two or more persons jointly run a business.
Partnership may be defined as an association of two to twenty persons carrying on business in common with the view profit.
PARTNERSHIP AGREEMENT (ARTICLES OF PARTNERSHIP )
The points usually covered by such agreement are as follows
The duration of the partnership
The name of the partnership
The sum to be contributed as capital by each partner
The ratio of profit or losses should be noticed or stated
The rate of interest if any to be allowed on capital (interest on capital )
The rate of interest on drawings
Address or place of the business
The date of starting the business
IN THE ABSENCE OF ANY PARTNERSHIP AGREEMENT
a) All profit or losses are to be shared equally between the partners.
b) All partners entitled to share equality in the capital (equal contribution of capital).
c) No partner is entitled to interest on capital on his capital before profit are ascertained.
THE USUALLY ACCOUNTING REQUIREMENT:-
(i)The capital to be contributed by each partnership.
(ii)The rate of interest, if any to be given on capital.
(iii)The ratio in which profit or loss to be shared.
(iv)The rate of interest, if any to be charged on partners to Drawings.
(v) Salaries to be paid to partners.
Magic Blades stock has risen rapidly to $50 per share. Th.docxsmile790243
Magic Blade's stock has risen rapidly to $50 per share. The increase is due to excitement about its new knife
that uses a light beam to slice fruits and vegetables. This process enhances the final appearance and quality
of salads and fruit trays.
The board of directors is considering strategies to divide the corporate ownership into more shares of stock,
and bring about some reduction in the price per share. They are considering a stock split, small stock dividend,
or large stock dividend. The board is unsure of the accounting effects of such transactions, and has requested
information about how stockholders' equity would be impacted.
Prior to the contemplated stock transaction, equity consisted of:
Stockholders’ Equity
Common stock, $2 par value, 2,000,000 shares authorized,
500,000 shares issued and outstanding $1,000,000
Paid-in capital in excess of par 2,000,000
Retained earnings 6,000,000
Total stockholders’ equity $9,000,000
(a) Assuming the board were to declare a 2 for 1 split, how would the revised stockholders' equity
appear?
(b) Assuming the board were to declare a 15% stock dividend, how would the revised stockholders'
equity appear?
B-14.07 Stock dividends and splits
x
SPREADSHEET
TOOL:
Holding a
cell reference
constant
Mike
Highlight
Summary information for Branford Corporation's balance sheet follows:
BRANFORD CORPORATION
Balance Sheet
August 15, 20X4
Assets
Cash $ 125,000
Accounts receivable 250,000
Inventory 750,000
Property, plant, & equipment (net) 860,000
Total assets $1,985,000
Liabilities
Accounts payable $125,000
Accrued liabilities 260,000
Notes payable 290,000
Total liabilities $ 675,000
Stockholders’ equity
Common stock, $5 par $700,000
Paid-in capital in excess of par 300,000
Retained earnings 310,000
Total stockholders’ equity 1,310,000
Total liabilities and equity $1,985,000
Branford's business is growing rapidly, and the company needs to expand its manufacturing facilities. This
expansion will require the company to obtain an additional $1,000,000 in cash. The company is exploring
five alternatives to obtain the necessary capital:
Equity structure and impact I-14.01
Mike
Highlight
366 | CHAPTER 14
DEBT OPTION:
Branford is able to borrow, on a 5-year note, the full amount needed. The interest rate on
this note would be 7%, and the note would require monthly payments.
COMMON STOCK OPTION:
Branford has identified an investor who is willing to pay $1,000,000 for 40,000 newly is-
sued common shares. Common shares have been paying a dividend of $0.50 per share.
Branford anticipates that this dividend rate will be maintained.
NONCUMULATIVE PREFERRED STOCK OPTION:
Branford has identified a hedge fund that will pay $1,000,000 for 8% noncumulative
preferred stock to be issued at par.
CUMULATIVE PREFERRED STOCK OPTION:
Branford has identified an insurance company that will pay $1,000,000 for 6% cumulative
preferred ...
On July 1 2021 Truman Company acquired a 70 percent intere.pdfaashisha5
On July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in
exchange for consideration of $809,550 in cash and equity securities. The remaining 30 percent of
Atlantas shares traded closely near an average price that totaled $346,950 both before and after
Trumans acquisition. In reviewing its acquisition, Truman assigned a $126,000 fair value to a
patent recently developed by Atlanta, even though it was not recorded within the financial records
of the subsidiary. This patent is anticipated to have a remaining life of five years. The following
financial information is available for these two companies for 2021. In addition, the subsidiarys
income was earned uniformly throughout the year. The subsidiary declared dividends quarterly.
Truman Atlanta Revenues $ (725,470 ) $ (476,000 ) Operating expenses 414,000 315,000 Income
of subsidiary (47,530 ) 0 Net income $ (359,000 ) $ (161,000 ) Retained earnings, 1/1/21 $
(916,000 ) $ (568,000 ) Net income (above) (359,000 ) (161,000 ) Dividends declared 140,000
70,000 Retained earnings, 12/31/21 $ (1,135,000 ) $ (659,000 ) Current assets $ 515,420 $
338,000 Investment in Atlanta 832,580 0 Land 397,000 294,000 Buildings 755,000 662,000 Total
assets $ 2,500,000 $ 1,294,000 Liabilities $ (865,000 ) $ (315,000 ) Common stock (95,000 )
(300,000 ) Additional paid-in capital (405,000 ) (20,000 ) Retained earnings, 12/31/21 (1,135,000 )
(659,000 ) Total liabilities and stockholders' equity $ (2,500,000 ) $ (1,294,000 )
What is the excess fair-value assigned to patent and goodwill?
How did Truman allocate the goodwill from the acquisition across the controlling and
noncontrolling interests?
How did Truman derive the Investment in Atlanta account balance at the end of 2021?
Prepare a worksheet to consolidate the financial statements of these two companies as of
December 31, 2021. At year-end, there were no intra-entity receivables or payables..
Fred and George have been in partnership for many years. The partn.docxbudbarber38650
Fred and George have been in partnership for many years. The partners, who share profits and losses on a 60:40 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $10,000. At the date the partnership ceases operations, the balance sheet is as follows:
Cash
$
100,000
Liabilities
$
80,000
Noncash assets
200,000
Fred, capital
100,000
George, capital
120,000
Total assets
$
300,000
Total liabilities and capital
$
300,000
1.
