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Gleim EA Final Questions With Complete Solutions
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Gleim EA Final Questions With Complete Solutions
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Gleim EA Final Questions WithComplete Solutions
A distribution of stock or rights to acquire stock in the
distributing corporation is not included in the recipient's gross
income unless Correct Answers It is either a disproportionate
distribution, or a distribution instead of money or other property.
Usually, a shareholder does not include a distribution of stock or
rights to acquire stock in gross income unless it is (1) a
distribution in lieu of money, (2) a disproportionate distribution,
(3) a distribution on preferred stock, (4) a distribution of
convertible preferred stock, or (5) a distribution of common and
preferred stock, resulting in receipt of preferred stock by some
shareholders and common stock by other shareholders.
A distribution of stock or stock rights is generally considered a
dividend unless it is which of the following? Correct Answers
Proportionate distribution.
A proportionate distribution of stock or stock rights would not
be considered a dividend under Sec. 305(a) and would not be
included in the gross income of the distributee.
A distribution of taxable stock rights or dividends generally is
treated the same as Correct Answers Any other property
distribution, and the holding period begins on the day after the
distribution date.
,If a distribution of a stock dividend or stock right is taxable
when received, the basis is the fair market value on the date of
distribution. When the dividend is taxable, there is no tacking of
the holding period for the underlying stock. The holding period
begins the day following the acquisition date.
A gain on the disposition of Sec. 1245 property is treated as
ordinary income to the extent of Correct Answers
B.Depreciation allowed or allowable.
Answer B is Correct.
A gain on the disposition of Sec. 1245 property is treated as
ordinary income to the extent of the total amount of depreciation
allowed or allowable. The recaptured gain cannot exceed the
amount of the realized gain.
A guaranteed payment by a partnership to a partner for services
rendered may include an agreement to pay
1: A salary of $5,000 monthly without regard to partnership
income.
2: A 25% interest in partnership profits. Correct Answers C.I
only.
Answer C is Correct.
A guaranteed payment is a payment to a partner that is
determined without regard to the partnership income. These
payments can be in addition to regular profit shares and are
deductible by the partnership.
Ace Corporation had $710,000 of gross income from business
operations and $739,000 of allowable business expenses. It also
received $40,000 in dividends from a domestic corporation for
which it can take a 65% deduction, ordinarily limited to 65% of
,its taxable income before the dividends received deduction.
What is Ace's net operating loss (NOL)? Correct Answers
$15,000
Ace Corporation's NOL is computed as follows:
Gross income
$750,000
Less: Expenses
(739,000)
Net income before DRD
11,000
Less: DRD
(26,000)
NOL
$ 15,000
Ordinarily, a DRD is limited to 65% of taxable income unless
the DRD creates an NOL. If an NOL is created, then this limit
does not apply.
Allen purchased a trademark on January 1 of last year for
$150,000. On January 1 of this year, Allen sold the trademark
for $200,000. How much of Allen's gain on the sale of the
trademark is Sec. 1245 gain? Correct Answers D.$10,000
Answer D is Correct.
Under Sec. 197, a trademark is an intangible asset that is
amortizable over a 15-year period, beginning in the month of
acquisition. Total amortization for the period January 1 of last
year through January 1 of this year equals $10,000 ($150,000 ÷
15). Allen's realized gain is $60,000 [$200,000 sales price -
($150,000 cost - $10,000 amortization)]. Section 1245 requires
the gain to be recognized as ordinary income to the extent of the
, amortization taken. Therefore, $10,000 of the $60,000 gain is
Sec. 1245 gain [Sec. 1245(a)(3)].
Alpha is a U.S. corporation that owns 21% of the stock of
Omega, a foreign corporation that is not a foreign personal
holding company. Forty percent of Omega's post-1986
undistributed income is from effectively connected business
sources in the U.S. Alpha's dividend from Omega is $20,000 in
the current year. Alpha has no debt related to its stockholdings.
What is Alpha's dividends-received deduction? Correct
Answers $5,200
A portion of dividends from a foreign corporation 10% or more
of which is owned by a U.S. corporation qualifies for the
dividends-received deduction. The portion of the dividends that
qualifies is the U.S.-source portion of the dividends [Sec.
245(a)]. The U.S.-source portion is the portion of undistributed
earnings earned after 1986 attributable to income effectively
connected with the conduct of a business in the U.S. and subject
to U.S. tax. The dividends-received deduction is 65% for
dividends received from corporations in which the recipient
owns 20% or more of the stock. Therefore, Alpha's dividends-
received deduction is $5,200 ($20,000 dividend × 65% × 40%
effectively connected income).
Andrew transferred an office building that had an adjusted basis
of $180,000 and a fair market value of $350,000 to Barry
Corporation in exchange for 80% of Barry's only class of stock.
The building was subject to a mortgage of $200,000, which
Barry assumed for valid business reasons. The fair market value
of the stock on the date of the transfer was $150,000. What is
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