Devon Owns 40% of the Agate Company for Which His

question 27

Multiple Choice

Devon owns 40% of the Agate Company for which his basis is $100,000. He sells one-half of his ownership interest to Bernice for $80,000. Which of the following statements is correct?

• A) If Agate is an S corporation, Devon has a recognized gain of $30,000, some of which may be capital and some of which may be ordinary income.
• B) If Agate is a C corporation, Devon has a recognized capital gain of $30,000.
• C) If Agate is a partnership, Devon has a recognized capital gain of $30,000.
• D) Only b. and c. are correct.
• E) a., b., and c. are correct.

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Definitions:

Marginal Tax Rates

The rate at which the last dollar of income is taxed, indicating the rate of tax applied to your next dollar of income.

Net Capital Spending

The total expenditure on fixed assets minus the income from the sale of disused or scrapped assets.

Total Tax

The total amount of taxes due within a specific period, encompassing federal, state, local, and other taxes applicable to an individual or business.

Net Working Capital

A measure of a company's liquidity, calculated as the difference between its current assets and current liabilities.