Prepare journal entries for the following transactions: (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
a.
Distributed safe cash payments to the partners.
b.
Paid $40,000 of the partnership’s liabilities.
c.
Sold noncash assets for $220,000.
d.
Distributed safe cash payments to the partners.
e.
Paid all remaining partnership liabilities of $40,000.
f.
Paid $8,000 in liquidation expenses; no further expenses will be incurred.
g.
Distributed remaining cash held by the business to the partners.
Ex. 2
A local partnership is to be liquidated. Commissions and other liquidation expenses are expected to total $19,000. The business’s balance sheet prior to the commencement of liquidation is as follows:
Cash
$ 27,000
Liabilities
$ 40,000
Noncash assets
254,000
Simpson, capital (20%)
18,000
Hart, capital (40%)
40,000
Bobb, capital (20%)
48,000
Reidl, capital (20%)
135,000
Total assets
$281,000
Total liabilities and capital
$281,000
Prepare a predistribution plan for this partnership.
Partner
Capital Balance
Loss Allocation
Maximum loss that can be absorb
Schedule 1
Sampson
Hart
Bobb
Reidl
Schedule 2
Hart
Bobb
Reidl
Schedule 3
Bobb
Reidl
Sampson
Hart
Bobb
Reidl
Reported balances
Assumed loss
Schedule 1
Adjusted Balances
Assumed loss
Schedule 2
Adjusted balances
Assumed loss
Schedule 3
Adjusted balances
EX. 3
The Prince-Robbins partnership has the following capital account balances on January 1, 2015:
Prince, Capital
$
70,000
Robbins, Capital
60,000
Prince is allocated 80 percent of all profits and losses with the remaining 20 percent assigned to Robbins after interest of 10 percent is given to each partner based on beginning capital balances.
On January 2, 2015, Jeffrey invests $37,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction, 10 percent interest is still to go to each partner. Profits and losses will then be split as follows: Prince (50%), Robbins (30%), and Jeffrey (20%). In 2015, the partnership reports a net income of $15,000.
a.
Prepare the journal entry to record Jeffrey entrance into the partnership on January 2, 2015. (If no entry .
Quantum Technology had $646,000 of retained earnings on December 3.docxamrit47
Quantum Technology had $646,000 of retained earnings on December 31, 2013. The company paid common dividends of $34,800 in 2013 and had retained earnings of $506,000 on December 31, 2012.
a.
How much did Quantum Technology earn during 2013?
Earnings available to common stockholders
$
b.
What would earnings per share be if 42,100 shares of common stock were outstanding? (Round your answer to 2 decimal places.)
Earnings per share
Botox Facial Care had earnings after taxes of $362,000 in 2012 with 200,000 shares of stock outstanding. The stock price was $81.80. In 2013, earnings after taxes increased to $450,000 with the same 200,000 shares outstanding. The stock price was $95.00.
a.
Compute earnings per share and the P/E ratio for 2012. (The P/E ratio equals the stock price divided by earnings per share.)
b.
Compute earnings per share and the P/E ratio for 2013.
c.
Why did the P/E ratio change?
Amigo Software Inc. has total assets of $864,000, current liabilities of $166,000, and long-term liabilities of $149,000. There is $96,000 in preferred stock outstanding. Thirty thousand shares of common stock have been issued.
a.
Compute book value (net worth) per share.
b.
If there is $55,300 in earnings available to common stockholders and the firm’s stock has a P/E of 28 times earnings per share, what is the current price of the stock?
c.
What is the ratio of market value per share to book value per share?
The Rogers Corporation has a gross profit of $707,000 and $329,000 in depreciation expense. The Evans Corporation also has $707,000 in gross profit, with $44,800 in depreciation expense. Selling and administrative expense is $176,000 for each company.
a.
Given that the tax rate is 40 percent, compute the cash flow for both companies.
b.
Calculate the difference in cash flow between the two firms.
A-Rod Fishing Supplies had sales of $2,010,000 and cost of goods sold of $1,350,000. Selling and administrative expenses represented 10 percent of sales. Depreciation was 5 percent of the total assets of $4,070,000.
What was the firm’s operating profit?
Jerry Rice and Grain Stores has $4,040,000 in yearly sales. The firm earns 4 percent on each dollar of sales and turns over its assets 2 times per year. It has $102,000 in current liabilities and $381,000 in long-term liabilities.
a.
What is its return on stockholders’ equity?
b.
If the asset base remains the same as computed in part a, but total asset turnover goes up to 3.00, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do current and long-term liabilities.
A firm has net income before interest and taxes of $156,000 and interest expense of $25,500.
a.
What is the times-interest-earned ratio?
b.
If the firm’s lease payments are $49,500, what is the fixed charge coverage?
The balance sheet for Stud Clothiers is shown next. Sales for the year were $3,190,000, with 75 percent of sales sold on credit.
STUD CLOTHIERS
Balance Sheet 2 ...
FINEX Wealth Management Inc. exclusive "Combined Qualified Pension Plan" designed to include IRC §401h “PRIME”: a separate pooled trust fund of a pension plan used exclusively for retiree health benefits. This unique plan consists of five (5) contribution components: 401(k), Profit Sharing, Cash Balance Defined Benefit, Aggregated “PRIME” Benefit, and Tax Reserve. The key to this design is combining plan attributes in a non-discriminatory manner, cross-testing, and satisfying the concurrent offset rules which allow business owner’s to create a targeted employees only plan.
PARTNERSHIP ACCOUNT
Partnership may be defined as relationship between persons carrying on a business in common with a view of profit.
In a business partnership two or more persons jointly run a business.
Partnership may be defined as an association of two to twenty persons carrying on business in common with the view profit.
PARTNERSHIP AGREEMENT (ARTICLES OF PARTNERSHIP )
The points usually covered by such agreement are as follows
The duration of the partnership
The name of the partnership
The sum to be contributed as capital by each partner
The ratio of profit or losses should be noticed or stated
The rate of interest if any to be allowed on capital (interest on capital )
The rate of interest on drawings
Address or place of the business
The date of starting the business
IN THE ABSENCE OF ANY PARTNERSHIP AGREEMENT
a) All profit or losses are to be shared equally between the partners.
b) All partners entitled to share equality in the capital (equal contribution of capital).
c) No partner is entitled to interest on capital on his capital before profit are ascertained.
