Principles of Taxation For Business and Investment Planning 2014 17Th Edition Jones Test Bank Full Chapter PDF

Principles of Taxation for Business and
Investment Planning 2014 17th Edition

Jones Test Bank
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1. Haddie's Hats is a regular corporation. The business must file an income tax return each year to
report its taxable income or loss and pay any related taxes.
True False
2. A partnership is an unincorporated business activity owned by at least two taxpayers.
True False
3. A corporate shareholder usually cannot be held personally liable for the debts arising from the
corporate business.
True False
4. Gabriel operates his business as a sole proprietorship. This year the business incurred an
operating loss. The loss can be used to offset other income he earned during the year.
True False
5. Mr. Dilly has expenses relating to a qualifying home office of $14,320. The taxable income
generated by the business before any deduction of home office expenses was $13,700. His
allowable home office deduction is $14,320.
True False
6. Businesses must withhold payroll taxes from payments made to independent contractors and
periodically remit such taxes to the state and federal governments.
True False
7. Matthew earned $150,000 in wages during 2013. FICA taxes withheld by his employer would
have been $11,475.
True False
8. The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of the
employee's wages for the year.
True False
9. Businesses are required by law to withhold federal income tax from the compensation paid to
their employees.
True False
10. Partners may deduct on their individual income tax returns an amount equal to 100% of self-
employment tax paid.
True False
11. Limited partners are prohibited by state law from becoming actively involved in the day-to-day
operations of the partnership.
True False
12. All general partners have unlimited personal liability for the debts of the entity.
True False
13. The allocations made to a partner are reported on Schedule K-1 and are referred to as his or her
distributive share of partnership items.
True False
14. Drake Partnership earned a net profit of $400,000. Four partners share profits and losses equally.
No cash was distributed. The partners will report taxable income from the partnership on their
personal income tax returns for the year.
True False
15. A guaranteed payment may be designed to compensate a partner for personal services rendered
to the partnership.
True False
16. Partners receiving guaranteed payments are not required to pay self-employment tax on such
payments.
True False
17. On June 1, Jefferson had a basis in his partnership interest of $75,000. On June 2, he received a
cash distribution from the partnership of $28,000. All of the cash distribution is taxable.
True False
18. A partner's distributive share of partnership profits will increase his or her tax basis in the
partnership interest.
True False
19. A partner's distributive share of partnership nondeductible expenses does not decrease his or her
tax basis in the partnership interest.
True False
20. A partner's tax basis in his or her partnership interest is decreased by partnership distributions.
True False
21. Carter's share of a partnership's operating loss is $17,200. His tax basis in his partnership
interest before any adjustment for this loss is $26,000. Carter may deduct the full loss on his
individual tax return.
True False
22. John's share of partnership loss was $60,000. He had only enough tax basis to deduct $34,000 of
the loss. He may deduct the remaining loss against other income in the following year, regardless
of what happens in the partnership.
True False
23. A limited liability company with more than one member is generally considered a partnership for
federal tax purposes.
True False
24. A limited liability company that has only one member is generally treated as a disregarded entity
for federal tax purposes.
True False
25. A limited liability company is always taxed as a partnership, regardless of the number of its
members.
True False
26. A major advantage of an S corporation is the ability to specially allocate losses to specific
members of the company.
True False
27. Corporations cannot be shareholders in an S corporation.
True False
28. If a business is formed as an S corporation, its income may be subject to double taxation.
True False
29. Tax savings achieved by operating a business through a pass-through entity, rather than as a C
corporation, is an example of entity variable tax planning.
True False
30. The earnings of a C corporation are taxed only at the shareholder level.
True False
31. The shareholders of an S corporation must pay self-employment tax on their share of the
corporation's ordinary income.
True False
32. A shareholder in an S corporation can include only his or her own loans to the corporation in tax
basis.
True False
33. A shareholder in an S corporation includes in tax basis his or her share of the corporation's
liabilities.
True False
34. Randolph Scott operates a business as a sole proprietorship. This year his net profit was
$10,570. For tax purposes this amount should be reported on:
A. Schedule C, Statement of Profit or Loss from Business

B. The first page of Form 1040 as other income
C. A separate tax return prepared for the business operation
D. Schedule E, Statement of Rent and Royalty Income
35. Aaron James has a qualifying home office. The office is 500 square feet and the entire house is
2,500 square feet. Use the following information to determine his allowable home office
deduction:
A. $5,240
B. $4,140
C. $4,260
D. $21,800
36. Rebecca has a qualifying home office. The room is 600 square feet and the entire house is 3,000
square feet. Use the following information to determine her allowable home office deduction:
A. $3,300 home office deduction

B. $16,500 home office deduction
C. $3,500 home office deduction
D. $4,100 home office deduction
37. Which of the following statements regarding sole proprietorships is false?
A. A sole proprietorship has no legal identity separate from that of its owner.
B. Sole proprietorships are the most common form of business entity in the U.S.
C. The cash flow generated by a sole proprietorship belongs to the owner.
D. The assets and liabilities of a sole proprietorship are held in the name of the business, not the
owner.
38. Which of the following statements regarding the home office deduction is true?
A. In order to qualify for the deduction, a portion of the taxpayer's home must be used regularly
and exclusively to meet with clients or customers.
B. A home office deduction is not allowed for using the home office for administrative or
management activities only.
C. The home office deduction is limited to the taxable income of the business before the
deduction.
D. A depreciation deduction is not allowed for a home office.
39. During 2013, Scott Howell received a salary of $125,000. The social security base amount for
2013 was $113,700. How much payroll tax should have been withheld from Scott's salary for
2013?
A. $0
B. $7,049
C. $9,563
D. $8,862
40. Kelly received a $60,000 salary during 2013. Her federal income tax withholding rate was 20%,
and the Social Security base amount for 2013 was $113,700. What is the total amount that her
employer should have withheld in 2013?
A. $16,590
B. $12,000
C. $4,590
D. $0
41. Sue's 2013 net (take-home) pay was $23,205. Her only payroll deductions were for payroll taxes
and federal income tax. Federal income tax withholdings totaled $4,500. What was the amount of
her gross wages for the year?
A. $25,127
B. $30,000
C. $29,480
D. None of the above
42. During 2013, Margie earned wage income of $300,000. If Margie is single, which of the following
statements regarding her Medicare tax liability is true?
A. Margie will owe both the regular 1.45 percent Medicare tax and the additional .9 percent
Medicare tax on her entire wage income.
B. Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the
additional .9 percent Medicare tax only on her wage income in excess of $200,000.
C. Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the
D. Margie's employer is required to withhold both the regular Medicare tax but does not withhold
the additional .9 percent Medicare tax.
43. During 2013, Elena generated $24,500 of earnings on Schedule C. If Elena had no other earned
income, how much self-employment tax will she owe on her Schedule C net profit?
A. $3,749
B. $3,259
C. $3,009
D. $3,462
44. In 2013, Mike Elfred received a $165,000 salary from his employer and generated $39,000 net
earnings from self-employment from his small business. Which of the following statements is
true?
A. Mike does not owe any self-employment tax because his salary exceeded the 2013 base
amount ($113,700) for federal employment tax.
B. Mike owes both the Medicare and Social Security tax portions of self-employment tax on his
$39,000 earnings from his small business.
C. Mike owes Medicare tax but not Social Security tax on his $39,000 earnings from his small
business.
D. Mike owes Social Security tax but not Medicare tax on his $39,000 earnings from his small
business.
45. Alan is a general partner in ADK Partnership. His partnership Schedule K-1 reports $50,000
ordinary business income, $22,000 guaranteed payment, $5,000 long-term capital gain, and $400
dividend income. Which of these items are subject to self-employment tax?
A. $50,000 ordinary income

B. $50,000 ordinary business income and $22,000 guaranteed payment
C. $50,000 ordinary business income, $22,000 guaranteed payment, and $5,000 long-term
capital gain
D. All income reported on a general partner's Schedule K-1 are subject to self-employment tax
46. Debbie is a limited partner in ADK Partnership. Her partnership Schedule K-1 reports $19,000
ordinary business income, $2,000 long-term capital gain, and $830 dividend income. Which of
these items are subject to self-employment tax?
A. None of the items are subject to SE tax because Debbie is a limited partner.
B. $19,000 ordinary business income
C. $19,000 ordinary business income and $2,000 long-term capital gain
D. All income reported on a partner's Schedule K-1 are subject to self-employment tax.
47. Which of the following statements about partnerships is false?
A. A partnership is a legal entity that may enter into valid contracts.

B. Partnerships are unincorporated entities.
C. Only individuals may be partners in a partnership.
D. Partnerships are sometimes referred to as passthrough entities since they do not pay federal
income tax.
48. Which of the following statements concerning partnerships is false?
A. A properly-drafted partnership agreement is crucial.

