Francisco Is the Sole Owner of Rose Company

question 81

Multiple Choice

Francisco is the sole owner of Rose Company. For 2011, the only income of Rose was a long-term capital gain of $25,000. The business made no distributions during the year to Francisco. Irrespective of Rose Company, Francisco's marginal tax rate is 35% and he has no capital asset transactions. Which of the following statements is incorrect?

• A) If Rose Company is a sole proprietorship or S corporation, Francisco must report the $25,000 long-term capital gain on his personal income tax return.
• B) If Rose Company is a C corporation, Francisco will report none of the $25,000 long-term capital gain on his personal income tax return.
• C) If Rose Company is a sole proprietorship or S corporation, a preferential tax rate applies to the $25,000 long-term capital gain.
• D) If Rose Company is a C corporation, a preferential tax rate does not apply to the $25,000 long-term capital gain.
• E) None of the above.

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Definitions:

Purchased Patent

An asset representing the right to exclusively use, make, sell, or distribute an invention or discovery, acquired through purchase rather than original creation.

Legal Life

The duration for which an asset is legally permitted to be used or the period a legal agreement is effective.

Amortized

The process of gradually reducing a debt through periodic payments of principal and interest over a set term.

Ordinary Repairs

Expenditures for routine maintenance and upkeep of assets, charged as expenses to ensure the operational efficiency of an asset.