THE USUALLY ACCOUNTING REQUIREMENT:-
(i)The capital to be contributed by each partnership.
(ii)The rate of interest, if any to be given on capital.
(iii)The ratio in which profit or loss to be shared.
(iv)The rate of interest, if any to be charged on partners to Drawings.
(v) Salaries to be paid to partners.
Magic Blades stock has risen rapidly to $50 per share. Th.docxsmile790243
Magic Blade's stock has risen rapidly to $50 per share. The increase is due to excitement about its new knife
that uses a light beam to slice fruits and vegetables. This process enhances the final appearance and quality
of salads and fruit trays.
The board of directors is considering strategies to divide the corporate ownership into more shares of stock,
and bring about some reduction in the price per share. They are considering a stock split, small stock dividend,
or large stock dividend. The board is unsure of the accounting effects of such transactions, and has requested
information about how stockholders' equity would be impacted.
Prior to the contemplated stock transaction, equity consisted of:
Stockholders’ Equity
Common stock, $2 par value, 2,000,000 shares authorized,
500,000 shares issued and outstanding $1,000,000
Paid-in capital in excess of par 2,000,000
Retained earnings 6,000,000
Total stockholders’ equity $9,000,000
(a) Assuming the board were to declare a 2 for 1 split, how would the revised stockholders' equity
appear?
(b) Assuming the board were to declare a 15% stock dividend, how would the revised stockholders'
equity appear?
B-14.07 Stock dividends and splits
x
SPREADSHEET
TOOL:
Holding a
cell reference
constant
Mike
Highlight
Summary information for Branford Corporation's balance sheet follows:
BRANFORD CORPORATION
Balance Sheet
August 15, 20X4
Assets
Cash $ 125,000
Accounts receivable 250,000
Inventory 750,000
Property, plant, & equipment (net) 860,000
Total assets $1,985,000
Liabilities
Accounts payable $125,000
Accrued liabilities 260,000
Notes payable 290,000
Total liabilities $ 675,000
Stockholders’ equity
Common stock, $5 par $700,000
Paid-in capital in excess of par 300,000
Retained earnings 310,000
Total stockholders’ equity 1,310,000
Total liabilities and equity $1,985,000
Branford's business is growing rapidly, and the company needs to expand its manufacturing facilities. This
expansion will require the company to obtain an additional $1,000,000 in cash. The company is exploring
five alternatives to obtain the necessary capital:
Equity structure and impact I-14.01
Mike
Highlight
366 | CHAPTER 14
DEBT OPTION:
Branford is able to borrow, on a 5-year note, the full amount needed. The interest rate on
this note would be 7%, and the note would require monthly payments.
COMMON STOCK OPTION:
Branford has identified an investor who is willing to pay $1,000,000 for 40,000 newly is-
sued common shares. Common shares have been paying a dividend of $0.50 per share.
Branford anticipates that this dividend rate will be maintained.
NONCUMULATIVE PREFERRED STOCK OPTION:
Branford has identified a hedge fund that will pay $1,000,000 for 8% noncumulative
preferred stock to be issued at par.
CUMULATIVE PREFERRED STOCK OPTION:
Branford has identified an insurance company that will pay $1,000,000 for 6% cumulative
preferred ...
On July 1 2021 Truman Company acquired a 70 percent intere.pdfaashisha5
On July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in
exchange for consideration of $809,550 in cash and equity securities. The remaining 30 percent of
Atlantas shares traded closely near an average price that totaled $346,950 both before and after
Trumans acquisition. In reviewing its acquisition, Truman assigned a $126,000 fair value to a
patent recently developed by Atlanta, even though it was not recorded within the financial records
of the subsidiary. This patent is anticipated to have a remaining life of five years. The following
financial information is available for these two companies for 2021. In addition, the subsidiarys
income was earned uniformly throughout the year. The subsidiary declared dividends quarterly.
Truman Atlanta Revenues $ (725,470 ) $ (476,000 ) Operating expenses 414,000 315,000 Income
of subsidiary (47,530 ) 0 Net income $ (359,000 ) $ (161,000 ) Retained earnings, 1/1/21 $
(916,000 ) $ (568,000 ) Net income (above) (359,000 ) (161,000 ) Dividends declared 140,000
70,000 Retained earnings, 12/31/21 $ (1,135,000 ) $ (659,000 ) Current assets $ 515,420 $
338,000 Investment in Atlanta 832,580 0 Land 397,000 294,000 Buildings 755,000 662,000 Total
assets $ 2,500,000 $ 1,294,000 Liabilities $ (865,000 ) $ (315,000 ) Common stock (95,000 )
(300,000 ) Additional paid-in capital (405,000 ) (20,000 ) Retained earnings, 12/31/21 (1,135,000 )
(659,000 ) Total liabilities and stockholders' equity $ (2,500,000 ) $ (1,294,000 )
What is the excess fair-value assigned to patent and goodwill?
How did Truman allocate the goodwill from the acquisition across the controlling and
noncontrolling interests?
How did Truman derive the Investment in Atlanta account balance at the end of 2021?
Prepare a worksheet to consolidate the financial statements of these two companies as of
December 31, 2021. At year-end, there were no intra-entity receivables or payables..
Fred and George have been in partnership for many years. The partn.docxbudbarber38650
Fred and George have been in partnership for many years. The partners, who share profits and losses on a 60:40 basis, respectively, wish to retire and have agreed to liquidate the business. Liquidation expenses are estimated to be $10,000. At the date the partnership ceases operations, the balance sheet is as follows:
Cash
$
100,000
Liabilities
$
80,000
Noncash assets
200,000
Fred, capital
100,000
George, capital
120,000
Total assets
$
300,000
Total liabilities and capital
$
300,000
1.
Prepare journal entries for the following transactions: (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
a.
Distributed safe cash payments to the partners.
b.
Paid $40,000 of the partnership’s liabilities.
c.
Sold noncash assets for $220,000.
d.
Distributed safe cash payments to the partners.
e.
Paid all remaining partnership liabilities of $40,000.
f.
Paid $8,000 in liquidation expenses; no further expenses will be incurred.
g.
Distributed remaining cash held by the business to the partners.