B. A general partner's basis in a partnership includes his share of partnership debt.
C. Limited partnerships must have at least one general partner.
D. A partner is taxed annually on only that portion of a partnership's taxable income that is
actually distributed.
49. William is a member of an LLC. His Schedule K-1 reported a $1,200 share of capital loss and a
$3,000 share of Section 1231 gain. William recognized a $4,500 capital gain on the sale of
marketable securities and a $15,000 Section 1231 loss on the sale of business equipment. What
is the net effect of these gains and losses on William's taxable income?
A. $3,300 net capital gain; $12,000 deductible net Section 1231 loss
B. $4,500 net capital gain; $12,000 deductible net Section 1231 loss
C. $4,500 net capital gain; $15,000 deductible net Section 1231 loss
D. $3,300 net capital gain; -0- deductible net Section 1231 loss
50. Alice is a partner in Axel Partnership. Her share of the partnership's 2013 ordinary business
income was $100,000. She received a $60,000 cash distribution from the partnership on
December 1, 2013. Assuming that Alice's marginal tax rate is 39.6%, calculate her after-tax cash
flow from the partnership in 2012.
A. $60,400
B. $39,600
C. $60,000
D. $20,400
51. Hay, Straw and Clover formed the HSC Partnership, agreeing to share profits and losses equally.
Clover will manage the business for which he will receive a guaranteed payment of $30,000 per
year. Cash receipts and disbursements for the year were as follows:
What is Clover's share of the partnership's ordinary income and guaranteed payment?
A. Ordinary income, $30,000; Guaranteed payment, $10,000

B. Ordinary income, $20,000; Guaranteed payment, $10,000
C. Ordinary income, $30,000; Guaranteed payment, $30,000
D. Ordinary income, $20,000; Guaranteed payment, $30,000
52. Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns.
This year, Waters recorded the following items of income and expense:
Waters distributed $25,000 to each of its shareholders during the year. Calculate the S
corporation's ordinary (non-separately stated) income and indicate which items must be
separately stated.
A. Ordinary income, $126,000; long-term capital gain is separately stated

B. Ordinary income, $120,000; interest income and long-term capital gain are separately stated
C. Ordinary income, $136,000; nothing is separately stated
D. Ordinary income, $195,000; interest income, long-term capital gain, and salary costs are
separately stated
Waters distributed $25,000 to each of its shareholders during the year. If Mia has no other
sources of income, what is her gross income for the year?
A. $63,000
B. $60,000
C. $68.000
D. $97,500
54. Martha Pim is a general partner in PLF Partnership. This year, Martha received a $48,000
guaranteed payment from PLF, and her distributive share of PLF's ordinary business income was
$93,200. Which of the following is accurate?
A. Martha must pay income tax on $141,200 and self-employment tax on $48,000.
B. Martha must pay income tax on $141,200 and self-employment tax on $93,200.
C. Martha must pay both income tax and self-employment tax on $141,200.
D. Martha must pay income tax on $48,000 and self-employment tax on $93,200.
Waters distributed $25,000 to each of its shareholders during the year. If Mia's adjusted tax basis
in her partnership interest was $50,000 at the beginning of the year, compute her adjusted tax
basis in her partnership interest at the end of the year.
A. $93,000
B. $118,000
C. $50,000
D. $85,000
56. Bernard and Leon formed a partnership on January 1 with cash contributions of $600,000 and
$200,000, respectively. The partners agree to share profits and losses in the ratio of their initial
capital contributions. The partnership immediately borrowed $800,000. What is Bernard's tax
basis in his partnership interest?
A. $1,200,000
B. $600,000
C. $800,000
D. $1,400,000
57. Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed $500,000
cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The
partnership immediately borrowed $700,000 of recourse debt. What is Cramer's tax basis in its
partnership interest?
A. $500,000
B. $1,200,000
C. $850,000
D. $650,000
58. Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed $500,000
cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The
partnership immediately borrowed $700,000 of recourse debt. What is Mr. Chips' tax basis in its
A. $500,000
B. $1,200,000
C. $850,000
D. $650,000
59. Cramer Corporation and Mr. Chips formed a partnership in which Cramer is the general partner
and Mr. Chips is a limited partner. Cramer contributed $500,000 cash, and Mr. Chips contributed
a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed
$700,000 of recourse debt. What is Cramer's tax basis in its partnership interest?
A. $500,000
B. $1,200,000
C. $850,000
D. $650,000
60. Cramer Corporation and Mr. Chips formed a partnership in which Cramer is the general partner
and Mr. Chips is a limited partner. Cramer contributed $500,000 cash, and Mr. Chips contributed
a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed
$700,000 of recourse debt. What is Mr. Chips' tax basis in its partnership interest?
A. $500,000
B. $850,000
C. $650,000
D. $300,000
61. Jackie contributed $60,000 in cash to a partnership for a 50% interest. This year, the partnership
earned $200,000 ordinary business income, made a $20,000 contribution to the United Way, and
distributed $25,000 cash to Jackie. Her tax basis in the partnership at year end is:
A. $110,000
B. $85,000
C. $125,000
D. $215,000
62. Mutt and Jeff are general partners in M&J Partnership and share profits and losses equally.
Partnership operations for the current tax year were:
Mutt's tax basis in his partnership interest at the beginning of the current year was $12,000. What
is his basis at the beginning of next year?
A. $25,000
B. $37,000
C. $13,000
D. $27,000
63. At the beginning of year 1, Paulina purchased a 25% general partner interest in Gamma
Partnership for $25,000. Paulina's partnership Schedule K-1 for year 1 reported that her share of
Gamma's debt at year-end was $10,000 and her share of ordinary loss was $5,000. On January
1, year 2, Paulina sold her interest to another partner for $22,000 cash. Compute Paulina's gain
or loss on the sale of her partnership interest.
A. $3,000 loss
B. $8,000 loss
C. $2,000 gain
D. $0 gain or loss
64. Gavin owns a 50% interest in London Partnership. His tax basis in his partnership interest at the
beginning of the year was $20,000. His partnership Schedule K-1 showed the following:
Calculate Gavin's tax basis in his partnership interest at the end of the year?
A. $85,000
B. $95,000
C. $75,000
D. $65,000
65. Which of the following statements regarding a partner's tax basis in a partnership interest is
true?
A. Partnership tax basis is increased annually by cash distributions from the partnership.
B. Partnership tax basis is reduced by the partner's share of nondeductible partnership expenses.
C. Partnership tax basis is reduced by the partner's share of nontaxable partnership income.
D. Partnership tax basis becomes negative if allocable losses exceed basis.
66. Perry is a partner in a calendar year partnership. His Schedule K-1 for the current tax year
showed the following:
Perry's tax basis in his partnership interest at the beginning of the year was $15,400. How much
of the ordinary loss may he deduct on his Form 1040?
A. $11,700
B. $14,000
C. $10,200
D. $13,300
67. Alex is a partner in a calendar year partnership. His partnership Schedule K-1 for the current tax
year showed the following:
Alex has a $7,000 loss carry forward from the partnership last year, which he could not deduct
because of the basis limitation. What is his tax basis in his partnership interest at the end of the
current tax year?
A. $41,000
B. $32,500
C. $39,500
D. $34,000
68. Orange, Inc. is a calendar year partnership with the following current year information:
On January 1, John James bought 50% general interest in Orange, Inc. for $30,000. How much
of the operating loss may John deduct on his Form 1040?
A. $60,000
B. $30,000
C. $40,000
D. $50,000
69. Which of the following statements regarding the basis limitation on deduction of partnership
losses is false?
A. If a partner's share of partnership losses exceeds the partner's tax basis in the partnership
interest, the excess is not deductible in the current year.
B. Partnership losses that are not deductible due to the basis limitation can be carried forward
indefinitely.
C. Partners can increase tax basis in their partnership interest only by making additional capital
contributions.
D. If a partnership becomes profitable in the future, the partner's share of such future income will
create basis against which loss carry forwards can be deducted.
70. Funky Chicken is a calendar year general partnership with the following current year information:
On January 1 June Cross bought 60% of Funky Chicken for $45,000. She then loaned the
partnership $20,000. How much of the operating loss may Cross deduct currently?
A. $57,000
B. $80,000
C. $65,000
D. $75,000
71. Which of the following statements regarding limited liability companies is false?
A. Every member of an LLC has limited liability for the LLC's debts.
B. An LLC with only one member is generally treated as a corporation for income tax purposes.
C. An LLC with more than one member is generally treated as a partnership for income tax
purposes.
D. State laws do not limit the number of members or the type of entity that can be a member in an
LLC.
72. Which of the following statements regarding limited liability companies is true?
A. Just like an S corporation, an LLC member's share of ordinary income is not subject to self-
employment taxes.
B. Just like an S corporation, an LLC is restricted to 100 members.
C. Because LLCs are a relatively new organizational form, many tax questions concerning their
operation have yet to be resolved.
D. Just like a limited partnership, only LLC members who are not actively involved in the entity's
business activities have limited liability for the LLC's debts.
73. Which of the following statements regarding S corporations is true?
A. An S corporation may have no more than 50 shareholders.

