Accounting Essays

20430 Words May 4th, 2014 82 Pages
Chapter 22
S Corporations SOLUTIONS MANUAL

Discussion Questions: 1. [LO 1] In general terms, how are C corporations different from and similar to S corporations?
S corporations are incorporated under state law and thus have the same legal protections as C corporations. They are governed by the same corporate tax rules that apply in the organization, liquidation, and reorganization of C corporations. However, unlike a C corporation, an S corporation is a flow-through entity and shares many tax similarities with partnerships. For example, basis calculations for S corporation shareholders and partners are similar, the income or loss of an S corporation flows through to its owners, and distributions are generally not taxed to
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5. [LO 1] Super Corp. was organized under the laws of the state of Montana. It issued common voting stock and common nonvoting stock to its two shareholders. Is Super Corp. eligible to elect S corporation status? Why or why not?
Assuming that the voting and nonvoting stock shares have equal distribution and liquidation rights, Super Corp. may elect S corporation status. While the law specifies that S corporations can have only one class of stock, differences in voting power is permitted as long as distribution and liquidation rights are identical.

6. [LO 1] Karen is the sole shareholder of a C corporation she formed last year. If she elects S corporation status this year on February 20, when will the election become effective and why? What if she had made the election on March 20?
January 1, current year; since the election was made within 2 ½ months after the beginning of the year the status can take effect as of the beginning of the year. If Karen had waited until March 20th, the election would not take effect until the beginning of the next year.

7. [LO 1] JB Corporation is a C corporation owned 80 percent by Jacob and 20 percent by Bauer. Jacob would like JB to make an S election but Bauer is opposed to the idea. Can JB elect to be taxed as an S corporation without Bauer’s consent? Explain.
JB will not be able to make the S

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