Ex. 2
A local partnership is to be liquidated. Commissions and other liquidation expenses are expected to total $19,000. The business’s balance sheet prior to the commencement of liquidation is as follows:
Cash
$ 27,000
Liabilities
$ 40,000
Noncash assets
254,000
Simpson, capital (20%)
18,000
Hart, capital (40%)
40,000
Bobb, capital (20%)
48,000
Reidl, capital (20%)
135,000
Total assets
$281,000
Total liabilities and capital
$281,000
Prepare a predistribution plan for this partnership.
Partner
Capital Balance
Loss Allocation
Maximum loss that can be absorb
Schedule 1
Sampson
Hart
Bobb
Reidl
Schedule 2
Hart
Bobb
Reidl
Schedule 3
Bobb
Reidl
Sampson
Hart
Bobb
Reidl
Reported balances
Assumed loss
Schedule 1
Adjusted Balances
Assumed loss
Schedule 2
Adjusted balances
Assumed loss
Schedule 3
Adjusted balances
EX. 3
The Prince-Robbins partnership has the following capital account balances on January 1, 2015:
Prince, Capital
$
70,000
Robbins, Capital
60,000
Prince is allocated 80 percent of all profits and losses with the remaining 20 percent assigned to Robbins after interest of 10 percent is given to each partner based on beginning capital balances.
On January 2, 2015, Jeffrey invests $37,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction, 10 percent interest is still to go to each partner. Profits and losses will then be split as follows: Prince (50%), Robbins (30%), and Jeffrey (20%). In 2015, the partnership reports a net income of $15,000.
a.
Prepare the journal entry to record Jeffrey entrance into the partnership on January 2, 2015. (If no entry .
Quantum Technology had $646,000 of retained earnings on December 3.docxamrit47
Quantum Technology had $646,000 of retained earnings on December 31, 2013. The company paid common dividends of $34,800 in 2013 and had retained earnings of $506,000 on December 31, 2012.
a.
How much did Quantum Technology earn during 2013?
Earnings available to common stockholders
$
b.
What would earnings per share be if 42,100 shares of common stock were outstanding? (Round your answer to 2 decimal places.)
Earnings per share
Botox Facial Care had earnings after taxes of $362,000 in 2012 with 200,000 shares of stock outstanding. The stock price was $81.80. In 2013, earnings after taxes increased to $450,000 with the same 200,000 shares outstanding. The stock price was $95.00.
a.
Compute earnings per share and the P/E ratio for 2012. (The P/E ratio equals the stock price divided by earnings per share.)
b.
Compute earnings per share and the P/E ratio for 2013.
c.
Why did the P/E ratio change?
Amigo Software Inc. has total assets of $864,000, current liabilities of $166,000, and long-term liabilities of $149,000. There is $96,000 in preferred stock outstanding. Thirty thousand shares of common stock have been issued.
a.
Compute book value (net worth) per share.
b.
If there is $55,300 in earnings available to common stockholders and the firm’s stock has a P/E of 28 times earnings per share, what is the current price of the stock?
c.
What is the ratio of market value per share to book value per share?
The Rogers Corporation has a gross profit of $707,000 and $329,000 in depreciation expense. The Evans Corporation also has $707,000 in gross profit, with $44,800 in depreciation expense. Selling and administrative expense is $176,000 for each company.
a.
Given that the tax rate is 40 percent, compute the cash flow for both companies.
b.
Calculate the difference in cash flow between the two firms.
A-Rod Fishing Supplies had sales of $2,010,000 and cost of goods sold of $1,350,000. Selling and administrative expenses represented 10 percent of sales. Depreciation was 5 percent of the total assets of $4,070,000.
What was the firm’s operating profit?
Jerry Rice and Grain Stores has $4,040,000 in yearly sales. The firm earns 4 percent on each dollar of sales and turns over its assets 2 times per year. It has $102,000 in current liabilities and $381,000 in long-term liabilities.
a.
What is its return on stockholders’ equity?
b.
If the asset base remains the same as computed in part a, but total asset turnover goes up to 3.00, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do current and long-term liabilities.
A firm has net income before interest and taxes of $156,000 and interest expense of $25,500.
a.
What is the times-interest-earned ratio?
b.
If the firm’s lease payments are $49,500, what is the fixed charge coverage?
The balance sheet for Stud Clothiers is shown next. Sales for the year were $3,190,000, with 75 percent of sales sold on credit.
STUD CLOTHIERS
Balance Sheet 2 ...
Brief Exercise 15-4Ravonette Corporation issued 375 shares of $1.docxAASTHA76
Brief Exercise 15-4
Ravonette Corporation issued 375 shares of $15 par value common stock and 110 shares of $48 par value preferred stock for a lump sum of $20,025. The common stock has a market price of $30 per share, and the preferred stock has a market price of $100 per share.
Prepare the journal entry to record the issuance. (Round answers to 0 decimal places, e.g., 1520. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
Cash
20025
Preferred Stock
Paid-in Capital in Excess of Par - Preferred Stock
Common Stock
Paid-in Capital in Excess of Par - Common Stock
Exercise 15-12
Lotoya Davis Corporation has 10.12 million shares of common stock issued and outstanding. On June 1, the board of directors voted an 62 cents per share cash dividend to stockholders of record as of June 14, payable June 30.
(a) Prepare the journal entry for each of the dates above assuming the dividend represents a distribution of earnings. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
6/1
6/14
6/30
(b) How would the entry differ if the dividend were a liquidating dividend? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
Warning
Exercise 15-19
Shown below is the liabilities and stockholders’ equity section of the balance sheet for Jana Kingston Company and Mary Ann Benson Company. Each has assets totaling $4,418,100.
Jana Kingston Co.
Mary Ann Benson Co.
Current liabilities
$315,600
Current liabilities
$754,600
Long-term debt, 10%
1,281,000
Common stock ($20 par)
2,945,000
Common stock ($20 par)
2,103,000
Retained earnings (Cash dividends, $328,900)
718,500
Retained earnings (Cash dividends, $227,700)
718,500
$4,418,100
$4,418,100
For the year, each company has earned the same income before interest and taxes.
Jana Kingston Co.
Mary Ann Benson Co.