B. Any individual, estate, corporation, or trust may be an S corporation shareholder.
C. An S corporation may have only one class of stock.
D. An S corporation shareholder's allocable share of ordinary income is subject to self-
employment tax.
74. XYZ, Inc. wishes to make an election to become an S corporation for federal tax purposes. Which
of the following statements regarding the election is false?
A. All of the corporation's shareholders must consent to make an S election.

B. If a shareholder in an S corporation sells his shares of stock to a nonresident alien, the election
will terminate.
C. If an S corporation loses its election, the shareholders cannot make a new election for five
years without IRS consent.
D. All of the shareholders must consent to voluntarily terminating an S election.
75. Grant and Amy have formed a new business to be operated through an S corporation. They each
own 50% of the corporation's outstanding common stock. During the first year of operations, the
business incurred an operating loss of $100,000. In allocating this loss to the shareholders:
A. Grant and Amy must each be allocated $50,000 of the operating loss.
B. If the corporate charter permits, the S corporation can make a special allocation of 100% of the
operating loss to Grant.
C. Because the shareholders have limited liability for the S corporation's debts, they are not
permitted any deduction for the operating loss.
D. The corporation should also consider ownership of any outstanding preferred stock in making
the loss allocation.
76. Loretta is the sole shareholder of Country Collectibles, a calendar year S corporation. Although
Loretta spends at least 40 hours per week supervising Country Collectible's employees, she has
never drawn a salary from the business. Country Collectibles has been in existence for five years
and has earned a profit every year. Loretta withdraws $100,000 cash from the S corporation each
year. Which of the following statements accurately describes the tax consequences of these
withdrawals?
A. The withdrawals are nontaxable, with no risk that they could be recharacterized as taxable
salary or dividend payments.
B. The withdrawals are considered taxable dividends to Loretta.
C. There is significant risk that the IRS could recharacterize the payments to Loretta as salary.
Such treatment would increase taxable income for both Loretta and the S corporation.
D. There is significant risk that the IRS could recharacterize the payments to Loretta as salary.
Such treatment would not change taxable income for Loretta and reduce taxable income of the
S corporation.
77. Loretta is the sole shareholder of Country Collectibles, a calendar year S corporation. Although
Loretta spends at least 40 hours per week supervising Country Collectible's employees, she has
never drawn a salary from the business. Country Collectibles has been in existence for five years
and has earned a profit every year. Loretta withdraws $100,000 cash from the S corporation each
year. As a result of an audit, the IRS asserts that $75,000 of the cash withdrawal should be
considered a salary payment to Loretta. What are the payroll tax consequences of this
recharacterization?
A. No payroll taxes will be owed as a result of the audit.

B. Loretta and Country Collectibles will each be liable for unpaid payroll taxes as a result of the
audit.
C. Only Loretta will be liable for unpaid payroll taxes as a result of the audit.
D. Only Country Collectibles will be liable for unpaid payroll taxes as a result of the audit.
78. Cactus Company is a calendar year S corporation with the following current year information:
On January 1, John James bought 50% of Cactus Company stock for $30,000. How much of the
operating loss may John deduct on his Form 1040?
A. $60,000
B. $30,000
C. $40,000
D. $50,000
79. Funky Chicken is a calendar year S corporation with the following current year information:
On January 1 June Cross bought 60% of Funky Chicken for $45,000. She then loaned the
company $20,000. How much of the operating loss may Cross deduct on her Form 1040?
A. $57,000
B. $80,000
C. $65,000
D. $75,000
80. On January 1, Leon purchased a 10% stock interest in an S corporation for $30,000. He also
loaned the S corporation $5,000 in exchange for a written promissory note. The S corporation
generated a $330,000 operating loss for the year. Leon deducted his 10% share of the loss,
reducing his tax basis in his stock to zero, and his tax basis in the note to $2,000. The following
year, the S corporation repaid the note before Leon restored his basis in the note. What are the
consequences of the loan repayment to Leon?
A. $3,000 capital gain

B. $3,000 ordinary income
C. $2,000 capital gain
D. $2,000 ordinary income
81. In applying the basis limitation on the deduction of S corporation losses, which of the following
statements is true?
A. The basis of a shareholder's interest in an S corporation, for purposes of limiting deductibility

of losses, is computed in the same manner as a partner's basis in a partnership interest.
B. A shareholder is permitted to deduct losses against basis in any debt obligation from the S
corporation to the shareholder.
C. If a shareholder's tax basis in a debt obligation is reduced, any gain resulting from the
repayment of that obligation is considered ordinary income.
D. All of the above statements are false.
82. On January 1, 2013, Conrad Nelson contributed $15,000 cash in exchange for 50 shares of stock
in Sterling Inc., an S corporation. Sterling employs Conrad as its director of marketing. Conrad's
2013 salary was $70,000 and his pro rata share of Sterling's 2013 ordinary business income was
$16,800. During the year, Conrad received a $9,000 cash distribution with respect to his Sterling
stock. Compute Conrad's basis in his Sterling stock on January 1, 2014.
A. $15,000
B. $22,800
C. $31,800
D. $92,800
83. On January 1, 2013, Laura Wang contributed $30,000 cash in exchange for 30 shares of stock in
Suki Inc., an S corporation. On May 12, Laura loaned $8,500 to Suki in exchange for a 5-year
interest-bearing note. Laura's pro rata share of Suki's 2013 ordinary business loss was $34,100,
and she received no cash distributions during the year. Which of the following statements is
accurate?
A. Laura can deduct $30,000 of the loss in 2013. On January 1, 2014, the basis in her Suki stock
is zero, and the basis in her Suki note is $8,500.
B. Laura can deduct $34,100 of the loss in 2013. On January 1, 2014, the basis in her Suki stock
is $4,400, and the basis in her Suki note is zero.
C. Laura can deduct $34,100 of the loss in 2013. On January 1, 2014, the basis in her Suki stock
is zero, and the basis in her Suki note is $4,400.
D. None of the above is accurate.
84. In 2013, William Wallace's sole proprietorship, Western Wear Apparel, generated $140,769
Schedule C net profit ($130,000 net earnings from self-employment). In addition, William
recognized a $25,000 Section 1231 gain on a sale of land formerly used by the business as a
parking lot. The business checking account earned $250 interest income.
a. Which of these income items are subject to self-employment tax?

b. Compute Williams' 2013 self-employment tax, assuming he has no other earned income.
c. Compute the total increase in William's 2013 taxable income attributable to his business.
85. Adam and Barbara formed a partnership to construct an apartment building. Adam contributed
$500,000 cash and Barbara contributed land ($500,000 FMV and $250,000 basis) in exchange
for a 50 percent interest in AB Partnership. Immediately after its formation, the partnership
borrowed $600,000 from a local bank to begin construction. Compute each partner's initial basis
in their partnership interest, assuming that:
a. Adam and Barbara are both general partners.

