Study Guide

BUSINESS ENVIRONMENT AND CONCEPTS EXAMINATION CONTENT

Section One: Business Structure (17–23%)

Topic: Business Organizations

Objective: Describe the formation and dissolution of a corporation.

1. A business entity that is established and set up according to federal or state statutes in which ownership is divided into shares of stock is called a

a. sole proprietorship

b. general partnership

c. unlimited partnership

d. corporation

Topic: Tax Law Basics, Business Structures, and Formation of a Corporation

Objective: Determine the tax consequences of forming a corporation.

2. Matt and Sheila form Krupp Corporation. Matt contributes property with a FMV of $55,000 and a basis of $35,000. Sheila contributes property with a FMV of $75,000 and a basis of $40,000. Matt sells his stock to Paul shortly after the exchange. The transaction will

a. not qualify under Sec. 351

b. qualify under Sec. 351 if Matt can show the sale to Paul was not part of a prearranged plan

c. qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not

d. qualify under Sec. 351 only if an advance ruling has been obtained

Topic: Basics of Flow-Through Entities (S Corporations and Partnerships)

Objective: Compare the tax law requirements for the formations of an S corporation and partnership.

3. Which of the following statements is true?

a. Shareholders who acquire stock in an S corporation after the election date and prior to the election’s effective date must consent to the election.

b. S corporation consent by shareholders is binding on the current tax year and all future tax years.

c. Only shareholders who own stock on the date an S election takes effect must consent to the election.

d. Per the Internal Revenue Code, an organization must elect to become an S corporation if it meets certain criteria.

Topic: Business Organizations

Objective: Differentiate business entities by their advantages and disadvantages.

4. Which of the...