Income before interest and taxes
$1,203,000
$1,203,000
Interest expense
128,100
0
1,074,900
1,203,000
Income taxes (45%)
483,705
541,350
Net income
$591,195
$661,650
At year end, the market price of Kingston’s stock was $101 per share, and Benson’s was $63.50. Assume balance sheet amounts are representative for the entire year.
(a) Calculate the return on total assets? (Round answers to 2 decimal places, e.g. 16.85%.)
Return on total assets
Kingston Company
%
Benson Company
%
Which company is more profitable in terms of return on total assets? (b) Calculate the return on common sto ...
Problems – 5 points each1. Greg and Justin are forming the G.docxwkyra78
Problems – 5 points each
1. Greg and Justin are forming the GJ Partnership. Greg contributes $500,000 cash and Justin contributes nondepreciable property with an adjusted basis of $200,000 and a fair market value of $550,000. The property is subject to a $50,000 liability, which is also transferred into the partnership and is shared equally by the partners for basis purposes. Greg and Justin share in all partnership profits equally except for any precontribution gain, which must be allocated according to the statutory rules for built-in gain allocations.
a. What is Justin’s adjusted tax basis for his partnership interest immediately after the partnership is formed?
b. What is the partnership’s adjusted basis for the property contributed by Justin?
c. If the partnership sells the property contributed by Justin for $600,000, how is the tax gain allocated between the partners?
2. The LN partnership reported the following items of income and deduction during the current tax year: revenues, $200,000; cost of goods sold, $80,000; tax-exempt interest income, $5,000; salaries to employees, $50,000; and long-term capital gain, $5,000. In addition, the partnership distributed $10,000 of cash to 50% partner Nina and $20,000 of cash to 50% partner Len. What is Nina’s share of ordinary partnership income and separately stated items?
3. In the current year, Derek formed an equal partnership with Cody. Derek contributed land with an adjusted basis of $110,000 and a fair market value of $200,000. Derek also contributed $50,000 cash to the partnership. Cody contributed land with an adjusted basis of $80,000 and a fair market value of $230,000. The land contributed by Derek was encumbered by a $60,000 nonrecourse debt. The land contributed by Cody was encumbered by $40,000 of nonrecourse debt. Assume the partners share debt equally. Immediately after the formation, what is the basis of Cody’s partnership interest?
4. Janet Wang is a 50% owner of a calendar year S corporation. During 2012, the S corporation has ordinary income of $175,000, short-term capital gain of $94,000, tax-exempt income of $22,000, and a charitable contribution of $18,000. What S corporation items must Janet report in 2012?
5. Bidden, Inc., a calendar year S corporation, incurred the following items:
Sales
$130,000
Depreciation recapture income
12,000
Short-term capital gain
30,000
Cost of goods sold
(42,000)
Municipal bond interest income
7,000
Administrative expenses
(15,000)
Depreciation expense
(17,000)
Charitable contributions
(14,000)
Calculate Bidden’s nonseparately computed income.
6. During 2012, Ms. Rasic, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2011, Ms. Rasic’s stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. Calculate the amount and type of income Ms. Rasic recognizes in 2012, assuming there is no C ...
8.value1.00 pointsAmerican Health Systems currently has 6.docxalinainglis
8.
value:
1.00 points
American Health Systems currently has 6,400,000 shares of stock outstanding and will report earnings of $13 million in the current year. The company is considering the issuance of 1,500,000 additional shares that will net $60 per share to the corporation.
a.
What is the immediate dilution potential for this new stock issue? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Dilution
$ per share
b-1.
Assume that American Health Systems can earn 8 percent on the proceeds of the stock issue in time to include them in the current year’s results. Calculate earnings per share. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Earnings per share
$
b-2.
Should the new issue be undertaken based on earnings per share?
Yes
No
9.
value:
1.00 points
Assume Sybase Software is thinking about three different size offerings for issuance of additional shares.
Size of Offer
Public Price
Net to Corporation
a.
$
2.4
million
$
46
$
42.60
b.
7.0
million
46
43.20
c.
28.0
million
46
43.50
What is the percentage underwriting spread for each size offer? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
Size of Offer
Underwriting Spread
a.
$2.4 million
%
b.
$7.0 million
%
c.
$28.0 million
%
0.
value:
2.00 points
The Wrigley Corporation needs to raise $35 million. The investment banking firm of Tinkers, Evers, & Chance will handle the transaction.
a.
If stock is utilized, 2,200,000 shares will be sold to the public at $17.20 per share. The corporation will receive a net price of $16.00 per share. What is the percentage underwriting spread per share?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Underwriting spread per share
%
b.
If bonds are utilized, slightly over 35,200 bonds will be sold to the public at $1,006 per bond. The corporation will receive a net price of $993 per bond. What is the percentage of underwriting spread per bond? (Relate the dollar spread to the public price.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Underwriting spread per bond
%
c-1.
Which alternative has the larger percentage of spread?
Stock
Bond
c-2.
Is this the normal relationship between the two types of issues?
Yes
No
11.
value:
2.00 points
Kevin’s Bacon Company Inc. has earnings of $5 million with 2,400,000 shares outstanding before a public distribution. Five hundred thousand shares will be included in the sale, of which 300,000 are new corporate shares, and 200,000 are shares currently owned by Ann Fry, the founder and CEO. The 200,000 shares that Ann is selling are referred to as a secondary offering and all proceeds will go to her.
The net price from the offering will be $18.50 and the corporate proceeds a.
A company declared a $0.25 per share cash dividend. The company ha.docxevonnehoggarth79783
A company declared a $0.25 per share cash dividend. The company has 160,000 shares authorized, 152,000 shares issued, and 6,400 shares in treasury stock. The journal entry to record the dividend declaration is:
Debit Retained Earnings $38,000; credit Common Dividends Payable $38,000.
Debit Retained Earnings $40,000; credit Common Dividends Payable $40,000.
Debit Common Dividends Payable $38,000; credit Cash $38,000.
Debit Retained Earnings $36,400; credit Common Dividends Payable $36,400.
Debit Common Dividends Payable $36,400; credit Cash $36,400.
A company declared a $0.50 per share cash dividend. The company has 460,000 shares authorized, 437,000 shares issued, and 18,400 shares in treasury stock. The journal entry to record the payment of the dividend declaration is:
rev: 02_08_2014_QC_44760
Debit Retained Earnings $218,500; credit Common Dividends Payable $218,500.