b. Adam is a limited partner and Barbara is a general partner.
86. Bevo Partnership had the following financial activity for the year:
Compute Bevo's ordinary business income for the year and indicate which items must be
separately stated.
87. Refer to the facts in the preceding problem. Ted is a 20 percent general partner in Bevo.
Bevo Partnership had the following financial activity for the year:
a. Compute Ted's share of partnership ordinary income and separately stated items.
b. If Ted's adjusted basis in his Bevo interest was $30,000 at the beginning of the year, compute
his adjusted basis at the end of the year. Assume that Bevo's debt did not change during the
year.
c. How would your basis computation change if Bevo's debt at the end of the year as $50,000
less than its debt at the beginning of the year?
88. At the beginning of 2013, Quentin purchased a 25 percent general partner interest in Maxim
Partnership for $30,000. Quentin's 2013 Schedule K-1 reported that his share of Maxim's debt at
year-end was $20,000 and his share of ordinary loss was $42,000. On January 1, 2014, Quentin
sold his interest to another partner for $5,000 cash.
a. How much of his share of Maxim's loss can Quentin deduct on his 2013 return?
b. Compute Quentin's recognized gain on sale of his Maxim interest.
c10 Key
1. Haddie's Hats is a regular corporation. The business must file an income tax return each year
to report its taxable income or loss and pay any related taxes.
TRUE
Difficulty: 1 Easy
Jones - Chapter 10 #1
Learning Objective: 10-01 Compute net profit or loss from a sole proprietorship.
2. A partnership is an unincorporated business activity owned by at least two taxpayers.
TRUE
Difficulty: 1 Easy
3. A corporate shareholder usually cannot be held personally liable for the debts arising from the
corporate business.
TRUE
Difficulty: 2 Medium
4. Gabriel operates his business as a sole proprietorship. This year the business incurred an
operating loss. The loss can be used to offset other income he earned during the year.
TRUE
5. Mr. Dilly has expenses relating to a qualifying home office of $14,320. The taxable income
generated by the business before any deduction of home office expenses was $13,700. His
allowable home office deduction is $14,320.
FALSE
Difficulty: 1 Easy
6. Businesses must withhold payroll taxes from payments made to independent contractors and
periodically remit such taxes to the state and federal governments.
FALSE
Learning Objective: 10-02 Compute the FICA payroll taxes and the federal SE tax.
7. Matthew earned $150,000 in wages during 2013. FICA taxes withheld by his employer would
have been $11,475.
FALSE
The social security portion of the payroll tax applies only to the first $113,700 at the rate of
6.2%.
8. The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of
the employee's wages for the year.
FALSE
Difficulty: 1 Easy
9. Businesses are required by law to withhold federal income tax from the compensation paid to
their employees.
TRUE
Difficulty: 1 Easy
10. Partners may deduct on their individual income tax returns an amount equal to 100% of self-
employment tax paid.
FALSE
Difficulty: 1 Easy
11. Limited partners are prohibited by state law from becoming actively involved in the day-to-day
operations of the partnership.
TRUE
Learning Objective: 10-03 Differentiate between a distributive share of partnership income and cash flow.
12. All general partners have unlimited personal liability for the debts of the entity.
TRUE
Difficulty: 1 Easy
13. The allocations made to a partner are reported on Schedule K-1 and are referred to as his or
her distributive share of partnership items.
TRUE
Difficulty: 1 Easy
14. Drake Partnership earned a net profit of $400,000. Four partners share profits and losses
equally. No cash was distributed. The partners will report taxable income from the partnership
on their personal income tax returns for the year.
TRUE
15. A guaranteed payment may be designed to compensate a partner for personal services
rendered to the partnership.
TRUE
Difficulty: 1 Easy
16. Partners receiving guaranteed payments are not required to pay self-employment tax on such
payments.
FALSE
17. On June 1, Jefferson had a basis in his partnership interest of $75,000. On June 2, he
received a cash distribution from the partnership of $28,000. All of the cash distribution is
taxable.
FALSE
Difficulty: 1 Easy
Learning Objective: 10-04 Adjust the tax basis in a partnership interest.
18. A partner's distributive share of partnership profits will increase his or her tax basis in the
partnership interest.
TRUE
Difficulty: 1 Easy
19. A partner's distributive share of partnership nondeductible expenses does not decrease his or
her tax basis in the partnership interest.
FALSE
20. A partner's tax basis in his or her partnership interest is decreased by partnership
distributions.
TRUE
Difficulty: 1 Easy
21. Carter's share of a partnership's operating loss is $17,200. His tax basis in his partnership
interest before any adjustment for this loss is $26,000. Carter may deduct the full loss on his
individual tax return.
TRUE
Difficulty: 1 Easy
Learning Objective: 10-05 Apply the basis limitation on the deduction of partnership losses.
22. John's share of partnership loss was $60,000. He had only enough tax basis to deduct
$34,000 of the loss. He may deduct the remaining loss against other income in the following
year, regardless of what happens in the partnership.
FALSE
23. A limited liability company with more than one member is generally considered a partnership
for federal tax purposes.
TRUE
Difficulty: 1 Easy
Learning Objective: 10-06 Explain how limited liability companies (LLCs) are treated for federal tax purposes.
24. A limited liability company that has only one member is generally treated as a disregarded
entity for federal tax purposes.
TRUE
Difficulty: 1 Easy
25. A limited liability company is always taxed as a partnership, regardless of the number of its
members.
FALSE
26. A major advantage of an S corporation is the ability to specially allocate losses to specific
members of the company.
FALSE
Difficulty: 1 Easy
27. Corporations cannot be shareholders in an S corporation.
TRUE
Learning Objective: 10-07 Determine if a corporation is eligible to be an S corporation.
28. If a business is formed as an S corporation, its income may be subject to double taxation.
FALSE
Difficulty: 1 Easy
29. Tax savings achieved by operating a business through a pass-through entity, rather than as a
C corporation, is an example of entity variable tax planning.
TRUE
30. The earnings of a C corporation are taxed only at the shareholder level.
FALSE
Difficulty: 1 Easy
31. The shareholders of an S corporation must pay self-employment tax on their share of the
corporation's ordinary income.
FALSE
32. A shareholder in an S corporation can include only his or her own loans to the corporation in
tax basis.
TRUE
Difficulty: 1 Easy
Learning Objective: 10-08 Apply the basis limitation on the deduction of S corporation losses.
33. A shareholder in an S corporation includes in tax basis his or her share of the corporation's
liabilities.
FALSE
Difficulty: 1 Easy
Learning Objective: 10-08 Apply the basis limitation on the deduction of S corporation losses.
34. Randolph Scott operates a business as a sole proprietorship. This year his net profit was
$10,570. For tax purposes this amount should be reported on:
A. Schedule C, Statement of Profit or Loss from Business

B. The first page of Form 1040 as other income
C. A separate tax return prepared for the business operation
D. Schedule E, Statement of Rent and Royalty Income
35. Aaron James has a qualifying home office. The office is 500 square feet and the entire house
is 2,500 square feet. Use the following information to determine his allowable home office
deduction:
A. $5,240
B. $4,140
C. $4,260
D. $21,800
($12,000 + $4,000 + $2,500 + $2,200) * 20% = $4,140. $4,140 + $1,100 depreciation = $5,240
36. Rebecca has a qualifying home office. The room is 600 square feet and the entire house is
3,000 square feet. Use the following information to determine her allowable home office
deduction:
A. $3,300 home office deduction

B. $16,500 home office deduction
C. $3,500 home office deduction
D. $4,100 home office deduction
$10,000 + $3,300 + $2,000 + $1,200 = $16,500. $16,500 * 20% = $3,300. $3,300 + $800
depreciation = $4,100; however, there is only $3,500 of income to offset the home office
deduction.
Difficulty: 3 Hard
37. Which of the following statements regarding sole proprietorships is false?
A. A sole proprietorship has no legal identity separate from that of its owner.
B. Sole proprietorships are the most common form of business entity in the U.S.
C. The cash flow generated by a sole proprietorship belongs to the owner.
D. The assets and liabilities of a sole proprietorship are held in the name of the business, not
the owner.
Difficulty: 1 Easy
38. Which of the following statements regarding the home office deduction is true?
A. In order to qualify for the deduction, a portion of the taxpayer's home must be used
regularly and exclusively to meet with clients or customers.
B. A home office deduction is not allowed for using the home office for administrative or
management activities only.
C. The home office deduction is limited to the taxable income of the business before the
deduction.
D. A depreciation deduction is not allowed for a home office.
39. During 2013, Scott Howell received a salary of $125,000. The social security base amount for
2013 was $113,700. How much payroll tax should have been withheld from Scott's salary for
2013?
A. $0
B. $7,049
C. $9,563
D. $8,862
$125,000 * 1.45% = $1,813 Medicare + $113,700 * 6.2% = $4,624 Social Security. Total =
$8,862.
40. Kelly received a $60,000 salary during 2013. Her federal income tax withholding rate was
20%, and the Social Security base amount for 2013 was $113,700. What is the total amount
that her employer should have withheld in 2013?
A. $16,590
B. $12,000
C. $4,590
D. $0
($60,000 * 20%) + ($60,000 * 7.65%)
41. Sue's 2013 net (take-home) pay was $23,205. Her only payroll deductions were for payroll
taxes and federal income tax. Federal income tax withholdings totaled $4,500. What was the
amount of her gross wages for the year?
A. $25,127
B. $30,000
C. $29,480
D. None of the above
x - $4,500 - 7.65% * x = $23,205, so solving for x, 92.35% * x = $27,705, x = $30,000
Difficulty: 3 Hard
42. During 2013, Margie earned wage income of $300,000. If Margie is single, which of the
following statements regarding her Medicare tax liability is true?
A. Margie will owe both the regular 1.45 percent Medicare tax and the additional .9 percent
Medicare tax on her entire wage income.
B. Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the
C. Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the
D. Margie's employer is required to withhold both the regular Medicare tax but does not
withhold the additional .9 percent Medicare tax.
43. During 2013, Elena generated $24,500 of earnings on Schedule C. If Elena had no other
earned income, how much self-employment tax will she owe on her Schedule C net profit?
A. $3,749
B. $3,259
C. $3,009
D. $3,462
$24,500 * 92.35% * 15.3%
Difficulty: 1 Easy
44. In 2013, Mike Elfred received a $165,000 salary from his employer and generated $39,000 net
earnings from self-employment from his small business. Which of the following statements is
true?
A. Mike does not owe any self-employment tax because his salary exceeded the 2013 base
amount ($113,700) for federal employment tax.
B. Mike owes both the Medicare and Social Security tax portions of self-employment tax on
his $39,000 earnings from his small business.
C. Mike owes Medicare tax but not Social Security tax on his $39,000 earnings from his small
business.
D. Mike owes Social Security tax but not Medicare tax on his $39,000 earnings from his small
business.
45. Alan is a general partner in ADK Partnership. His partnership Schedule K-1 reports $50,000
ordinary business income, $22,000 guaranteed payment, $5,000 long-term capital gain, and
$400 dividend income. Which of these items are subject to self-employment tax?
A. $50,000 ordinary income

B. $50,000 ordinary business income and $22,000 guaranteed payment
C. $50,000 ordinary business income, $22,000 guaranteed payment, and $5,000 long-term
capital gain
D. All income reported on a general partner's Schedule K-1 are subject to self-employment tax
Difficulty: 1 Easy
46. Debbie is a limited partner in ADK Partnership. Her partnership Schedule K-1 reports $19,000
ordinary business income, $2,000 long-term capital gain, and $830 dividend income. Which of
these items are subject to self-employment tax?
A. None of the items are subject to SE tax because Debbie is a limited partner.
B. $19,000 ordinary business income
C. $19,000 ordinary business income and $2,000 long-term capital gain
D. All income reported on a partner's Schedule K-1 are subject to self-employment tax.
Difficulty: 1 Easy
47. Which of the following statements about partnerships is false?
A. A partnership is a legal entity that may enter into valid contracts.

