Acc565 Taxation and Estate Planning: Week 11 Final Exam Review

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Acc565Taxation and Estate Planning: Week 11 Final Exam ReviewReport this Question as InappropriateQuestion1Parent and Subsidiary Corporations have filed calendar-year consolidated tax returns for severalyears. Parent Corporation uses the cash method of accounting while Subsidiary Corporation usesthe accrual method of accounting. If Parent lends Subsidiary money,Answerthe interest expense is deductible when accrued.the interest expense and interest income may be reported in different consolidated return years.the interest income is reported when the interest expense is accrued by Subsidiary.the interest expense deduction is taken when Parent reports the interest income.Question 2A consolidated return's tax liability is owed byAnswerall group members in equal portions.the group member responsible for that portion of the tax liability.all group members who are severely liable.the parent corporation.Question 3Albert contributes a Sec. 1231 asset to a partnership on June 1 of this year in exchange for a 10%partnership interest. He had purchased the asset on March 1, 2002. His holding period for thepartnership interest beginsAnswerMarch 1, 2002.March 2, 2002.June 1 of the current year.June 2 of the current year.Question 4Meg and Abby are equal partners in the AM Partnership, which earns $40,000 ordinary income,$6,000 long-term capital gain (LTCG), and $2,000 Sec. 1231 loss during the current year. Whatis the amount and character of income that must be reported on Abby's tax return for this year'spartnership operations?Answer$20,000 ordinary income, $3,000 LTCG, $1,000 Sec. 1231 loss$19,000 ordinary income, $3,000 LTCG$23,000 ordinary income, $1,000 Sec. 1231 loss$22,000 ordinary incomeQuestion 5Allen contributed land, which was being held for sale to Allen's customers, to a partnership inexchange for a 20% interest. The partnership uses the land in its business for three years and thensells the property. When the property was contributed, it had a basis in Allen's hands of $500,000and an FMV of $600,000. The partnership sells the land for $700,000. The gain reported by thepartnership isAnswer$100,000 of ordinary income and $100,000 of Sec. 1231 gain.$100,000 of Sec. 1231 gain and $100,000 of capital gain.

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$200,000 of ordinary income.$200,000 of Sec. 1231 gain.Question 6The AB Partnership has a machine with an FMV of $25,000 and a basis of $20,000. Thepartnership has taken an $8,000 depreciation on the machine. The unrealized receivable relatedto the machine isAnswer$0.$5,000.$8,000.$20,000.Question 7The definition of "inventory" for purposes of Sec. 751 includesAnswercash.land held for investment.marketable securities not held by dealers.depreciation recapture potential on Sec. 1231 assets.Question 8An S corporation isnottreated as a corporate taxpayer with respect to which one of thefollowing fringe benefits?stock optionsqualified retirement plansgroup term life insurance premiumsnonqualified deferred compensationQuestion 9Which one of the following individuals or entities is ineligible to be an S corporationshareholder?Answeran estateresident alien of the United Statesa voting trust where all of the beneficiaries are U.S. citizensa partnership where all of the partners are U.S. citizensQuestion 10The recognition period for the built-in gains tax extends for how many years after the S electiontakes effect?Answerone yearthree yearsfive yearsten yearsQuestion 11In 1998, Delores made taxable gifts to her son of property with an FMV of $200,000. In thecurrent year when Delores dies, the property is worth $800,000. The amount included inDelores's estate tax base because of the 1998 gift isAnswer

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