Solved by verified expert :1508. CHAPTER
13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #16
Alice has a 70% interest in a business entity. Her basis for her ownership
interest is $260,000. The net income of the business for the tax year is
$100,000 and the entity liabilities have increased by $50,000. Determine the
effect of the earnings and the liabilities on Alice’s basis for her ownership
interest if the business is:
a.
A C corporation.
b.
An S corporation.
c.
A partnership.
1509. CHAPTER
13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #17
Wren, Inc. is owned by Alfred (30%) and Mabel (70%). Alfred’s marginal tax rate
is 25% and Mabel’s marginal tax rate is 33%. Wren’s taxable income for 2011 is
$400,000.
a.
Determine the amount of the distribution that Wren would make
to enable Alfred and Mabel to pay their tax liabilities associated with
Wren’s $400,000 taxable income if Wren is an S corporation.
b.
If Wren is a C corporation.
1510. CHAPTER
13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #18
Eagle, Inc., a C corporation, distributes $250,000 to its shareholder, Jean,
and land worth $250,000 (adjusted basis of $190,000) to its shareholder, Pam.
Eagle has earnings and profits of $700,000. Determine the tax consequences to
Eagle, Jean, and Pam.
$500,000.
1511. CHAPTER
13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #19
Maurice purchases a bakery from Philip for $410,000. He spends an additional
$150,000 (financed with a nonrecourse loan) updating the bakery equipment.
During the first year of operations as a sole proprietorship, the bakery incurs
a loss of $125,000. Maurice has $300,000 of salary income as the chief
financial officer of a publicly-traded corporation. He has interest income of
$30,000 and dividend income of $50,000.
a.
What amount can Maurice deduct for the loss if he is a
material participant?
b.
What amount can Maurice deduct for the loss if he is not a
material participant?
1512. CHAPTER
13—COMPARATIVE FORMS OF DOING BUSINESS Question PR #20
Lee owns all the stock of Vireo, Inc., a C corporation for which he has an adjusted
basis of $150,000. The assets of Vireo, Inc., are as follows:
Adjusted Basis
FMV
Cash
$35,000
$35,000
Accounts receivable
20,000
20,000
Inventory
22,000
25,000
Building
28,000
30,000
Land
40,000
90,000
Lee sells his stock to Katrina for $200,000.
a.
Determine the tax consequences to Lee.
b.
Determine the tax consequences to Katrina.
c.
Determine the tax consequences to Vireo, Inc.
