DeVry ACCT 424 Final Exam

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1.(TCO 1) Hunter and Warren form Tan Corporation. Hunter transfers equipment (basis of $210,000 and fair m
value of $180,000), and Warren transfers land (basis of $15,000 and fair market value of $150,000) and $30,000
Each receives 50% of Tans 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 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
shares of its stock. Lava Corporation has two other shareholders, Timothy and Brett, each of whom holds 50 sh
Which happens with respect to the transfer?(Points : 5)
Samantha has no recognized gain.
Lava Corporation has 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, $13
active income, and $160,000 of portfolio income. How much is Pelicans taxable income?(Points : 5)
($55,000)

$0
$135,000
$295,000
$160,000

4.(TCO 2) Silver Corporation has average gross receipts of $5.7 million, $4.6 million, and $4.8 million for the
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 accumulated E & P of $75,000. For tax year, c
P (all of which accrued ratably) is $40,000 (prior to any distribution). On July 1, Everest Corporation distributes
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, 201. In 201, Parrot has curre
of $45,000 (before any distribution). On December 31, 201, the corporation distributes $120,000 to its sole sha
Michael (an individual). Which is Parrot Corporations E & P as of January 1, 202?(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, J
grandfather owns 200 shares, Johns daughter owns 300 shares, and Redbird Corporation owns 200 shares. John
60% of the stock in Redbird Corporation. How many shares is John deemed to own in Cardinal Corporation und
attribution rules of 318?(Points : 5)
300
600
720
800
None of the above

8.(TCO 5) Francis exchanges her 20% interest in Beryl Corporation for 10,000 shares of Pyrite Corporation (va
$200,000) and $40,000 cash. Franciss basis in her Beryl stock is $95,000. The accumulated earnings of Beryl a
$325,000, and the accumulated earnings of Pyrite are $225,000 at the time of the reorganization. How does Fran
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 gain.
None of the above

9.(TCO 6) How are the members of a consolidated group affected by computations related to E & P?(Points :
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 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 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)
exchange for her interest in the partnership. Julio contributes property (adjusted basis of $120,000, fair market
$160,000) in exchange for his partnership interest. Which statement is true concerning the income tax results o
partnership formation?(Points : 5)
Rachel has a $160,000 tax basis for her partnership interest.
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
partners adjusted basis in S&R was $240,000. During the current year, S&R borrowed $180,000 for which Sa
Rebecca are personally liable. S&R sustained a net operating loss of $30,000 in the current year ended Decem
liabilities are shared equally by the partners, which is each partners basis in her interest in S&R on January 1
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 $120,000) to the ABC Partner
exchange for a 50% interest in partnership capital and profits. During the first year of partnership operations, A
taxable income of $60,000 and tax-exempt income of $56,000. The partnership distributed $24,000 cash to Na
share of partnership recourse liabilities on the last day of the partnership year was $32,000. Which is Naomis
basis (outside basis) for her partnership interest at year-end?(Points : 5)
$110,000
$146,000
$144,000
$196,000
None of the above

4.(TCO 8) During 202, Houston Nutt, the sole shareholder of a calendar-year S corporation, received a distri
$16,000. On December 31, 201, his stock basis was $4,000. The corporation earned $11,000 ordinary income
year. It has no accumulated E & P. Which statement is correct?(Points : 5)
Nutt recognizes a $1,000 LTCG.
Nutts stock basis will be $2,000.
Nutts ordinary income is $15,000.
Nutts 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 shareholders S corporation stock 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 p
insurance policy on Matts life and designate their daughter, Sandra, as the beneficiary. The policy has a matur
$2,000,000. Matt dies first and the insurance proceeds are paid to Sandra. As to the proceeds,(Points : 5)
Matts taxable estate includes $0, and no other tax consequences ensue.
Matts taxable estate includes $2,000,000.
Matts taxable estate includes $0, and Hillary makes a gift of $2,000,000 to Sandra.
Matts taxable estate includes $1,000,000, and Hillary makes a gift to Sandra of $1,000,000.
None of the above

