REG Study Group Q2 2015 - Page 101

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  • #192517
    jeff
    Keymaster

    Welcome to the Q2 2015 CPA Exam Study Group for REG.

    “Death and Taxes” – Individual Tax for the CPA Exam

    Posted by Another71 on Monday, November 24, 2014

    Free NINJA: https://www.another71.com/cpa-exam-study-plan/

    AUD - 79
    BEC - 80
    FAR - 76
    REG - 92
    Jeff Elliott, CPA (KS)
    NINJA CPA | NINJA CMA | NINJA CPE | Another71
Viewing 15 replies - 1,501 through 1,515 (of 3,544 total)
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  • #678723
    Anonymous
    Inactive

    I'm struggling with the following question:

    In 2014, RR Trust had a long-term capital gain of $3,000 (allocated to corpus), taxable interest of $2,000 and nontaxable interest of $2,000. The trustee's fee was $400. The trust distributed $1,600 to beneficiaries. RR Trust is a simple trust. The trust's taxable income is:

    A. $0.

    B. $3,000.

    C. $4,000.

    D. $3,700.

    Answer: D, Since the beneficiaries received $1,600, it is assumed that half ($2,000 / $4,000) of the distribution or $800 is from nontaxable income.

    Explanation: Capital gain $ 3,000

    Taxable interest + 2,000

    Trustee fee (1/2) – 200

    Distribution (1/2) – 800

    Exemption – 300


    Taxable income $ 3,700

    My question: Why is the allocation ($2,000/$4,000) limited to just taxable interest and nontaxable interest? Why doesn't it include capital gains, so $2,000/$7,000? I thought gross income on the Income Tax Returns for trusts and estates included capital gains? Obviously I'm missing something, but I would like to figure it out. Thanks!

    #678724
    Anonymous
    Inactive

    because cap gain wasn't distributed?

    #678725
    hunter32
    Member

    Can someone walk me through this one and maybe dumb it down?

    Paul Pappas owns all of the stock of an S corporation which had previously been a C corporation. The S corporation had the following balances at the beginning of its tax year:

    Accumulated adjustments account $ 8,000

    Accumulated earnings and profits 10,000

    Paul's stock basis was $20,000 at the beginning of the tax year. The S corporation made a distribution of $19,000 to Paul during the year. What amount of the distribution is taxable to Paul?

    Select an answer:

    A.

    $0

    B.

    $8,000

    C.

    $10,000

    D.

    $18,000

    BEC - 80 (Becker)
    AUD - 92 (Becker+NINJA MCQ)
    FAR - 87 (Becker+NINJA MCQ)
    REG - 90 (Becker+NINJA MCQ and Audio)

    #678726
    Anonymous
    Inactive

    Is it 10?

    #678727
    Troblin
    Participant

    @ hunter,

    I'm not sure the technical explanation to that question. The short answer is that the 19k distribution hits the 8k AAA and

    10k -AEP.Only the 10k AEP is taxable, and the 8k AAA is non-taxable.

    I believe the remaining 1k is charged against the stock basis as a return of capital. Since basis still exists, there is no additional capital gain which would be taxable.

    FAR: 85(11/22/2014) - Becker(full)/Ninja MCQ (5 day cram)
    AUD: 79 (2/1/2015) -Becker/Ninja MCQ/Ninja Notes
    REG: 84(4/19/2015) -Becker/Ninja MCQ/Ninja Notes
    BEC: 83 (7/13/2015) -Becker/Ninja MCQ/Ninja Notes

    Date I Got My Life Back!: 8/4/2015 🙂

    #678728
    Anonymous
    Inactive

    AEP were earned while this corporation was operating as C corp, so that is just undistributed dividends (taxable). AAA accumulated during the S corp period, it's a flow through entity so these earning were already taxed on 1040 before the distribution

    #678729

    How did he get the %? There are no base stock to calculate the %. Any one can help?

    Quigley, Roberk, and Storm form a corporation. Quigley exchanges $25,000 of legal fees for 30 shares of stock. Roberk exchanges land with a basis of $10,000 and a fair market value of $100,000 for 60 shares of stock. Storm exchanges $10,000 cash for 10 shares of stock. What amount of income should each shareholder recognize?

    Incorrect A.

    Quigley $0, Roberk $0, and Storm $0

    B.

    Quigley $25,000, Roberk $90,000, and Storm $0

    C.

    Quigley $25,000, Roberk $90,000, and Storm $10,000

    D.

    Quigley $0, Roberk $90,000, and Storm $0

    BEC Passed
    FAR Passed
    AUD Passed
    REG Passed

    #678730
    jstay
    Participant

    is it B? I know Quigley has to recognize the services at FMV so that narrowed it down to B or C, I went with B because I don't think the 10,000 is taxable

    #678731

    The answer is B. But how did he come up with the 80% controlling interest is the question.

    The general rule is that transfers of property to a corporation in exchange for stock will be tax-free as long as the transferors are in control of the corporation immediately after the exchange. Control is defined as 80% of both the voting power and number of shares of the stock.

    Quigley contributed services, and services are not considered part of the 80% control group; therefore, he would have to include in income $25,000. Roberk and Storm are the only ones left to be included in the 80% control group; they do not add up to 80% either, so Roberk would include $90,000 in income ($100,000 – $10,000). Storm would include nothing in income as he contributed cash for the stock.

    BEC Passed
    FAR Passed
    AUD Passed
    REG Passed

    #678732
    Anonymous
    Inactive

    They don't have controlling interest, that's why R recognized 90 gain

    #678733
    Gabe
    Participant

    @willpass the 80% control in the answer is a referenced because they do NOT have 80% control. They have 60, 30, and 10

    CPA, CFE
    CISA- Experience will be completed by August 2016

    #678734
    jstay
    Participant

    the oercentages came from the 60, 30, and 10 shares each owned (100 in total). whoever owned 60 shares owns 60% of company. 30 shares = 30% and 10 shares = 10%.

    your saying Roberk recognizes the 90,000 because he didn't own 80%, had he owned 80% he wouldn't recognize anything? This is a C corp right? it says formed a “corporation”

    #678735
    jstay
    Participant

    Wait, is Gabe right or am I regarding the percentages?

    #678736
    Gabe
    Participant

    @jstay correct. If he owned 85 shares of stock he would recognize nothing.

    jstay- I changed my answer because I didn't see the percentages lol. you are correct, in that regard.

    CPA, CFE
    CISA- Experience will be completed by August 2016

    #678737
    Anonymous
    Inactive

    They all should own at least 80%, not one of them

Viewing 15 replies - 1,501 through 1,515 (of 3,544 total)
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