Special Deck - Problems Flashcards
Tom, partner in Kellogg Co, received the following distribution from Kellogg:
Kellogg’s Basis FMV
Cash $11,000 $11,000
Land 5,000 12,500
Before distribution, Tom’s basis was $25,000. If this was a non-liquidating ditribution, what would Tom’s recognized gain or loss?
NOTHING. ZERO.
Loss is never recognized on a pro rata partnership nonliquidating distribution, and gain is recognized only if amount of cash exceeds the parner’s interest. If both cash and property are received, cash value reduces basis before noncash property.
In calculating basis, how will a guaranteed payment to a partner figure in with company profits?
Guaranteed payments are always subtracted FIRST before percentage of partnership profits are figured in.
Guaranteed payments are reported as ordinary income on a parnter’s individual 1040.
Clark sold his limited partnership interest for $30,000 and reliefe from all partnership liabilities. It consisted of his capital account for $15,000 and his share of partnership liabilities of $25,000, for an adjusted basis of $40,000. Wht is Clark’s gain or loss on the partnership interest?
Clark received:
$30,000 cash
$25,000 debt relief
$55,000 total
HE gave up:
$40,000 basis
$15,000 gain
In return for a 20% partnership interest, Skinner contributed the following: $5,000 cash; land with $12,000 basis & $10,000 FMV, subject to a $10,000 mortgage that partnership assumed. In addition, partnership had $20,000 in recourse liabilities shared by partners according to partnership interest. What is Skinners basis in his partnership interest?
$5,000 cash, plus
$12,000 property basis, plus
$10,000 mortgage, relief from
$20,000 partnership recourse liabilities x 20%
5,000+12,000-10,000+2,000(20% share of property mortgage) + 4,000(20% of 20,000 recourse liabilitie=$13,000 basis
In deciding whether consideration necessary to form a contract exists, a court must determine whether?
There is mutuality of consideration.
Transactions Article of the UCC, which of the following security agreements does not need to be in writing to be enforceable?
A security agreement collateralizing a debt of less than $500.
A security agreement where the collateral is highly perishable or subject to wide price fluctuations.
A security agreement where the collateral is in the possession of the secured party.
This answer is correct. Generally, security agreements must be in writing to be enforceable. The primary exception to the writing requirement is if the secured party takes physical possession of the collateral, known as a pledge.
Camp orally guaranteed payment of a loan Camp’s cousin Wilcox had obtained from Camp’s friend Main. The loan was to be repaid in 10 monthly payments. After making six payments, Wilcox defaulted on the loan and Main demanded that Camp honor the guaranty. Regarding Camp’s liability to Main, Camp is
Liable under the oral guaranty because the loan would be paid within one year.
Liable under the oral guaranty because Camp benefitted by maintaining a personal relationship with Main.
Not liable under the oral guaranty because Camp’s guaranty must be in writing to be enforceable.
Not liable under the oral guaranty because of failure of consideration.
Not liable under the oral guaranty because Camp’s guaranty must be in writing to be enforceable.
This answer is correct. The guaranty must be in writing to be enforceable under the Statute of Frauds. This is a promise to pay the debt of another.
Sec. 1244 stock permits shareholders to deduct an ordinary loss on sale or worthlessness of stock. Which of the following is correct with respect to qualifying for Sec. 1244 ordinary loss treatment?
The shareholder must be the original holder of stock, and an individual or corporation.
The stock can be common or preferred, voting or nonvoting.
The amount of ordinary loss is limited to $100,000 ($200,000 on joint return); any excess is treated as a capital loss.
The corporation during the 3-year period before the year of loss received more than 50% of its total gross receipts from royalties, rents, dividends, interest, annuities, and gains from sales or exchanges of stock or securities.
This answer is correct. In order to deduct an ordinary loss on sale or worthlessness of stock under Sec. 1244, (1) the shareholder must be the original holder of stock, and an individual or partnership; (2) the stock can be common or preferred, voting or nonvoting; (3) the amount of ordinary loss is limited to $50,000 ($100,000 on joint return); (4) the corporation during the 5-year period before the year of loss received less than 50% of its total gross receipts from royalties, rents, dividends, interest, annuities, and gains from sales or exchanges of stock or securities; and (5) the corporation’s aggregate amount of money and adjusted basis of other property received for stock as a contribution to capital and paid-in surplus does not exceed $1,000,000.
