EXAM STUDY MATERIALS July 30, 2024 11:26 AM TAX 4001 Final Exam Questions With Correct Answers Which of the following amounts are not subject to self -employment tax? - answer✔✔Limited partner's share of partnership income Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700) to M&W Incorporated in exchange for a 36% interest in M&W Partnership. Determine Mrs. Brinkley's realized and reco gnized gain on the exchange and the tax basis in her partnership interest. - answer✔✔No gain recognized; $111,700 basis in property "Little Magician" is the name of a painting created by artist Lion -o Messy. The owner recently recognized a $43,500 gain on sale of the figurine. Which of the following statements is false? - answer✔✔If a commercial art gallery that had held Little Magician in its inventory was the seller, the gain is ordinary. If a private collector who purchased Little Magician from an art ga llery was the seller, the gain is capital gain. None of these choices are false. If Lion -o was the seller, the gain is ordinary. Answer: none of these choices are false Sandy, Sue, and Shane plan to open Friends, an upscale restaurant. They project that the business will incur a $90,000 operating loss in Year 1, and $75,000 of profit in Year 2. Which of the following statements is true? - answer✔✔If the business is a C corporation, it will owe income tax in Year 2. Which of the following is a capital asse t? - answer✔✔Supplies used in a business None of these choices are correct Business inventory Land used in a business Answer is none of these are correct EXAM STUDY MATERIALS July 30, 2024 11:26 AM Fleet, Incorporated owns 85% of the stock of Pete, Incorporated and 35% of the stock of Zete, Incorporated and 90% of the stock of Bete, Incorporated Bete owns 5% of the stock of Pete and 5% of the stock of Zete. Zete owns 10% of the stock of Bete. The rem aining stock of Pete and Zete is owned by unrelated individuals. Which of the following statements is correct? - answer✔✔Fleet, Pete, and Bete are an affiliated group. Cactus Company is a calendar year S corporation with the following current year informat ion: Operating loss$ (120,000) Liabilities: Notes payable, City Bank20,000 Notes payable, Jake Crow20,000 On January 1, John James bought 50% of Cactus Company stock for $30,000. How much of the operating loss may John deduct on his Form 1040? Assume th e excess business loss limitation does not apply. - answer✔✔$30,000 In its first taxable year, Platform, Incorporated generated a $100,000 net operating loss and made a $10,000 cash donation to a local charity. In its second year, Platform generated $350,0 00 operating income and made a $20,000 donation to the same charity. Compute Platform's taxable income for its second year. Assume neither year is 2020. - answer✔✔$225,000 Cramer Corporation and Mr. Chips formed a partnership in which Cramer is the general partner and Mr. Chips is a limited partner. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. What is Cramer's tax basis in it s partnership interest? - answer✔✔$1,200,000 Mr. and Mrs. Anderson file a joint return. They provide more than 50% of the financial support for their two children, Dana, age 26, and John, age 17. Both children live in the Andersons' home. Dana earned $7,10 0 from a part -time job, while John earned no income this year. Which of the following statements is true? - answer✔✔Dana is neither a qualifying child nor a qualifying relative of the Andersons. Kelly operates a sole proprietorship with qualified business income of $920,000. Her business paid W -2 wages of $250,000 and owns depreciable tangible property with an unadjusted basis of $410,000. Compute Kelly's allowable QBI deduction before the taxable income limitation. - answer✔✔$125,000 Which of the following statements about the inclusion of boot in a nontaxable exchange is false? - answer✔✔the receipt of the boot is triggers recognition of realized gain to the payer EXAM STUDY MATERIALS July 30, 2024 11:26 AM Alice is an unmarried individual. She has $182,340 taxable income in 2021. Compute Alice's regular tax liability if she files as a single taxpayer and if she files as a head of household. - answer✔✔Single $39,175 HOH $37,725 Brace, Incorporated owns 90% of West common stock. This year, Brace generated $50,000 operating income and received $10,000 dividends from West. Brace's taxable income is: - answer✔✔$50,000 Which of the following statements concerning partnerships is false? - answer✔✔A partner is taxed annually on only that portion of a partnership's taxable income that is actually distributed. B&I Incorporated sold a commercial office building used in the corporate business for $862,000. B&I purchased the building in 2011 for a cost of $700,000 and had deducted $167,200 MACRS depreciation through date of sale. B&I should characterize the $329,2 00 gain recognized on sale as: - answer✔✔Capital gain None of these choices are correct Section 1231 gain $167,200 ordinary gain and $162,000 Section 1231 gain Answer: None of these are correct Perry Incorporated and Dally Company entered into an exchange of real property. Here is the information for the properties to be exchanged. PerryDallyFMV$ 500,000 $ 530,000 Adjusted tax basis410,000 283,000 Mortgage70,000 100,000 Pursuant to the exchange, Perry assumed the mortgage on the Dally property, and Dally assumed the mortgage on the Perry property. Compute Perry's gain recognized on the exchange and its tax basis in the property received from Dally. - answer✔✔No gain recog nized; $440,000 basis in the Dally property. (PERRY'S POV) Irby Incorporated was incorporated in 2015 and adopted a calendar year. Here is a schedule of Irby's net Section 1231 gains and (losses) reported on its tax returns through 2020.