tax exam Multiple Choice
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1-Jazz Corporation owns 10 percent of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.’s taxable income (loss) before the dividend was ($2,000). What is the amount of Jazz’s dividends received deduction on the dividend it received from Williams Corp.?
2-In 2019, AutoUSA Inc. reported $4,600,000 of book receipts, including $20,000 of interest income from tax-exempt bonds. AutoUSA reported $3,600,000 of regular business expenses. If it made $210,000 of estimated tax payments (prepayments) throughout the tax year, compute the following amounts.
Tax due or (tax refund) (enter a tax refund as a negative number with a minus sign, for example -5,000)
Don and Marie formed Paper Lilies Corporation on January 2. Don contributed cash of $400,000 in return for 50 percent of the corporation’s stock. Marie contributed a building and land with the following fair market values and tax-adjusted bases in return for 50 percent of the corporation’s stock.
To equalize the exchange, Paper Lilies Corporation paid Marie $50,000 in addition to her stock.
a. What amount of gain or loss does Marie realize on the formation of the corporation?
b. What amount of gain or loss, if any, does she recognize?
c. What is Marie’s tax basis in the stock she receives in return for her contribution of property to the corporation?
d. What adjusted basis does Paper Lilies Corporation take in the building received from Marie?
e. What adjusted basis does Paper Lilies Corporation take in the land received from Marie?
4-Vanessa is the sole shareholder of V Corporation. V Corporation was formerly a C corporation but is currently an S corporation. At the end of 2019, before considering distributions, V Corporation’s accumulated adjustments account (AAA) balance was $35,000 and its accumulated E&P from its years as a C corporation was $10,000. In 2019 V Corporation distributed $60,000 to Vanessa. What is the amount and character of income Vanessa must recognize on the distribution if her stock basis before considering the distribution was $60,000? What is Vanessa’s stock basis after accounting for the distribution?
AMOUNT OF INCOME
CHARACTER OF INCOME
STOCK BASIS AFTER THE DISTRIBUTION