Exam 2: Corporations: Introduction and Operating Rules

Shaw, an architect, is the sole shareholder of Shaw Corporation, a professional association. The corporation paid Shaw a salary of $255,000 during its fiscal year ending October 31, 2011.

Glen and Michael are equal partners in Trout Enterprises, a calendar year partnership. During the year, Trout Enterprises had gross income of $400,000 and operating expenses of $220,000. In addition, the partnership sold land that had been held for investment purposes for a long-term capital gain of $100,000. During the year, Glen withdrew $60,000 from the partnership, and Michael withdrew $60,000. Discuss the impact of this information on the taxable income of Trout, Glen, and Michael.

Grocer Services Corporation (a calendar year taxpayer), a wholesale distributor of food, made the following donations to qualified charitable organizations during the year: How much qualifies for the charitable contribution deduction?

Thrush Corporation files Form 1120, which reports taxable income of $110,000. The corporation's tax is $26,150.

Ed, an individual, incorporates two separate businesses that he owns by establishing two new corporations. Each corporation generates taxable income of $50,000. Each corporation will have a tax liability of $7,500.

What is the annual required estimated tax payment for a C corporation? What are the rules regarding payment of the estimated tax?

Beige Company has approximately $250,000 in net income in 2011 before deducting any compensation or other payment to its sole owner, Janet (who is single). Assume that Janet is in the 35% marginal tax bracket. Discuss the tax aspects of each of the following arrangements. (Ignore any employment tax considerations.)

Albatross, a C corporation, had $125,000 net income from operations and a $10,000 short-term capital loss in 2011. Albatross Corporation's taxable income is $115,000.

During the current year, Coyote Corporation (a calendar year C corporation) has the following transactions:

During the current year, Shrike Company had $220,000 net profit from operations. Carlos, the sole owner of Shrike, is in the 35% marginal tax bracket. Determine the combined tax burden for Shrike and Carlos under the following two independent situations. (Ignore any employment taxes.)

As a general rule, a personal service corporation (PSC) must use a calendar year as its accounting period.

Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2011. 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?

During the current year, Lavender Corporation, a C corporation in the business of manufacturing tangible research equipment, made charitable contributions to qualified organizations as follows: Lavender Corporation's taxable income (before any charitable contribution deduction) is $2.5 million.