Exam 17: Corporations: Introduction and Operating Rules

A corporation with $5 million or more in assets must file Schedule M-3 (instead of Schedule M-1).

Sunset Corporation (a C corporation) had operating income of $200,000 and operating expenses of $175,000. In addition, Sunset had a $30,000 long-term capital gain, a $52,000 short-term capital loss, and $5,000 tax-exempt interest income. What is Sunset Corporation's taxable income for the year?

The accumulated earnings and personal holding company taxes are designed to prevent the accumulation of earnings within a corporation.

Yahr, Inc., is a domestic corporation with no subsidiaries. It operates in almost every U.S. state. Yahr records no permanent or temporary book-tax differences this year. It's tax expense on its GAAP financial statements and its tax liability reported on its Federal income tax return are identical.

For purposes of the estimated tax payment rules, a "large corporation" is defined as a corporation that had taxable income of $1 million or more in any of the three preceding years.

Schedule M-1 is used to reconcile net income as computed for financial accounting purposes with taxable income reported on the corporation's income tax return.

Briefly describe the accounting methods available for adoption by a C corporation.

In working with Schedule M-2 (analysis of unappropriated retained earnings per books) of Form 1120, which of the following is an addition to beginning retained earnings?

Robin Corporation, a calendar year C corporation, had taxable income of $700,000, $1.2 million, and $1 million for 2017, 2018, and 2019, respectively. Robin has taxable income of $1.8 million for 2019. The minimum 2020 estimated tax installment payments for Robin are:

Emerald Corporation, a calendar year C corporation, was formed and began operations on April 1, 2019. The following expenses were incurred during the first tax year (April 1 through December 31, 2019) of operations. Expenses of temporary directors and of organizational meetings \2 7,000 Fee paid to the state of incorporation 1,000 Accounting services incident to organization 15,500 Legal services for drafting the corporate charter and bylaws 9,500 Expenses incident to the printing and sale of stock certificates 6,000 Assuming a § 248 election, what is the Emerald's deduction for organizational expenditures for 2019?

Clipp, Inc., earns book net income before tax of $600,000. Clipp puts into service a depreciable asset this year, and its first-year tax depreciation exceeds book depreciation by $120,000. Clipp has recorded no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21%, what is Clipp's deferred income tax liability reported on its GAAP financial statements?

As a general rule, C corporations must use the cash method of accounting. However, under several exceptions to this rule (e.g., average annual gross receipts of $25 million or less for the most recent 3-year period), a C corporation can use the accrual method.

Woodchuck, Inc., a closely held personal service corporation, has $115,000 of net active income, $40,000 of portfolio income, and $135,000 of passive activity loss. What is Woodchuck's taxable income for the current year?

South, Inc., earns book net income before tax of $400,000 in year 1. It acquires a depreciable asset in year 1, and its first-year tax depreciation exceeds book depreciation by $50,000. At the end of year 1, South's deferred tax liability account balance is $10,500. In year 2, South earns $500,000 book net income before tax, and its book depreciation exceeds tax depreciation by $20,000. South records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21% in both years, what is South's balance in its deferred tax liability account at the end of year 2?

Warbler Corporation, an accrual method regular corporation, was formed and began operations on March 1, 2019. The following expenses were incurred during its first year of operations (March 1 - December 31, 2019): Expenses of temporary directors and organizational meetings \ 25,000 Incorporation fee paid to state 2,000 Expenses incurred in printing and selling stock certificates 10,000 Accounting services incident to organization 12,000 a. Assuming a valid election under § 248 to amortize organizational expenditures, what is the amount of Warbler's deduction for 2019? expenditures? b. Same as a., except that Warbler also incurred in 2019 legal fees of $15,000 for the drafting of the corporate charter and bylaws. What is the amount of Warbler's 2019 deduction for organizational

Which of the following items represents a temporary book-tax difference?

Purple, Inc., a domestic corporation, owns 100% of Blue, Ltd., a foreign corporation and Yellow, Inc., a domestic corporation. Purple also owns 40% of Green, a domestic corporation. Purple receives no distributions from any of these corporations. Which of these entities' net income is included in Purple's GAAP income statement for current- year financial reporting purposes?

A corporate net operating loss arising in 2019 for a calendar year C corporation can be carried back 2 years and forward 20 years to offset taxable income for those years.

South, Inc., earns book net income before tax of $400,000 in year 1. It acquires a depreciable asset in year 1, and its first-year tax depreciation exceeds book depreciation by $50,000. At the end of year 1, South's deferred tax liability account balance is $10,500. In year 2, South earns $500,000 book net income before tax, and its book depreciation exceeds tax depreciation by $20,000. South records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21%, what is South's total provision for income tax expense reported on its GAAP financial statements for year 2?

Peach Corporation had $210,000 of net active income, $45,000 of portfolio income, and a $230,000 passive loss during the current year. If Peach is a closely held C corporation that is not a PSC, it can deduct $210,000 of the passive loss in the year.