B. Partnerships are unincorporated entities.
C. Only individuals may be partners in a partnership.
D. Partnerships are sometimes referred to as passthrough entities since they do not pay
federal income tax.
48. Which of the following statements concerning partnerships is false?
A. A properly-drafted partnership agreement is crucial.

B. A general partner's basis in a partnership includes his share of partnership debt.
C. Limited partnerships must have at least one general partner.
D. A partner is taxed annually on only that portion of a partnership's taxable income that is
actually distributed.
49. William is a member of an LLC. His Schedule K-1 reported a $1,200 share of capital loss and
a $3,000 share of Section 1231 gain. William recognized a $4,500 capital gain on the sale of
marketable securities and a $15,000 Section 1231 loss on the sale of business equipment.
What is the net effect of these gains and losses on William's taxable income?
A. $3,300 net capital gain; $12,000 deductible net Section 1231 loss
B. $4,500 net capital gain; $12,000 deductible net Section 1231 loss
C. $4,500 net capital gain; $15,000 deductible net Section 1231 loss
D. $3,300 net capital gain; -0- deductible net Section 1231 loss
50. Alice is a partner in Axel Partnership. Her share of the partnership's 2013 ordinary business
income was $100,000. She received a $60,000 cash distribution from the partnership on
December 1, 2013. Assuming that Alice's marginal tax rate is 39.6%, calculate her after-tax
cash flow from the partnership in 2012.
A. $60,400
B. $39,600
C. $60,000
D. $20,400
$60,000 cash received - $35,000 tax ($100,000 * 35%)
51. Hay, Straw and Clover formed the HSC Partnership, agreeing to share profits and losses
equally. Clover will manage the business for which he will receive a guaranteed payment of
$30,000 per year. Cash receipts and disbursements for the year were as follows:
What is Clover's share of the partnership's ordinary income and guaranteed payment?
A. Ordinary income, $30,000; Guaranteed payment, $10,000

B. Ordinary income, $20,000; Guaranteed payment, $10,000
C. Ordinary income, $30,000; Guaranteed payment, $30,000
D. Ordinary income, $20,000; Guaranteed payment, $30,000
Ordinary income is $60,000 ($90,000 - $30,000). Clover is allocated 1/3 of the ordinary
income and all of the guaranteed payment.
Difficulty: 3 Hard
52. Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David
Kerns. This year, Waters recorded the following items of income and expense:
Waters distributed $25,000 to each of its shareholders during the year. Calculate the S
corporation's ordinary (non-separately stated) income and indicate which items must be
separately stated.
A. Ordinary income, $126,000; long-term capital gain is separately stated