Debit Common Dividends Payable $209,300; credit Cash $209,300.
Debit Common Dividends Payable $218,500; credit Cash $218,500.
Debit Retained Earnings $209,300; credit Common Dividends Payable $209,300.
Debit Retained Earnings $230,000; credit Common Dividends Payable $230,000.
A company has earnings per share of $8.70. Its dividend per share is $1.50, its market price per share is $100.92, and its book value per share is $77. Its price-earnings ratio equals:
11.60.
7.60.
8.85.
8.70.
5.80.
Xtreme Sports has $300,000 of 8% noncumulative, nonparticipating, preferred stock outstanding. Xtreme Sports also has $700,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, Xtreme Sports paid cash dividends of $50,000. This dividend should be distributed as follows:
$27,000 preferred; $23,000 common.
$25,000 preferred; $25,000 common.
$0 preferred; $50,000 common.
$12,500 preferred; $37,500 common.
$24,000 preferred; $26,000 common.
A company has net income of $935,000; its weighted-average common shares outstanding are 187,000. Its dividend per share is $0.80, its market price per share is $95, and its book value per share is $86.50. Its price-earnings ratio equals
rev: 03_05_2014_QC_46271
17.30.
19.00.
9.30.
8.50.
7.70.
A company issued 260 shares of $100 par value stock for $31,000 cash. The total amount of paid-in capital in excess of par is:
$100.
$2,600.
$5,000.
$26,000.
$31,000.
A company issued 85 shares of $100 par value stock for $9,500 cash. The total amount of paid-in capital is:
$100.
$1,000.
$850.
$8,500.
$9,500.
The following data were reported by a corporation:
Authorized shares
33,000
Issued shares
28,000
Treasury shares
10,000
The number of outstanding shares is:
43,000.
23,000.
28,000.
18,000.
33,000.
A company's board of directors votes to declare a cash dividend of $1.10 per share. The company has 22,000 shares authorized, 17,000 issued, and 16,500 shares outstanding. The total amount of t.
1. Where is the store based2. How do I pay for my order Is i.docxjackiewalcutt
1. Where is the store based?
2. How do I pay for my order? Is it secure?
3. How much does shipping cost?
4. How long will it take for me to receive my order?
6. I did not get what I ordered. What do I do?
7. Can I return/exchange my t-shirt?
Payroll Chapter
Homework Assignment
Problem 1
Dave earns $16 per hour for up to 40 hours. Over 40 hours is paid at time and one half.
Assume the FICA tax rate of 7.65% (6.2% for social security, 1.45% for medicare) with
the social security limit of $102,000 of annual earnings. Using the information below,
calculate Dave's paycheck:
Hours worked this week: 44
Year-to-date earnings before this week: $101,200
Federal income tax: 20%
Medical withholding: $60
Problem 2
Assume that the total earnings of all the employees for this payroll period is $800,000.
Of the $800,000, $90,000 is exempt from social security as a group of employees are
over the annual limit. Also assume that $25,000 was earned by employees who had not
yet earned $7,000 for the year. Calculate the employer's payroll tax expense for the
week assuming the rates of 5.4% state unemployment and .8% federal unemployment.
Problem 3
Assume the following for the Smith Company:
Total salaries earned:
Administrative $15,000
Sales salaries $10,000
Total $25,000
Withholdings:
FIT $4,750
Social Security $1,550
Medicare $363
Medical insurance $1,200
United Way $250
Total $8,113
Assume the following tax rates:
FICA 7.65% - no employee has gone over the $102,000 limit FICA tax
SUTA 5.4% - only $8,000 of the above payroll is still subject to this tax
FUTA .8% - only $8,000 of the above payroll is still subject to this tax.
Required:
a. Record the general journal entry for the above payroll.
b. Record the general journal entry for the related employer payroll taxes.
Problem 4
Prior Week
EE Hours Rate Salary FIT Medical YTD Earnings Dept
Leonard 40 $16 $125 $30 $6,500 Office
James 45 $18 $200 $50 $54,000 Office
McIntire $5,000 $500 $50 $125,400 Admin
Johnson $2,500 $300 $50 $100,700 Admin
Rose 42 $14 $100 $4,000 Office
Assume the following:
Overtime after 40 hours at time and one-half.
FICA - Social security 6.2% on the first $102,000 of annual earnings
Medicare 1.45%
SUTA - 5.4% of the first $7,000 of annual earnings
FUTA - .8% of the first $7,000 of annual earnings
Required:
a. Record the payroll entry for the current week.
b. Record the employer payroll tax for the current week.
c. Record the entry to pay the FICA for the current week.
Current week
As part of the course, you will be required to complete and submit an information literacy/plagiarism assignment at the end of the course (Pod 8). The assignment details are below, and you will have the entire course to complete the assignment before the final submission.
Assignment Introduction
Sandra and Pierre want to start a business. Pierre has $200,000 in cash and Sandra $350,000 in cash and eq ...
Group assignment on Business Combinationsvictor okoth
FOR SOLUTION OF THE BELOW CASE STUDIES, VISIT AND ASK IT AT ESSAYTUTORS.NET
Group assignment on Business Combinations
Case .1
You have been engaged to audit the financial statements of Solamente Corporation for thefiscal year ended May 31, 2010. You discover that on June 1, 2009, Mika Company hadbeen merged into Solamente in a business combination. You also find that both Solamenteand Mika (prior to its liquidation) incurred legal fees, accounting fees, and printing costsfor the business combination; both companies debited those costs to an intangible assetledger account entitled “Cost of Business Combination.” In its journal entry to record thebusiness combination with Mika, Solamente increased its Cost of Business Combinationaccount by an amount equal to the balance of Mika’s comparable ledger account.
Instructions
Evaluate Solamente’s accounting for the out-of-pocket costs of the business combination with Mika in light of IFRS and GAAP guidelines.
Case .2
You are the controller of Software Company, a distributor of computer software, which isplanning to acquire a portion of the net assets of a product line of Midge Company, a competitorenterprise. The projected acquisition cost is expected to exceed substantially the currentfair value of the identifiable net assets to be acquired, which the competitor has agreedto sell because of its substantial net losses of recent years. The board of directors of Softwareasks if the excess acquisition cost may appropriately be recognized as goodwill.
