Exam 17: Corporations: Introduction and Operating Rules

Lucinda is a 60% shareholder in Rhea Corporation,a calendar year S corporation.During the year,Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition,the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year,Rhea Corporation distributed $50,000 to Lucinda.With respect to this information,which of the following statements is correct?

In the current year,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?

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

Carrot Corporation,a C corporation,has a net short-term capital gain of $65,000 and a net long-term capital loss of $250,000 during 2015.Carrot Corporation had taxable income from other sources of $720,000.Prior years' transactions included the following: 2011 Net long-term capital gain $150,000 2012 Net short-term capital gain 60,000 2013 Net short-term capital gain 45,000 2014 Net long-term capital gain 35,000 Compute the amount of Carrot's capital loss carryover to 2016.

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2014.Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year.The corporation distributed $45,000 to Juanita,and the partnership distributed $45,000 to Carlos.Which of the following statements relating to 2014 is incorrect?

Rachel is the sole member of an LLC,and Jordan is the sole shareholder of a C corporation.Both businesses were started in the current year,and each business has a long-term capital gain of $10,000 for the year.Neither business made any distributions during the year.With respect to this information,which of the following statements is correct?

Flycatcher Corporation,a C corporation,has two equal individual shareholders,Nancy and Pasqual.In the current year,Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder.Regardless of any tax consequences resulting from their interests in Flycatcher,Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket.With respect to the current year,which of the following statements is incorrect?

Copper Corporation,a C corporation,had gross receipts of $5 million in 2012,$6 million in 2013,and $3 million in 2014.Gold Corporation,a personal service corporation (PSC),had gross receipts of $4 million in 2012,$7 million in 2013,and $5 million in 2014.Which of the corporations will be allowed to use the cash method of accounting in 2015?

Pablo,a sole proprietor,sold stock held as an investment for a $40,000 long-term capital gain.Pablo's marginal tax rate is 33%.Loon Corporation,a C corporation,sold stock held as an investment for a $40,000 long-term capital gain.Loon's marginal tax rate is 35%.What tax rates are applicable to these capital gains?

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

In 2015,Bluebird Corporation had net income from operations of $100,000.Further,Bluebird recognized a long-term capital gain of $30,000,and a short-term capital loss of $45,000.Which of the following statements is correct?

On December 31,2015,Peregrine Corporation,an accrual method,calendar year taxpayer,accrued a performance bonus of $100,000 to Charles,a cash basis,calendar year taxpayer.Charles is president and sole shareholder of the corporation.When can Peregrine deduct the bonus?

Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2014.He also owns 60% of the stock in a C corporation that earned $150,000 during the year.The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn.How much income must Bjorn report from these businesses?

Schedule M-3 is similar to Schedule M-1 in that the form is designed to reconcile net income per books with taxable income.However,an objective of Schedule M-3 is more transparency between financial statements and tax returns than that provided by Schedule M-1.

During the current year,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?

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 2015,Ivory paid a salary of $100,000 to each shareholder.On December 31,2015,Ivory accrued a bonus of $25,000 to each shareholder.Assuming that the bonuses are paid to the shareholders on February 3,2016,compute Ivory Corporation's 2015 deduction for the above amounts.

Elk,a C corporation,has $370,000 operating income and $290,000 operating expenses during the year.In addition,Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss.Elk's taxable income is:

Beige Corporation,a C corporation,purchases a warehouse on August 1,1999,for $1 million.Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11,2015,for $1.2 million.What is the amount and character of the gain recognized by Beige on the sale of the realty?

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

Norma formed Hyacinth Enterprises,a proprietorship,in 2015.In its first year,Hyacinth had operating income of $400,000 and operating expenses of $240,000.In addition,Hyacinth had a long-term capital loss of $10,000.Norma,the proprietor of Hyacinth Enterprises,withdrew $75,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses,how does this information affect her taxable income for 2015?