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)
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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
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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 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)
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$135,000
$225,000
$240,000
$315,000
None of the above
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3.(TCO 7) Naomi contributed property ($80,000 basis and fair market value of $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 : 5)
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$110,000
$146,000
$144,000
$196,000
None of the above
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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)
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Nutt recognizes a $1,000 LTCG.
Nutt’s stock basis will be $2,000.
Nutt’s ordinary income is $15,000.
Nutt’s return of capital is $11,000.
None of the above
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5.(TCO 8) Which statement is correct with respect to an S corporation (Points : 5)
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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
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6.(TCO 9) Which reduces a shareholder’s S corporation stock basis (Points : 5)
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Depletion in excess of basis of property
Illegal kickbacks
Nontaxable income
Sales
None of the above
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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)
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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
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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)
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10.(TCO 10) Pam makes a gift of land (basis of $313,000; fair market value of $913,000) 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)
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