FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 4: Entities Overview

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

True/False

Review LaterAdd Note

Review Later

Shareholders of C corporations receiving property distributions must recognize dividend income equal to the fair market value of the distributed property if the distributing corporation has sufficient earnings and profits.

A) True
B) False

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

On which form is income from a single member LLC with one corporate (C corporation) owner reported?

A) Form 1120 used by C corporations to report their income
B) Form 1120S used by S corporations to report their income
C) Form 1065 used by partnerships to report their income
D) Form 1040, Schedule C used by sole proprietorships to report their income
E) None of these

F) A) and B)
G) B) and E)

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

If PST Corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pre-tax income potentially exposed to?

General partnerships are legally formed by filing a partnership agreement with the state in which the partnership will be formed. General partnerships may be formed by written agreement among the partners, called a partnership agreement, or may be formed informally without a written agreement when two or more owners join together in an activity to generate profits.

Which legal entity is generally best suited for going public?

C corporations and S corporations are separate taxpaying entities that pay tax on their own income. S corporations are flow-through entities whose income "flows through" to their owners who are responsible for paying tax on the income.

Which of the following entity characteristics are generally key drivers for small business owners in deciding which entity to choose?

For tax purposes, only unincorporated entities can be considered to be disregarded entities. If an entity is incorporated it is a corporate entity for tax purposes and cannot be a disregarded entity.

Becca would like to organize BMI as either an LLC or as a C corporation generating a 4 percent annual before-tax rate of return on a $450,000 investment. Individual ordinary rates are 28 percent, corporate rates are 15 percent, and individual capital gains and dividends tax rates are 15 percent. BMI will distribute its earnings annually to either its members or shareholders. a. Ignoring self-employment taxes, how much would Becca keep after taxes if BMI is organized as either a LLC or as a C corporation? b. Ignoring self-employment taxes, what are the overall (combined owner and entity level) tax rates if BMI is organized as either an LLC or as a C corporation?

Which of the following is not an effective strategy for mitigating double taxation in a C corporation?

Jaron would like to organize TMZ as either an LLC or as a C corporation generating a 6 percent annual before-tax rate of return on a $200,000 investment. Individual and corporate tax rates are both 40 percent and individual capital gains and dividends tax rates are 10 percent. TMZ will distribute its earnings annually to either its members or shareholders. a. Ignoring self-employment taxes (and the additional Medicare Tax), how much would Jaron keep after taxes if TMZ is organized as either an LLC or a C corporation? b. Ignoring self-employment taxes (and the additional Medicare Tax), what are the overall tax rates (combined overall and entity level) if TMZ is organized as either an LLC or as a C corporation?

If an individual forms a sole proprietorship, which nontax factor will be of greatest benefit to the sole proprietor?

What document must LLCs file with the state to organize their business?

Sole proprietors are subject to self-employment taxes on net income from their sole proprietorships.

Corporations are legally formed by filing articles of organization with the state in which the corporation will be created. Corporations file articles of incorporation.

A single-member LLC is taxed as a partnership. Single-member LLCs are taxed as sole proprietorships.

Roberto and Reagan are both 25 percent owner/managers for Bright Light Enterprises. Roberto runs the retail store in Sacramento, CA, and Reagan runs the retail store in San Francisco, CA. Bright Light generated a $125,000 profit companywide made up of a $75,000 profit from the Sacramento store, a ($25,000) loss from the San Francisco store, and a combined $75,000 profit from the remaining stores. If Bright Light is taxed as a partnership and decides that Roberto and Reagan will be allocated 70 percent of his own store's profit with the remaining profits allocated pro rata among all the owners, how much income will be allocated to Reagan?

Rodger owns 100% of the shares in Trevor Inc., a C corporation. Assume the following for the current year: $\begin{array} { | l | } \hline \text { Trevor Inc.'s pre-tax income } = \$ 16,000 \\\hline \text { Trevor Corp's marginal tax rate } = 35 \% \\\hline \text { Percentage of after-tax earnings retained by Trevor Corp } \\= 0 \% \text { (i.e. all after-tax earnings distributed) } \\\hline \text { Rodger's dividend tax rate } = 5 \% \\\hline\end{array}$ Given these assumptions, how much cash does Rodger have from the dividend after all taxes have been paid?

Unincorporated entities with only one individual owner are taxed as sole proprietorships.

In its first year of existence, BYC Corporation (a C corporation) reported a loss for tax purposes of ($40,000). How much tax will BYC pay in year 2 if it reports taxable income from operations of $35,000 in year 2 before any loss carryovers?