8.(TCO 10) The trustee of the Washington Trust is not required to distribute all of the current-year annual acc
income of the trust to its sole beneficiary, Betty. Which is the trusts personal exemption?(Points : 5)
$600
$300
$100
$0
None of the above

9.(TCO 10) The Jain Trust is required to pay its entire annual accounting income to the Daytona Museum, a q
charity. Which is the trusts personal exemption?(Points : 5)

$600
$300
$100
$0
None of the above

10.(TCO 10) Pam makes a gift of land (basis of $313,000; fair market value of $913,000) to her granddaughte
As a result of the transfer, Pam paid a gift tax of $45,000. Which is Tracys income tax basis in the land?(Poin
$343,000 if the gift was made after 1976
$358,000 if the gift was made after 1976
$328,000 if the gift was made after 1976
$313,000 if the gift was made before 1977
None of the above

1.(TCO 8) Blue Corporation elects S status effective for tax year 2011. As of January 1,
2011, Blues assets were appraised as follows.

Cash
Accounts receivable
Inventory (FIFO)
Investment in land
Building
Goodwill

Adjusted Basis
$16,010
0
$70,000
$110,000
$220,000
0

In each of the following situations, calculate any built-in gains tax, assuming that the
highest corporate tax rate is 35%. C corporation taxable income would have been
$100,000.
(I) During 2011, Blue collects $48,000 of the accounts receivable and sells 80% of the
inventory for $99,000.
(II) In 2012, Blue sells the land held for investment for $203,000.
(III) In 2013, the building is sold for $270,000.(Points : 30)

Fair Market Valu

$16,010
$55,400
$90,000
$195,000
$275,000
$93,000

2.(TCO 7) Chelsea owns a 25% capital and profits interest in the calendar-year CJDV
Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is
$170,000. On that date, she receives a proportionate nonliquidating distribution of the
following assets.

Cash
Inventory
Land (held for investment)

Partnerships Basis in Asset

$90,000
$110,000
$100,000

Assets Fair Market Value

$90,000
$140,000
$160,000

(I) Calculate Chelseas recognized gain or loss on the distribution, if any.

(II) Calculate Chelseas basis in the inventory received.
(III) Calculate Chelseas basis in land received. The land is a capital asset.
(IV) Calculate Chelseas basis for her partnership interest after the distribution.(Points : 30)

3.(TCO 9) Murray owns an insurance policy on the life of his father, Ethan. Upon Ethans
death, the policy proceeds of $2,000,000 are paid to the designated beneficiary, Grace.
What are the tax consequences resulting from Ethans death based on the following
assumptions?(I) Grace is Murrays daughter.
(II) Grace is Murrays wife.
(III) What are the tax consequences if Murray dies first (i.e., predeceases both Grace and
Ethan)?(Points : 30)


4.(TCO 10) In 1985, Scott and Dana acquired land for $600,000, with Scott furnishing
$200,000 and Dana $400,000 of the purchase price. Title to the property is listed as equal
joint tenancy with right of survivorship. Scott died first in 2011, when the land was worth
$3,000,000. What is Danas income tax basis in the property under each of the following
assumptions?(I) Scott and Dana are brothers.
(II) Scott and Dana are husband and wife.
(III) Scott and Dana are husband and wife, and the land is community property.(Points :
30)

5.(ALL TCOs) You are the director of a Washington, D.C., think tank focusing on tax and
economic policy issues. You were recently (and informally) contacted by staff of the
Congressional Joint Committee on Taxation to weigh in on a number of issues currently
under consideration by the committee. In particular, the committee asked you to reflect
upon the following proposed changes and/or issues:(I) The committee has proposed
phasing out 351 of the tax code.
(II) The committee has considered separating the gift and estate tax systems from one
unified system to two completely independent, separate systems.
(III) The committee has considered eliminating the built-in gains tax for S corporations.The
committee would like for you to summarize your conclusions regarding the potential effects
both good and bad of these potential changes. In formulating your answer, please
discuss all of the possible tax and economic implications that you see arising from these
transactions on all taxpayers.(Points : 30)

DeVry ACCT 424 Final Exam

Click on the link below for the solution:

https://devryfinalexams.com/products/acct-424-final-exam/