1. The CFO of XYZ Corporation approached the board of directors with a concern that the company might be holding too much in retained earnings. The firm currently has $2,000,000 in accumulated earnings. Which of the following is TRUE?

(1) The corporation could be subject to an accumulated earnings tax if they don't reduce the retained earnings
(2) The penalty for excess accumulated earnings is 20%
(3) Corporations will sometimes retain their earnings to boost stock price
(4) XYZ corporation could keep $250,000 in earnings and not have to worry about any accumulated earnings tax
(5) The board can reduce earnings by declaring a stock dividend

A) 1 and 2 only
2 and 3 only
3, 4, and 5 only
1, 3, 4, and 5 only
E) 1, 2, 3, 4, and 5

2. Roger has a profitable sole proprietor business that he would like to expand more rapidly to meet higher product demands. Roger makes a good income (over $750,000), but he really needs to raise at least another $5,000,000 to meet his expansion plans. Which would be the most appropriate business entity for Roger?

A) S-Corporation
D) Limited Liability Company

3. All of the following statements concerning S-Corporations are correct EXCEPT?

A) S-corporations are prohibited from having a trust as a shareholder
S-corporations are not allowed to have more than 75 shareholders
S-corporations cannot have more than one class of stock
D) S-corporations avoid double taxation with the payment of dividends

4. Betty owns shares of common stock in her local utility company which pays a $2.50 annual dividend directly into her individual brokerage account. Three years prior, she retired from XYZ Company (an S-corporation) and now travels with her husband. She still owns stock in XYZ Company. Which tax documents should Betty expect to receive at year end

I. Schedule C
II. Schedule K-1
III. W-2
IV. 1099-DIV

A) I and II only
B) I and III only
C) II and IV only
D) I and IV only

Which of the following statements is correct concerning Partnerships?

A) A general partner has limited liability
Partnerships continue after the death of a partner
Partnerships must file a tax return Form 1120
Partnerships are considered a "flowthrough" entity because income passes directly through to the individual partners

6. Greg Jones owns 100% of Jones Motors, Inc., which specializes in rebuilding high-end sports cars. Jones Motors, Inc. also owns 45% of an electronics company called FGR Electronics which pays large dividends to their shareholders. How much dividend exclusion (if any) will Jones Motors, Inc. receive?

A) 100% dividend exclusion
80% dividend exclusion
70% dividend exclusion
D) No exclusion

Answer Key

Related Articles
  1. Small Business

    Should You Incorporate Your Business?

    Find out how becoming a corporation can protect and further your finances.
  2. Investing

    How Dividends Work For Investors

    Find out how a company can put its profits directly into your hands.
  3. Investing

    The Truth About Dividends

    Dividends may seem like money for nothing, but they have several implications.
  4. Investing

    Dividend Facts You May Not Know

    Discover the issues that complicate these payouts for investors.
  5. Investing

    How Dividends Affect Stock Prices

    Find out how dividends affect the price of the underlying stock, the role of market psychology and how to predict price changes after dividend declaration.
  6. Investing

    Which Is Best: Cash Dividend Or Stock Dividend?

    Cash dividends are paid to shareholders when a company decides not to use the money for operations, but instead, transfer economic value to its shareholders.
  7. Investing

    Due Diligence On Dividends

    Understanding dividends and how they work will help you become a more informed and successful investor.
  8. Investing

    Understanding Taxes on Mutual Funds Dividends

    Learn about the basics of mutual fund dividend taxation, including how and why mutual funds pay dividends and when different tax rates apply to dividend income.
  9. Taxes

    Explaining Double Taxation

    Double taxation refers to income taxes being imposed twice on the same source of earned income.
  10. Investing

    Dividends Still Look Good After All These Years

    Find out how this "first love" still holds its bloom as it ages.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center