On January 1, 2016, the partners’ interests in the capital, profits, and losses of Mulford Partnership were
Percent of capital, profits, and losses
Rick25%
Tim20%
Jon55%
On January 7, 2016, Tim sold his entire interest to an unrelated person. Rick sold his 25% interest in Mulford to another unrelated person on July 7, 2016. No other transfers of partnership interests took place during 2016. For tax purposes, which of the following statements is correct with respect to the Mulford Partnership?
Mulford terminated as of January 7, 2016.
Mulford terminated as of July 7, 2016.
Mulford terminated as of December 31, 2016.
Mulford did not terminate.
This answer is correct. A partnership is terminated for tax purposes when there is a sale or exchange of 50% or more of the total interests in partnership capital and profits within any 12-month period. Since Tim sold his 20% interest on January 7, 2016, and Rick sold his 25% interest on July 7, 2016, there has been a sale of only 45% of the total interests in partnership capital and profits. Therefore, the partnership did not terminate.
The accumulated earnings tax can be imposed
Regardless of the number of stockholders of a corporation.
On personal holding companies.
On companies that make distributions in excess of accumulated earnings.
On both partnerships and corporations.
This answer is correct. The accumulated earnings tax is a penalty tax that can be imposed on a corporation if it accumulates earnings in excess of reasonable business needs, regardless of the number of shareholders that the corporation has.
The Securities Exchange Act of 1934 requires that certain persons register and that the securities of certain issuers be registered. In respect to such registration under the 1934 Act, which of the following statements is incorrect?
All securities offered under the Securities Act of 1933 also must be registered under the 1934 Act.
National securities exchanges must register.
The equity securities of issuers, which are traded on a national securities exchange, must be registered.
The equity securities of issuers having in excess of $10 million in assets and 500 or more stockholders which are traded in interstate commerce must be registered.
All securities offered under the Securities Act of 1933 also must be registered under the 1934 Act.
This answer is correct because it is a false statement. The Securities Act of 1933 applies to the initial issuance of securities and has the purpose of providing investors with full and fair disclosure concerning these securities. The Securities Exchange Act of 1934 applies to the subsequent trading of securities but not necessarily all securities required to register under the 1933 Act. Thus, a security may be issued under the 1933 Act without needing to be registered under the 1934 Act.
Jones, Smith, and Bay wanted to form a company called JSB Co. but were unsure about which type of entity would be most beneficial based on their concerns. They all desired the opportunity to make tax-free contributions and distributions where appropriate. They wanted earnings to accumulate tax-free. They did not want to be subject to personal holding tax and did not want double taxation of income. Bay was going to be the only individual giving management advice to the company and wanted to be a member of JSB through his current company, Channel, Inc. Which of the following would be the most appropriate business structure to meet all of their concerns?
Proprietorship.
S corporation.
C corporation.
Limited liability partnership.
LLC.
This answer is correct because a limited liability partnership meets most of their concerns. However, earnings do not accumulate tax-free.
Which of the following principals may normally ratify an unauthorized contract made by an agent?
I.Fully disclosed principal.
II.Partially disclosed principal.
III.Undisclosed principal.
I only.
I and II only.
II and III only.
I, II, and III
I and II only.
This answer is correct because both partially disclosed and fully disclosed principals can ratify an unauthorized contact.
Jane wishes to obtain a loan of $90,000 from Silver Corp. At the request of Silver, Jane has entered into an agreement with Bing, Piper, and Long to act as cosureties on the loan. The agreement between Jane and the cosureties stated that the maximum liability of each cosurety is: Bing $60,000, Piper $30,000, and Long $90,000. Based upon the surety relationship, Silver agreed to make the loan. After paying three installments totaling $30,000, Jane defaulted. Prior to making payment, the cosureties may seek the remedy of
Contribution.
Indemnification.
Subrogation.
Exoneration
Exoneration
This answer is correct. Before paying the debt, the surety may seek the remedy of exoneration where the surety files a suit in equity to compel the debtor to pay the creditor. Indemnification, subrogation, and contribution are all remedies available to the surety after he has paid the creditor.
Farr made a gift of stock to her child, Pat. At the date of the gift, Farr’s stock basis was $10,000 and the stock’s fair market value was $15,000. No gift taxes were paid. What is Pat’s basis in the stock for computing gain?
0
$ 5,000
$10,000
$15,000
$10,000
This answer is correct. If property is acquired by gift, its basis for computing a gain is the same as the donor’s adjusted basis, increased by any gift tax paid attributable to the net appreciation in value of the gift. Since no gift tax was paid, Pat’s basis is the same as Farr’s basis, $10,000.