B. Ordinary income, $120,000; interest income and long-term capital gain are separately
stated
C. Ordinary income, $136,000; nothing is separately stated
D. Ordinary income, $195,000; interest income, long-term capital gain, and salary costs are
separately stated
Ordinary income = $500,000 - $250,000 - $75,000 - $55,000
Difficulty: 3 Hard
Waters distributed $25,000 to each of its shareholders during the year. If Mia has no other
sources of income, what is her gross income for the year?
A. $63,000
B. $60,000
C. $68.000
D. $97,500
50% * ($120,000 ordinary income + $6,000 interest income + $10,000 capital gain)
Difficulty: 3 Hard
54. Martha Pim is a general partner in PLF Partnership. This year, Martha received a $48,000
guaranteed payment from PLF, and her distributive share of PLF's ordinary business income
was $93,200. Which of the following is accurate?
A. Martha must pay income tax on $141,200 and self-employment tax on $48,000.
B. Martha must pay income tax on $141,200 and self-employment tax on $93,200.
C. Martha must pay both income tax and self-employment tax on $141,200.
D. Martha must pay income tax on $48,000 and self-employment tax on $93,200.
Waters distributed $25,000 to each of its shareholders during the year. If Mia's adjusted tax
basis in her partnership interest was $50,000 at the beginning of the year, compute her
adjusted tax basis in her partnership interest at the end of the year.
A. $93,000
B. $118,000
C. $50,000
D. $85,000
$50,000 + $60,000 + $3,000 + $5,000 - $25,000
Difficulty: 3 Hard
56. Bernard and Leon formed a partnership on January 1 with cash contributions of $600,000 and
$200,000, respectively. The partners agree to share profits and losses in the ratio of their
initial capital contributions. The partnership immediately borrowed $800,000. What is
Bernard's tax basis in his partnership interest?
A. $1,200,000
B. $600,000
C. $800,000
D. $1,400,000
$600,000 + ($800,000 * 75%)
Difficulty: 1 Easy
57. Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed
$500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax
basis. The partnership immediately borrowed $700,000 of recourse debt. What is Cramer's tax
basis in its partnership interest?
A. $500,000
B. $1,200,000
C. $850,000
D. $650,000
Difficulty: 1 Easy
58. Cramer Corporation and Mr. Chips formed a general partnership. Cramer contributed
$500,000 cash, and Mr. Chips contributed a building with a $500,000 FMV and $300,000 tax
basis. The partnership immediately borrowed $700,000 of recourse debt. What is Mr. Chips'
tax basis in its partnership interest?
A. $500,000
B. $1,200,000
C. $850,000
D. $650,000
Difficulty: 1 Easy
59. Cramer Corporation and Mr. Chips formed a partnership in which Cramer is the general
partner and Mr. Chips is a limited partner. Cramer contributed $500,000 cash, and Mr. Chips
contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership
immediately borrowed $700,000 of recourse debt. What is Cramer's tax basis in its partnership
interest?
A. $500,000
B. $1,200,000
C. $850,000
D. $650,000
60. Cramer Corporation and Mr. Chips formed a partnership in which Cramer is the general
partner and Mr. Chips is a limited partner. Cramer contributed $500,000 cash, and Mr. Chips
contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership
immediately borrowed $700,000 of recourse debt. What is Mr. Chips' tax basis in its
A. $500,000
B. $850,000
C. $650,000
D. $300,000
61. Jackie contributed $60,000 in cash to a partnership for a 50% interest. This year, the
partnership earned $200,000 ordinary business income, made a $20,000 contribution to the
United Way, and distributed $25,000 cash to Jackie. Her tax basis in the partnership at year
end is:
A. $110,000
B. $85,000
C. $125,000
D. $215,000
$60,000 + ($200,000 * .50) - ($20,000 * .5) - $25,000
Difficulty: 3 Hard
62. Mutt and Jeff are general partners in M&J Partnership and share profits and losses equally.
Partnership operations for the current tax year were:
Mutt's tax basis in his partnership interest at the beginning of the current year was $12,000.
What is his basis at the beginning of next year?
A. $25,000
B. $37,000
C. $13,000
D. $27,000
$12,000 beginning basis + 50% * ($100,000 + $10,000 - $60,000) = $37,000
63. At the beginning of year 1, Paulina purchased a 25% general partner interest in Gamma
Partnership for $25,000. Paulina's partnership Schedule K-1 for year 1 reported that her share
of Gamma's debt at year-end was $10,000 and her share of ordinary loss was $5,000. On
January 1, year 2, Paulina sold her interest to another partner for $22,000 cash. Compute
Paulina's gain or loss on the sale of her partnership interest.
A. $3,000 loss
B. $8,000 loss
C. $2,000 gain
D. $0 gain or loss
Her basis prior to the sale is $30,000 = $25,000 + $10,000 - $5,000. Her amount realized on
the sale is $32,000 = $22,000 cash + $10,000 relief of liabilities
Difficulty: 3 Hard
64. Gavin owns a 50% interest in London Partnership. His tax basis in his partnership interest at
the beginning of the year was $20,000. His partnership Schedule K-1 showed the following:
Calculate Gavin's tax basis in his partnership interest at the end of the year?
A. $85,000
B. $95,000
C. $75,000
D. $65,000
$20,000 + $60,000 + $5,000 increase in share of debt
65. Which of the following statements regarding a partner's tax basis in a partnership interest is
true?
A. Partnership tax basis is increased annually by cash distributions from the partnership.
B. Partnership tax basis is reduced by the partner's share of nondeductible partnership
expenses.
C. Partnership tax basis is reduced by the partner's share of nontaxable partnership income.
D. Partnership tax basis becomes negative if allocable losses exceed basis.
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they said very well, That after the abovementioned
Company above stairs had parted, the Deponent met with
the second master of the French vessel and asked him
how it came about that he was so very familiar and so free
in the Company of that gentleman who was a Prisoner,
Oh! said the master in English which he spoke very well,
you are quite mistaken, this is one of our own friends,
Depones that to the best of the Deponent’s remembrance
this Person staid in town about eight or ten days, that
when the Ship was ready to sail Mergie signed a formal
Warrand for Transporting him in the said ship to France,
and a Guard was placed in order to convey him to the
Boat, That the said Person took a formal protest agt.
Mergie for sending him out of the Kingdom against his
Will, and being Interrogate if he understood the said
Protest to be serious Depones that he did not know what
to think of it and was very much surprised when he
considered of all the proceedings in relation to this person
from first to last, how he was upon his first arrival under a
strick Guard afterwards very much at Liberty and last of all
formally sent aboard of the ship to be transported
seemingly against his will, That when this Person was
going into the Boat and taking his leave of other people
upon the shoar he came up to the deponent and
embracing him very kindly, told him that he was very
sensible of his civilities, and would represent his good
Behaviour to people that he did not then think of, Depones
that he remembers when this person was in Stonhyve,
there was an attempt made by the Ludlow Castle, a Ship
belonging to the King’s Navy, to force the harbour by her
boat with about fifty men or thereby, That upon this
Occasion the unknown person above mentioned was very
active in assisting and directing the French crew about the
manner of Planting their Battery and Defending the
Harbour in which he seemed to have skill, Depones that
Mergie at first when this person was committed to the
Deponent’s custody charged him to be very strict in his
Watch over him, but shortly after desired him to be easy
with him and let him go about his business as he pleased
Depones that he would know this person if he saw him
again But that he knew nothing who he was during the
Time of his stay at Stonhyve, that shortly after he heard
from people that came from the south that it was Sir
James Stewart That a few days after the said person
came to Stonhyve Sir Alexander Bannerman came and
waited upon him at the Mill of Stonhyve immediately after
the Deponent received Orders from Mergie not to be strict
in his guard over the said person Depones that when he
saw the said Person so very active in giving directions
about planting the Cannon against the King’s Boat which
attempted the Harbour he did then and not till then
suspect that his being a Prisoner was a Farce.
6. William Herdman ... Being Interrogate concerning
Sir James Stewart Depones that he had occasion to see
and be in company sometimes with a Gentleman who was
said to be a Prisoner, That for several days after his arrival
he was strictly guarded, but after that was left at large to
go where he pleased, That one Black who came over as
Supercargo on board a French vessel and had gone to the
south about three weeks before Returned again in
company with this unknown gentleman, That he said he
had met with this Gentleman upon the Road but did not
know who he was, That the Deponent sincerely believed
this gentleman by his behaviour and conversation to be a
person well affected to the Government, till the Ludlow
Castle, one of His Majesty’s Ships, appeared and
attempted to make the Harbour with her long Boat and
some men on board, upon which occasion the Deponent
observed that this gentleman seemed to be in some hurry
and concern and as the Deponent was passing near to the
Harbour he saw this gentleman and Mr. Black standing
together and heard the said gentleman calling out with an
appearance of solicitude and Keenness to the people who
were driving down Dung to the shore for Defence of the
Harbour, to go faster, or saying something to that purpose
which occasioned in the Deponent a strong suspicion that
he was in reality in the interest of the Pretender’s Party
But after that when he saw him carried down to the ship
like a Criminal with a Guard about him, the Deponent was
confounded and did not know what to think of it, That
sometime thereafter the Deponent heard a Rumor in the
Country that it was Sir James Stewart, after that Mergie
told him that it was Sir James Stewart and Jocked at his
ignorance in Imagining that he was really a Prisoner.
7. John Lawson, Doctor,[642] ... Being Interrogate
concerning Sir James Stewart Depones that sometime
towards the end of 1745 there arrived a ffrench ship in the
Harbour of Stonhyve That one Black who was said to be
supercargo of the said ship came and Lodged in the
Deponent’s House That shortly after his arrival he went
south, and about a fortnight or three weeks thereafter the
said Mr. Black returned and arrived at the Mill of Stonhyve
and in his company there was an unknown Gentleman
who was immediately taken as a Prisoner by Mergie, That
the Deponent had occasion to see the said Gentleman
about an Hour after his arrival and saw Weileyes (? valise)
or a Bagg which the Deponent was told Mergie had
searched, and in which nothing was remarkable but a
small Duck Bagg with some Pistoll Ball in it and a Black
Cockade, That the Deponent observed about three or four
days after his arrival he was more at liberty only John
Maule Writer in Stonhyve was said always to have him in
custody, the Deponent has seen him alone without
anybody looking after him, That some days after his arrival
Sir Alexr. Bannerman came to Stonhyve Depones that he
had a strong Impression from what he heard talked of
frequently that this Person’s Confinement was only a
Farce, That the Deponent heard some time after the said
Gentleman was put on board the French ship that he was
Sir James Stewart of Goodtrees.
8. John Falconer[643] ... Being Interrogate concerning
Sir James Stewart Depones that a person unknown to
him, said to be a Prisoner of Mergie’s and passed under
the name of Brown lodged in his House, that after the first
three or four days he was left at Liberty to go where he
pleased either upon foot or Horseback upon Parole as the
Deponent heard to Mergie, and the Deponent thinks he
could have easily made his escape if he had a mind the
Deponent has seen him frequently privately in company
with Mergie.
APPENDIX IV
THE GUILDHALL RELIEF FUND
This fund, in the distribution of which Walter Grossett was

