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Exam 4: Business Entities Overview

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Question 21

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Roberto and Reagan are both 25-percent owner/managers for Bright Light Incorporated. Roberto runs the retail store in Sacramento, California, and Reagan runs the retail store in San Francisco, California. Bright Light Incorporated 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 Incorporated is an S corporation, how much income will be allocated to Roberto?

A) $31,250
B) $62,500
C) $75,000
D) $125,000

E) A) and B)
F) C) and D)

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Question 22

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What tax year-end must an unincorporated entity with only one owner adopt?

A) The entity is free to adopt any tax year-end.
B) The entity must adopt the same year-end as its owner.
C) The entity must adopt a calendar year-end.
D) The entity may adopt any year-end except for a calendar year-end.

E) B) and D)
F) B) and C)

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Question 23

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

Crocker and Company (CC) is a C corporation. For the year, CC reported taxable income of $550,000. At the end of the year, CC distributed all its after-tax earnings to Jimmy, the company's sole shareholder. Jimmy's marginal ordinary tax rate is 37 percent and his marginal tax rate on dividends is 23.8 percent, including the net investment income tax. What is the overall tax rate on Crocker and Company's pretax income?

C corporations and S corporations are separate taxpaying entities that pay tax on their own income.

The excess loss limitations apply to owners of all of the following entities except which of the following?

For tax purposes, only unincorporated entities can be considered to be disregarded entities.

Which legal entity is correctly paired with the party that bears the ultimate responsibility for paying the legal entity's liabilities?

What kind of deduction is the deduction for qualified business income?

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.

Which of the following legal entities are generally classified as C corporations for tax purposes?

Which of the following statements is true for a C corporation incurring a NOL for a tax year that begins in 2020?

Generally, which of the following flow-through entities can elect to be treated as a C corporation?

What document must an LLC file with the state to organize its business?

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

A single-member LLC is taxed as a partnership.

Roberto and Reagan are both 25-percent owner/managers for Bright Light Incorporated. Roberto runs the retail store in Sacramento, California, and Reagan runs the retail store in San Francisco, California. Bright Light Incorporated generated a $129,900 profit companywide made up of a $76,400 profit from the Sacramento store, a ($28,500) loss from the San Francisco store, and a combined $82,000 profit from the remaining stores. If Bright Light Incorporated is an S corporation, how much income will be allocated to Roberto?

Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.

What is the maximum number of unrelated shareholders a C corporation can have, the maximum number of unrelated shareholders an S corporation can have, and the maximum number of partners a partnership may have, respectively?

For which type of entity does the entity not pay compensation to an owner who is working for the entity?