Marketing partnership

Question

1.Identify which of the following statements is true.
A) An election for an S corporation to use the Sec. 179 expensing election is made by the corporation and not by its shareholders.
B) The S corporation’s separately stated items are in general the same ones that apply in partnership taxation.
C) An S corporation cannot claim a dividends-received deduction.
D) All are true.

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2.
Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2008. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2008, but had $200,000 of ordinary income. In 2009, ordinary income was $100,000 and distributions were $100,000. What is Tex’s ordinary income for 2008?
A) $0
B) $50,000
C) $100,000
D) $200,000

3.
Identify which of the following statements is false.
A) Randy is a shareholder in an S corporation. His stock basis is $10,000 and his basis in a loan he made to the corporation is $3,000. Randy’s share of the corporation’s ordinary loss for the current year is $11,000. Ignoring the at-risk and passive activity limitations, Randy can deduct the loss in full.
B) A shareholder’s S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.
C) A shareholder’s ratable share of the S corporation’s ordinary loss reduces the adjusted basis of his/her S corporation stock. Once the basis of the stock is reduced to zero, any loss passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder.
D) Debt basis is restored before stock basis.