Exam 2: Corporations: Introduction and Operating Rules

Glen and Michael are equal partners in Trout Enterprises,a calendar year partnership.During the year,Trout Enterprises had gross income of $500,000 and operating expenses of $270,000.In addition,the partnership sold land that had been held for investment purposes for a long-term capital gain of $120,000.During the year,Glen withdrew $50,000 from the partnership,and Michael withdrew $75,000.Discuss the impact of this information on the taxable income of Trout,Glen,and Michael.

Under FAS 109,a deferred tax asset results when the book (financial)basis of an item exceeds its tax basis (e.g.,MACRS over straight-line depreciation).

Falcon Corporation had gross receipts of $5 million in 2005,$6 million in 2006,and $3 million in 2007.Hawk Corporation,a PSC,had gross receipts of $4 million in 2005,$6 million in 2006,and $7 million in 2007.Which of the corporations will be allowed to use the cash method of accounting in 2008?