concerned, and of which his brother’s widow and children were the
largest beneficiaries, was probably the earliest example of
systematic organisation for the supply of comforts to soldiers in the
field, to the sick and wounded, and for provision for widows and
orphans.
The fund was instituted at the Guildhall, London, on November
27th, 1745, by Sir Richard Hoare, then Lord Mayor. The minute of
the first meeting aptly declares the intention of the founders:—
‘We whose names are underwritten, in Consideration
of the particular Hardships and Inconveniencies which
may be suffer’d by such Soldiers as now are, or shall
hereafter be employ’d in his Majesty’s Service during the
Winter Season, towards the Suppression of the present
unnatural Rebellion, do hereby voluntarily Subscribe and
pay the several Sums set by us against our respective
Names to be applied towards their Relief, Support, and
Encouragement, in such manner, and in such Proportion,
as shall be deem’d to be most necessary and expedient
by a Committee which shall hereafter be appointed for that
Purpose by Us, or the Major Part who shall be present at
any General Meeting, pursuant to an Advertisement in the
London Gazette.’
The result of the efforts of the Lord Mayor and his associates is
recorded in an admirable report printed in 1747.
The report gives a subscription list. There were exactly five
hundred subscriptions, and the total amount subscribed was
£18,910, 0s. 9d. The largest subscription was that of ‘the Rt. Hon.
Lord Chief Justice, Master of the Rolls, Lord Chief Justice Willes,
Lord Chief Baron Parker, and the Honourable Judges, whose gift
was £1200; the smallest that of the parish of St. Thomas, Southwark,
which gave 10s. 9d. In the List are found subscriptions from the
Prince of Wales, £500; the Mayor, Commonalty, and Citizens of the
City of London, £1000; Governor and Company of the Bank of
England, £1000; John Rich from the Theatre Royal in Covent
Garden, £602, 7s.; the Gentlemen Volunteers of the City of London,
£523, 19s. The City Companies subscribe sums varying from £100
to £300, and it is interesting to find in the list the name of Isaac
Watts, D.D., for a subscription of £5, 5s. The Report, which is an
excellent business document, finishes with the following paragraph:
—
‘In this Manner your Committee propose that the
Conclusion of this Subscription should be agreeable to the
Design of its original Institution; since every Calamity you
can remove, or every Comfort you can bestow on Behalf
of the private Soldier, will be giving them so much new
Strength and Vigour to act in Defence of our Liberties, and
Support of our Constitution; wherein both Interest and
Duty, both publick Safety and publick Charity, may be
jointly urged as Motives to your Benevolence. And as to
what has already been expended, if Relief under
Sickness, if Support under Fatigue, if Encouragement
under Dangers, are to be esteemed Acts of Humanity or
Beneficence, by how much stronger Ties were we called
upon to return such Assistance to those who under the
greatest Hazards and Difficulties were protecting us in the
Enjoyment of every Thing that was dear and valuable: And
your Committee flatter themselves that the Zeal which was
exerted on this Occasion, by the Magistrates, Merchants,
and other Inhabitants of this Metropolis, contributed no
less to dispirit the Enemy, than it did to animate our own
Forces, until they obtained that compleat Victory over the
Rebels, which so happily preserved the Religion, Laws
and Liberties of this Kingdom, the inseparable Blessings
of his Majesty’s Government.’
Details of the disbursements of the Fund are given in appendices
which are printed below, and are interesting in the present time of
war for the sake of comparison with similar modern activities. They
are printed from an original copy of the Report in the editor’s
possession.
[Appendix No. I. is the List of Subscriptions.]
APPENDIX No. II
An Account of the Necessaries contracted for, their Patterns
and Price.
STOCKINGS.
Long Hose, furnished by Mr. Stiles, made in
Westmoreland, and by him delivered at 12s. per
Dozen Pair 10,000 Pair.
(Short Hose.) Collected by Mr. Samuel Handley, in
and about London, and by him delivered at the Rate
of 11s. 10d. per Dozen Pair, he declining to make
any Profit thereby 6,504 Pair.
——————
16,504 Pair.
BREECHES.
Contracted for with Messrs. Fullagar and Allen, to be
made of Kersey of the Value of 40s. the Piece, half
of them to be red and half blue, of three Sizes, viz.
2ds, 3ds, and 4ths, at the Rate of 3s. 3½d. each
Pair, with as good Lining, and of the same Make as
the Patterns, delivered in sealed, and all to be
strongly and well sewed, the said Pattern to be the
largest of the three Sizes; Two Thousand Pair, or
upwards, to be delivered each Week, till the Whole
was compleated. 15,000 Pair.
——————
SHIRTS.
Contracted for with Messrs. John and Michael 12,000
Turner, and Mr. Chambers, at the Price of 3s. 6d.
each, all to be made of Scawen’s ⅞ Garlick of the
same Sort and Goodness, with a seal’d Shirt left as
a Pattern; and each Shirt to contain 2 Ells ⅞th of
Cloth, and to be made of the same Size, and in as
good and strong a Manner as the Pattern Shirt, with
the Allowance of 2d. per Shirt for 600 to be made
somewhat better, being intended for the Serjeants,
1,500 to be delivered Weekly until the Whole was
compleated.
——————
WOOLLEN CAPS.
Contracted with the above-named Messrs. Fullagar
and Allen to be made of the same Make and Size
with a sealed Pattern delivered in of blue, red, and
green, the same to be of Long Ells, of 12d. the Yard,
at the Price of 5d. per Cap, the whole Number to be
delivered at Guildhall, on the 1st of January, the
Contract bearing Date the 20th of December, 1745 10,000
——————
BLANKETS.
Contracted for with Messrs. Brooks, sen. and jun. of
Whitney in Oxfordshire, to be nine Quarters wide,
and not above 13s. 6d. per Pair 1,000
——————
WOOLLEN GLOVES.
Furnished by Mr. Stiles, in Westmoreland, and
delivered, being of different Sizes, at the Rate of 5s.
to 6s. and 2d. per dozen Pair, being the prime Cost,
he declining to make any Profit thereby. 12,000 Pair.
——————
WOOLLEN ANKLE SPATTERDASHERS.
Contracted for with the above-named Messrs.
Fullagar and Allen to be made of three Sizes
agreeable to a seal’d Pattern, both as to the
Goodness of the Cloth, and Manner of Sewing and
Making, with flat Metal Buttons, and the Straps of
Ruffia Drab, of the Price of Eighteen Pence
Halfpenny a Pair 9,100 Pair.
——————
APPENDIX No. III
Containing an Account of the Distribution of the Sum of 4000l.
amongst the Regiments engaged at Culloden, the Number
on the Spot, and the Sums allowed to each, according to the
Apportionment transmitted by his Royal Highness the Duke.
Sums allowed
Regiments. Numbers on the Spot.
to each.
Serjts. Corps. Drum. Private. l. s. d.
Royal (1st) 30 37 26 420 265 10 11
Howard (3rd) 24 23 16 493 281 0 6¼
Barrell (4th) 20 23 10 365 213 1 8½
Wolfe (8th) 19 22 18 387 225 17 7¼
Pulteney
(13th) 23 26 18 479 276 5 0¼
Price (14th) 22 22 12 339 202 19 6¼
Sackville
(20th) 23 25 14 464 216 10 6½
Campbell
(21st) 22 22 12 336 225 18 5½
Sempil (25th) 20 25 19 487 277 0 11
Blakeney
(27th) 25 22 12 336 204 8 2½
Cholmondeley
(34th) 22 24 15 433 255 8 2½
Fleming
(36th) 26 22 14 376 225 8 0½
Dejean (37th) 23 24 19 474 273 1 2¼
Conway 21 22 16 342 205 6 5
(48th)
Battereau
(disbanded) 24 33 18 384 236 3 1
Argyllshire
Men 32 30 9 430 259 13 8½
—— —— —— —— —— — —
376 402 252 6602 3893 14 0¾
Serjts. Bombr. Gunnr. Matross. Drum
Train 1 9 15 67 3 102 8 0
—— — —
£ 3996 2 0¾
Overplus 3 17 11¼
—— — —
4000 0 0
N.B.—As the Overplus 3l. 17s. 11¼d. could not be divided amongst the
Regiments it was distributed to some few particular Objects.
The above Sums divided in Proportion to the Pay of the several Ranks,
give to each Man as follows, viz.
REGIMENTS. | TRAIN.
Serjeant £0 19 1½ | Serjeant £1 18 3
Corporal 0 12 9½ | Bombardier 1 11 11
Drummer and Private
| Gunner
Man 0 9 6¾ 1 5 7
Matross and
|
Drummer 0 19 1½
APPENDIX No. IV
Containing an Account of the Needy Widows, and
Orphans of Officers and Soldiers killed at the Battles of
Falkirk and Culloden, who have been relieved by this
Subscription.
Widows and Orphans of Officers.
l
To Lieutenant Colonel Whitney’s Widow 100
Major Brown’s Widow 50
Capt. Grossett’s Widow and 4 Children 150
Capt. Edmonson’s Widow and 1 Child 70
Capt. Launder’s Widow 50
Lieutenant Parry’s Widow and 1 Child 50
Lieutenant Macnaire’s Widow 30
The Widow of Mr. Bourchier and 4 Children 80
—-
580
Widows and Orphans of Serjeants and private Soldiers.
To Hester Mounce (Serjeant’s Widow) and two Daughters 30
Esther Smith, Serjeant’s Widow 17
Ellen Edge (Soldier’s Widow) and five Children 25
Bridget Moore and two Children 20
Jane Fishborne and one Child 15
Widow Nickle and four Children 30
Widow Cole and two Children 20
Widow Perkins and one Child 15
Widow Richards and two Children 20
Widow Gale and two Children 20
Widow Salisbury 10
Widow Newsham and three Children 25
Widow Craig and one Child 15
Widow Combes and one Child 15
Widow Wright and four Children 30
Widow Herbert and two Children 20
Widow Bolton 10
Two Orphans of John Johnson 10
Nineteen other Widows of private Men belonging to the
Glasgow Regiment, at 5l. each 95
Forty Six Orphans at 3l. each 138
——
In all £1160
——-
APPENDIX No. V
Containing an Account of the particular Disbursements.
l. s. d.
To Messrs. Stiles for 10,000 Pair of long Stockings,
and for Wrappers, Package, &c. 508 10 0
To Mr. Handley for 6500 Pair of short ditto, with
Charges of Delivery 321 5 2
To Messrs. Fullagar and Allen for 15,000 Pair of
Breeches 2468 15 0
To Messrs. John and Michael Turner for 6000
Shirts 1052 10 0
To Mr. Abraham Chambers for 6000 ditto 1052 10 0
To Messrs. Fullagar and Allen for 10,000 Caps 208 6 8
To Messrs. Brookes, sen. and jun. for 1000
Blankets 337 10 0
To Messrs. Stiles for 12,000 Pair of Woollen
Gloves, with the Wrappers, &c. 289 18 8
To Messrs. Fullagar and Allen for 9100 Pair of
Spatterdashers. 322 5 10
To the Right Honourable Stephen Poyntz, Esq. for
the Use of the Duke’s Hospital 300 0 0
To the Maimed and Wounded Soldiers from
Preston-Pans 150 0 0
To Mr. Cuthbert Smith, Mayor of Newcastle, for the
Use of the sick Soldiers in those Parts 300 0 0
To ditto, for his Disbursements 26 13 10
To Mr. Alderman Winterbottom, for Package of
Goods sent to Scotland 87 4 6
To his Royal Highness the Duke, for the maim’d
and wounded at Falkirk 300 0 0
To his Royal Highness the Duke—To be
paid for distinguished Acts of Service £1000
divided amongst the Regiments
engaged at Culloden 4000
} 6000 0 0

