CHAPTER 22

S CORPORATIONS

Examination Questions

1. During 2013, an S corporation incurs the following transactions.

Net income from operations $60,000

Interest income from savings account 28,000 Long-term capital gain from sale of securities 54,000 Short-term capital loss from sale of securities 44,000

The corporation's passive investment income for 2013 is: a. $28,000. b. $38,000. c. $82,000. d. $142,000. e. None of the above.

2. During 2013, Emerald Corporation incurs the following transactions.

Net income from operations $125,000

Long-term capital gain from sale of securities 55,000

Short-term capital loss from sale of securities 35,000

Emerald maintains a valid S election and does not distribute any dividends to its sole shareholder, Dakota. As a result, Dakota must recognize: a. Ordinary income of $125,000 and long-term capital gain of $20,000. b. Ordinary income of $125,000, long-term capital gain of $55,000, and $35,000 short-term capital loss. c. Ordinary income of $125,000, long-term capital gain of $55,000, and $3,000 short-term capital loss. d. Ordinary income of $125,000. e. None of the above.

3. During the year, an S corporation incurs a $110,000 net operating loss. Eloise, the sole shareholder, has a $75,000 stock basis, and there is a $100,000 balance in AAA at the beginning of the year. Which statement is correct? a. Eloise may show a $110,000 loss deduction on her Form 1040. b. At the end of the year, there is a zero basis in both Eloise’s stock basis and the AAA. c. At the end of the year, Eloise has a zero basis in the stock, and there is a negative $10,000 balance in the AAA. d. Eloise may deduct $100,000 of the loss. e.