Instructions
Prepare a memorandum to the board of directors an answer to the question, after consulting the guidelines issued by either FASB or IASB
Case .3
On February 15, 2005, officers of Sun Corporation agreed with George Merlo, sole stockholderof Merlo Company and Merlo Industries, Inc., to acquire all his common stock ownershipin the two companies as follows:
1. 10,000 shares of Shane’s $1 par common stock (current fair value $30 a share) would be issued to George Merlo on February 28, 2005, for his 1,000 shares of $10 par common stock of Merlo Company. In addition, 20,000 shares of Sun common stock would be issued to George Merlo on February 28, 2010, if aggregate net income of Merlo Company for the five-year period then ended exceeded $300,000.
Fundamentals of Taxation 2005 – A Forms ApproachSolutions Manu.docxbudbarber38650
Fundamentals of Taxation 2005 – A Forms Approach
Solution
s Manual
PAGE CHAPTER 14DISCUSSION QUESTIONS AND PROBLEMS
Discussion Questions
1.Discuss the formation of a partnership. Is any gain or loss recognized? Explain?
2. What entity forms are considered partnerships for federal income tax purposes?
3. How does taxation for the corporate form and the partnership form differ?
4. What is the concept of basis? In your discussion, differentiate between outside basis and inside basis.
5. Elaborate on the term basis-in – basis-out. What does that phrase mean in the context of a partnership formation?
6. How can two partners, each with a 50% interest in a partnership, have different amounts of outside basis at the formation of a partnership? Shouldn’t the two partners contribute the same amount to have the same interest?
7. When a partnership receives an asset from a partner, does the partnership ever recognize a gain? What is the basis of the asset in the hands of the partnership after contribution?
8. Discuss the concept of steps into the shoes. Does how this concept pertains to the partnership, the partners, or both?
9. Why would smaller partnerships (and other businesses for that matter) use only the tax basis of accounting, which does not follow GAAP?
10. How is depreciation calculated by the partnership when a partner contributes a business asset?
11. Discuss the concepts of ordinary income and separately stated items concerning partnerships. When must a partnership item of income or loss be separately stated and why?
12. Can a partner have a salary from a partnership? Why? What is a guaranteed payment?
13. Are guaranteed payments treated as an ordinary income items or as separately stated items?
14. Is the Section 179 expense deduction allowed for partnerships? If so, is Section 179 an ordinary income item or a separately stated item? Why?
15. If a partner owns a 20% interest, does that necessarily mean that he or she will receive 20% of the net income from the partnership? Explain?
16. Is partnership income considered self-employment income? If so, how is it calculated?
17. Why must some income and gain items be separately stated in a partnership?
18. Explain why nontaxable income and nondeductible expenses increase or reduce outside basis?
19. When is it mandatory that a partner calculate his or her partner interest basis (outside basis)? What items affect the outside basis of a partner?
20. How does a partner’s share of partnership liabilities affect his or hers outside basis?
21. The general rule is that partners do not recognize any gain when he or she receives a distribution. In what circumstances might a partner recognize a gain on a current distribution?
22. Define precontribution gain? What causes a partner to recognize it?
23. Describe the rules concerning the basis of property distributed to a partner. How does the concept of “basis-in, basis-out” apply to part.
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1. ACCT 424 Week 8 Final Exam Answers
https://homeworklance.com/downloads/acct-424-week-8-final-exam-answers/
ACCT 424 Week 8 Final Exam Answers
1. (TCO 1)
Hunter and
Warren form Tan
Corporation.
Hunter transfers
equipment (basis
of $210,000 and
fair market value
of $180,000),
and Warren
transfers land
(basis of $15,000
and fair market
value of
$150,000) and
$30,000 cash.
Each receives
50% of Tan’s
stock. Which
happens as a
result of these
transfers? (Points
: 5)
Hunter has a
recognized loss
of $30,000;
Warren has a
recognized gain
of $135,000.
Neither Hunter
nor Warren has
any recognized
gain or loss.
Hunter has no
2. recognized loss;
Warren has a
recognized gain
of $30,000.
Tan Corporation
has a basis in the
land of $45,000.
None of the
above
2. (TCO 1)
Samantha
transferred land
worth $200,000
(basis of
$40,000) to
Lava
Corporation, an
existing entity,
for 300 shares
of its stock.
Lava
Corporation has
two other
shareholders,
Timothy and
Brett, each of
whom holds 50
shares. Which
happens with
respect to the
transfer? (Points
: 5)
Samantha
has no
recognized gain.
Lava
Corporation has
3. a basis of
$200,000 in the
land.
Samantha has a
basis of
$200,000 in her
300 shares in
Lava
Corporation.
Both B and C
None of the
above
3. (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? (Points
: 5)
($55,000)
$0
$135,000
$295,000
$160,000
4.
4. (TCO 2)
Silver
Corporation
has average
gross receipts
of $5.7
million, $4.6
million, and
$4.8 million
for the last
three years,
respectively.
Silver is
_____. (Points
: 5)
not subject
to the
corporate
income tax
a small
corporation
with respect to
the AMT
not subject to
the AMT
not a small
corporation
with respect to
the AMT
None of the
above
5. (TCO 3) As of
January 1,
Everest
Corporation has
a deficit in
5. accumulated E &
P of $75,000. For
tax year, current
E & P (all of
which accrued
ratably) is
$40,000 (prior to
any distribution).
On July 1,
Everest
Corporation
distributes
$60,000 to its
sole,
noncorporate
shareholder.
Which is the
amount of the
distribution that
is a
dividend? (Points
: 5)
$0
$40,000
$60,000
$75,000
None of the
above
6. (TCO 3)
Parrot
Corporation
has
accumulated
E & P of
$40,000 on
January 1,
20×1. In
20×1, Parrot
6. has current E
& P of
$45,000
(before any
distribution).
On December
31, 20×1, the
corporation
distributes
$120,000 to
its sole
shareholder,
Michael (an
individual).
Which is
Parrot
Corporation’s
E & P as of
January 1,
20×2? (Points
: 5)
$0
($35,000)
$40,000
$85,000
None of the
above
7. (TCO 4)
Cardinal
Corporation
has 1,000
shares of
common
stock
outstanding.