given to the Subalterns 1000
To Mr. Luke Bell, the Committee’s Agent, for his
Trouble and Subsistence in Scotland, in looking
after the Goods sent thither 124 9 2
To the Widows and Orphans of several Officers
and Soldiers 1160 0 0
To several Soldiers by particular
Recommendations 20 1 0
To Mr. Ford, the Committee’s Secretary, his Bill of
Disbursements for Insurance of Goods to Scotland,
printing Advertisements, Postage of Letters, and
other incident Expences 209 18 3
To ditto, as a Gratuity, for himself and Clerk 200 0 0
To the Chamberlain’s Clerks, Hall-Keepers,
Messengers and Attendants 117 15 0
——————
15,557 13 1
Proposed by the Committee to allow.
l. s. d.
To St. Bartholomew’s
Hospital 1000 0 0
To St. Thomas’s 1000 0 0
To the General Hospital at
Bath 1000 0 0 Being
To the three Infirmaries of } the
Ballance
3352 7 8
London, Westminster, and
Hyde-Park-Corner. 300 0 0
To Expences attending the
closing of Accounts and
printing the Report. 52 7 8
——————
Total of the Money Subscribed 18,910 0 9
——————
APPENDIX V
CARDINAL YORK’S MEMORIAL TO THE POPE
[644]
This document, which belongs to the Earl of Galloway, is printed

by his kind permission. The manuscript bears the following
endorsement:—
‘Cardinal of York’s Memorial presented to Pope
Clement 13th on the absurdity of the See of Rome in
refusing to acknowledge the title of the Cardinal’s Brother
(Charles Edward) to the Crown of England on the death of
their father in 1766.
‘This paper was given me by my revered Relative, Dr.
John Cooke, President of C.C.C., who was at Rome at this
time, and well known to Cardinal York, tho’ a firm
Protestant, in early life he was a friend to the legitimate
Succession.—It is not improbable that he copied this from
the original manuscript.
V. T.
‘June 16, 1825.’
A letter from the Hon. Charles Stewart, fellow of All Souls,
afterwards the Bishop of Quebec, to his brother, the eighth Earl of
Galloway, dated Nov. 26th, 1825, explains that the initials on the
endorsement are those of the Rev. Vaughan Thomas, at one time of
Corpus Christi College, Oxford. Mr. Thomas desired that the
manuscript should be given to Lord Galloway, whom he considered
to be the proper person to possess so interesting a Stuart document.
MEMORIA
Sopra la necessità indispensabile, nella quale si trova
la Santa Sede di dover riconoscere per unici, e legittimi
Successori del Regno d’Inghilterra la Real Casa Stuarda,
e sopra la Incoérenza ed assurdi, che ne seguirebbero dal
fare il contrario con poco decoro della Santa Sedi
Medesima.
Chi stende la memoria si dichiara di non voler aprire
un libro appoggiando i suoi Raziocinj su i fatti pubblici e
notorj.
Niuno nel Mondo ignora qualmente il Rè Giacomo
Secondo fù cacciato dal suo Regno unicamente in odium
Religionis. Gl’istissi Fanton della di lui espulsione erano i
primi a non mettere in controversia due principj infallibili. Il
primo, che il Regno d’Inghilterra era di sua natura
successivo; Il Secondo che la Real Persona di Giacomo
Secondo fosse il legittimo Successore: Per ritrovare
adunque un apparente pretesto di cacciarnelo senza
distruggere il diritto della successione che secondo le
leggi è inalterabile, per servire ai loro disegni misero fuori
le stabilimento già fatto per legge nel Regno della
Religione Anglicana; e piantando per Massima, che
l’essere il Rè Cattolico fosse un imminente e continuo
péricolo della distruzzione e sovversione di tal legge,
fecero un Decreto di Parlamento in cui pretendendo di
Spiegare lo Spirito della legge di successione dichiarono
nel tempo stesso, che non potesse essere atto a
succedere chiunque fosse della Religione Cattolica o
ricusasse di conformassi alla Religione dominante.
In Virtù dunque di questo atto fù ingiustamente, ed
iniquamente cacciato Giacomo Secondo e la sua prole
cattolica dal suo regno e chiamato a succedere il più
prossimo erede Protestanti, il che ha prosequito fino a dì
nostri non solamente nelle Persone delle due Figlie dell’
istisso Giacomo Secondo per essere Protestanti ma
ancora nelle Persone dei Principi della casa d’Hannover,
per essere questi i più prossimi Eredi Protestanti; in prova
di che chiunque è ben informato delle Storie di Principi di
questo secolo, sà, che la Principissa Anna, da loro
chiamata Regina, volendo favorire Giacomo terzo suo
Fratello ad esclusione della casa di Hannover spedi
persone accreditate per indurlo a dichiararsi Protestante
ed in questa maniera togliere l’unico impedimento, che
ostasse al possesso del di lui Regno, ma quella
medesima assistenza speciale di Dio, che diè forza a
Giacomo Secondo suo Padre di Sagrificare trè Regni per
la S. Fede, diè altresi forza al di lui Figlio di ricusare
corragiosamente si fatta proposizione per ricuperarli.
Ciò presupposto è cosa indubitata, che anche a Giorni
nostri la S. Sede non canonizza niun trattato di Pace, a cui
per mezzo de’ suoi Ministri non intervenga, e molto meno
approva qualunque atto, che possa essere o direttamente
o indirettamente lesivo de’ suoi dritti e della S. Chiesa, il di
cui Capo è il Sommo Pontefice Vicario di Gesù Cristo;
Anzi a Misure, che se ne danno le occasioni, vi si fanno
contro le dovute proteste. Or’ chi può mettere in dubbio, o
negare, che possa darsi un Decreto pubblico più
direttamente contrario alla nostra S. Fede, e
conseguentamente più lesivo dei dritti della S. Madre
Chiesa di quello di cui si tratta; per mezzo del quale viene
privato dei diritto della successione chiunque porta
impresso il fortunato carattere di essere di lei figliuolo.
Quindi e che i sommi Pontefici principiando da Innocenzo
11o di Santa Memoria giudicarono non essere uopo di fare
alcuna esplicita protesta contro di un si iniquo decreto
servendosi e bastandogli in luogo di questa il continuato
riconoscimento, che ha fatto la S. Sede della Casa Reale
Stuarda per gli unici e legittimi successori del Regno, in
consequenza di che veniva la S. Sede medesima a
risguardare per nullo il Decreto stesso che per indiretto e
tacitamente averebbe approvato sempre che soltanto
negato avesse ai legittimi Successori Cattolici il dovuto
riconoscimento.

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Principles of Taxation for Business and

Investment Planning 2014 17th Edition

2. A partnership is an unincorporated business activity owned by at least two taxpayers.

A. Schedule C, Statement of Profit or Loss from Business

A. $3,300 home office deduction

37. Which of the following statements regarding sole proprietorships is false?

A. $50,000 ordinary income

47. Which of the following statements about partnerships is false?

A. A partnership is a legal entity that may enter into valid contracts.

48. Which of the following statements concerning partnerships is false?

A. A properly-drafted partnership agreement is crucial.

A. Ordinary income, $30,000; Guaranteed payment, $10,000

A. Ordinary income, $126,000; long-term capital gain is separately stated

A. An S corporation may have no more than 50 shareholders.

A. All of the corporation's shareholders must consent to make an S election.

A. No payroll taxes will be owed as a result of the audit.

A. $3,000 capital gain

A. The basis of a shareholder's interest in an S corporation, for purposes of limiting deductibility

a. Which of these income items are subject to self-employment tax?

a. Adam and Barbara are both general partners.

2. A partnership is an unincorporated business activity owned by at least two taxpayers.

27. Corporations cannot be shareholders in an S corporation.

A. Schedule C, Statement of Profit or Loss from Business

A. $3,300 home office deduction

37. Which of the following statements regarding sole proprietorships is false?

($60,000 * 20%) + ($60,000 * 7.65%)

x - $4,500 - 7.65% * x = $23,205, so solving for x, 92.35% * x = $27,705, x = $30,000

$24,500 * 92.35% * 15.3%

A. $50,000 ordinary income

47. Which of the following statements about partnerships is false?

A. A partnership is a legal entity that may enter into valid contracts.

48. Which of the following statements concerning partnerships is false?

A. A properly-drafted partnership agreement is crucial.

$60,000 cash received - $35,000 tax ($100,000 * 35%)

A. Ordinary income, $30,000; Guaranteed payment, $10,000

A. Ordinary income, $126,000; long-term capital gain is separately stated

Ordinary income = $500,000 - $250,000 - $75,000 - $55,000

$50,000 + $60,000 + $3,000 + $5,000 - $25,000

$600,000 + ($800,000 * 75%)

$60,000 + ($200,000 * .50) - ($20,000 * .5) - $25,000

$12,000 beginning basis + 50% * ($100,000 + $10,000 - $60,000) = $37,000

$20,000 + $60,000 + $5,000 increase in share of debt

This fund, in the distribution of which Walter Grossett was

To his Royal Highness the Duke—To be

This document, which belongs to the Earl of Galloway, is printed

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