TAX 4001 Final Exam with 100% 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 pro perty (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 recognized 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 a rt 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 gallery was the seller, the gain is capital gain. None of these choices are false. If Lion -o wa s 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 $75,000 of profit in Year 2. Which of the following statements is true? - ANSWER If the business is a C corporation, it will owe income tax in Year 2. Which of the following is a capital asset? - ANSWER Supplies used in a business None of these choices are correct Business inventory Land used in a business Answer is none of these are correct Fleet, Incorporated owns 85% of the stock of Pete, Incorporated and 35% of the stock of Zete, Incorporated and 90% of the stock of Bete, Incorporated Bete owns 5% of the stock of Pete and 5% o f the stock of Zete. Zete owns 10% of the stock of Bete. The remaining stock of Pete and Zete is owned by unrelated individuals. Which of the following statements is correct? - ANSWER Fleet, Pete, and Bete are an affiliated group. Cactus Company is a cale ndar year S corporation with the following current year information: Operating loss$ (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 the excess business loss limitation does not apply. - ANSWER $30,000 In its first taxable year, Platform, Inco rporated generated a $100,000 net operating loss and made a $10,000 cash donation to a local charity. In its second year, Platform generated $350,000 operating income and made a $20,000 donation to the same charity. Compute Platform's taxable income for it s 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 bu ilding 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 its partnership interest? - ANSWER $1,200,000 Mr. and Mrs. Anderson file a joint return. They provide more tha n 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 $7,100 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 un adjusted 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 i s triggers recognition of realized gain to the payer 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 Singl e $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 concernin g 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 purchase d 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 $329,200 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
