Exam 17: Corporations: Introduction and Operating Rules

In connection with the deduction for startup expenditures, comment on the following: a. Qualifying expenditures. b. Election process. c. Amount of deduction.

Thrush Corporation, a calendar year C corporation, files its current year Form 1120, which reports taxable income of $200,000 for the year. The corporation's tax is $42,000.

During the current year, Quartz Corporation (a calendar year C corporation) has the following transactions: Income from operations $350,000 Expenses from operations 370,000 Dividends received from ABC Corporation 50,000 Quartz owns 25% of ABC Corporation's stock. How much is Quartz Corporation's taxable income (loss) for the year?

Azure Corporation, a C corporation, had a long-term capital gain of $50,000 in the current year. The maximum amount of tax applicable to the capital gain is $7,500 ($50,000 × 15%).

Ivory Corporation, a calendar year, accrual method C corporation, has two cash method, calendar year shareholders who are unrelated to each other. Craig owns 35% of the stock, and Oscar owns the remaining 65%. During 2019, Ivory paid a salary of $100,000 to each shareholder. On December 31, 2019, Ivory accrued a bonus of $25,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 1, 2020, compute Ivory Corporation's 2019 deduction for the above amounts.

Gerald, a cash basis taxpayer, owns 70% of the stock of Black Corporation, a calendar year, accrual basis C corporation. On December 31, 2019, Black accrued a bonus of $80,000 to Gerald, and paid the bonus to Gerald on January 2, 2020. When does Gerald report the bonus, and when does Black Corporation deduct the bonus? Would your answers change if Gerald was a 40% shareholder of Black?

How is the limitation on the deduction of business interest computed? Does it apply to all taxpayers? What happens to any business interest deduction disallowed by the limitation?

A corporation must file a Federal income tax return even if it has no taxable income for the year.

During the current year, Sparrow Corporation, a calendar year C corporation, had operating income of $425,000, operating expenses of $280,000, a short-term capital loss of $10,000, and a long-term capital gain of $25,000. How much is Sparrow's income tax liability for the year?

During the current year, Jay Corporation, a calendar year personal service C corporation, had operating income of $300,000, operating expenses of $200,000, a short-term capital gain of $5,000, and a long-term capital loss of $35,000. How much is Jay's income tax liability for the year?

Create, Inc., a domestic corporation, owns 90% of Vinyl, Ltd., a foreign corporation and Digital, Inc., a domestic corporation. Create also owns 60% of Record, Inc., a domestic corporation. Create receives no distributions from any of these corporations. Which of these entities' net income is included in Create's Federal income tax return for the current year, assuming that Create elects to include all eligible entities in its consolidated Federal income tax return?

Grackle Corporation, a personal service corporation, had $230,000 of net active income, $40,000 of portfolio income and a $250,000 passive activity loss during the year. How much is Grackle's taxable income?

The accumulated earnings and personal holding company taxes both can be avoided by distributing sufficient dividends.

Jogg, Inc., earns book net income before tax of $600,000. It puts into service a depreciable asset this year, and its first-year tax depreciation exceeds book depreciation by $120,000. Jogg has recorded no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21%, and that this is Jogg's first year of operations, what is Jogg's balance in its deferred tax asset and deferred tax liability accounts at year-end?

In general, the purpose of ASC 740 is to compute and disclose the taxes payable by a business entity to state, local, Federal, and foreign governments for the current year and all future years.

Briefly discuss the current-year requirements for the dividends received deduction.

A calendar year C corporation can receive an automatic 9-month extension to file its corporate return (Form 1120) by timely filing a Form 7004 for the tax year.

Copper Corporation, a calendar year C corporation, owns stock in Bronze Corporation and has net operating income of $900,000 for the current year. Bronze Corporation pays Copper a dividend of $150,000. What amount of dividends received deduction may Copper claim if it owns 85% of Bronze stock (and the two corporations are members of the same affiliated group)? (Assume Copper's dividends received deduction is not limited by its taxable income.)

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

What is the purpose of Schedule M-3? Which corporations are required to file Schedule M-3?