John owns
300 of the
shares,
7. John’s
grandfather
owns 200
shares,
John’s
daughter
owns 300
shares, and
Redbird
Corporation
owns 200
shares. John
owns 60% of
the stock in
Redbird
Corporation.
How many
shares is John
deemed to
own in
Cardinal
Corporation
under the
attribution
rules of
§318? (Points
: 5)
300
600
720
800
None of the
above
8. (TCO 5)
Francis
exchanges her
20% interest in
Beryl
8. Corporation for
10,000 shares of
Pyrite
Corporation
(value $200,000)
and $40,000
cash. Francis’s
basis in her Beryl
stock is $95,000.
The accumulated
earnings of Beryl
are $325,000,
and the
accumulated
earnings of Pyrite
are $225,000 at
the time of the
reorganization.
How does
Francis treat this
transaction for
tax
purposes? (Points
: 5)
No gain is
recognized by
Francis in this
reorganization.
Francis reports a
$40,000
recognized
dividend
Francis reports a
$40,000
recognized
capital gain.
Francis reports a
$35,000
recognized
dividend and a
$5,000 capital
9. gain.
None of the
above
9. (TCO 6)
How are the
members of
a
consolidated
group
affected by
computations
related to E
& P? (Points
: 5)
E & P is
computed
solely on a
consolidated
basis.
Consolidated
E & P is
computed as
the sum of
the E & P
balances of
each of the
group
members.
Members E
& P balances
are frozen as
long as the
consolidation
election is in
place.
Each member
keeps its own
E & P
10. account.
None of the
above
10. (TCO 11)
Which
statement, if
any, does not
reflect the rules
governing the
negligence
accuracy-
related
penalty?(Points
: 5)
The
penalty rate is
20%.
The penalty is
imposed only
on the part of
the deficiency
attributable to
negligence.
The penalty
applies to all
federal taxes,
except when
fraud is
involved.
The penalty is
waived if the
taxpayer uses
Form 8275 to
disclose a
return position
that is
reasonable,
though
11. contrary, to the
IRS position.
None of the
above
1. (TCO 7) On
January 1 of the
current year,
Rachel and Julio
form an equal
partnership.
Rachel makes a
cash contribution
of $80,000 and a
property
contribution
(adjusted basis of
$110,000, fair
market value of
$80,000) in
exchange for her
interest in the
partnership. Julio
contributes
property (adjusted
basis of $120,000,
fair market value
of $160,000) in
exchange for his
partnership
interest. Which
statement is true
concerning the
income tax results
of this partnership
formation? (Points
: 5)
Rachel has a
$160,000 tax basis
for her partnership
interest.
12. The partnership
has an $80,000
adjusted basis in
the property
contributed by
Rachel.
Rachel recognizes
a $30,000 loss on
her property
transfer.
Julio has a
$120,000 tax basis
for his partnership
interest.
None of the above
2. (TCO 7)
Samantha
and Rebecca
are equal
partners in
the S&R
Partnership.
On January
1 of the
current year,
each
partner’s
adjusted
basis in S&R
was
$240,000.
During the
current year,
S&R
borrowed
$180,000 for
which
Samantha
and Rebecca
are
13. personally
liable. S&R
sustained a
net operating
loss of
$30,000 in
the current
year ended
December
31. If
liabilities are
shared
equally by
the partners,
which is
each
partner’s
basis in her
interest in
S&R on
January 1 of
the next
year? (Points
: 5)
$135,000
$225,000
$240,000
$315,000
None of the
above
3. (TCO 7)
Naomi
contributed
property
($80,000
basis and
fair market
value of
14. $120,000)
to the ABC
Partnership
in exchange
for a 50%
interest in
partnership
capital and
profits.
During the
first year of
partnership
operations,
ABC had
net taxable
income of
$60,000 and
tax-exempt
income of
$56,000.
The
partnership
distributed
$24,000
cash to
Naomi. Her
share of
partnership
recourse
liabilities on
the last day
of the
partnership
year was
$32,000.
Which is
Naomi’s
adjusted
basis
(outside
basis) for
her
partnership
interest at
year-
end? (Points
15. : 5)
$110,000
$146,000
$144,000
$196,000
None of the
above
4. (TCO 8)
During 20×2,
Houston Nutt,
the sole
shareholder of
a calendar-year
S corporation,
received a
distribution of
$16,000. On
December 31,
20×1, his stock
basis was
$4,000. The
corporation
earned $11,000
ordinary
income during
the year. It has
no accumulated
E & P. Which
statement is
correct? (Points
: 5)
Nutt
recognizes a
$1,000 LTCG.
Nutt’s stock
basis will be
16. $2,000.
Nutt’s ordinary
income is
$15,000.
Nutt’s return of
capital is
$11,000.
None of the
above
5. (TCO 8) Which
statement is correct
with respect to an S
corporation? (Points
: 5)
There is no
advantage also to
elect § 1244 stock.
An S corporation
can own 85% of an
insurance company.
An estate may be a
shareholder.
A voting trust
arrangement is not
available.
None of the above
6. (TCO 9)
Which
reduces a
shareholder’s
S corporation
stock
17. basis? (Points
: 5)
Depletion
in excess of
basis of
property
Illegal
kickbacks
Nontaxable
income
Sales
None of the
above
7. (TCO 9) Matt
and Hillary are
husband and
wife, and live in
Pennsylvania.
Using joint
funds, in 1990
they purchase an
insurance policy
on Matt’s life
and designate
their daughter,
Sandra, as the
beneficiary. The
policy has a
maturity value of
$2,000,000. Matt
dies first and the
insurance
proceeds are
paid to Sandra.
As to the
proceeds, (Points
: 5)
18.
8. (TCO 10) The
trustee of the
Washington Trust
is not required to
distribute all of the
current-year annual
accounting income
of the trust to its
sole beneficiary,
Betty. Which is the
trust’s personal
exemption? (Points
: 5
9. (TCO 10) The
Jain Trust is
required to pay its
entire annual
accounting income
to the Daytona
Museum, a
qualifying charity.
Which is the trust’s
personal
exemption? (Points
: 5)
10. (TCO 10)
Pam makes a
gift of land
(basis of
$313,000; fair
market value
of $913,000)
19. to her
granddaughter,
Tracy. As a
result of the
transfer, Pam
paid a gift tax
of $45,000.
Which is
Tracy’s
income tax
basis in the
land? (Points :
5)