Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income.Which of the following items is a subtraction on Schedule M-1?

Accepted Answer

A) Book depreciation in excess of tax depreciation. 
B) Excess of capital losses over capital gains. 
C) Proceeds on key employee life insurance. 
D) Income subject to tax but not recorded on the books. 
E) None of the above. 
A) Book depreciation in excess of tax depreciation. 
B) Excess of capital losses over capital gains. 
C) Proceeds on key employee life insurance. 
D) Income subject to tax but not recorded on the books. 
E) None of the above. C

Question 3

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2012. 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 2012 is incorrect?

Accepted Answer

A) Juanita must report $120,000 of income from the corporation. 
B) The corporation must pay corporate tax on $200,000 of income. 
C) Carlos must report $120,000 of income from the partnership. 
D) The partnership is not subject to a Federal entity-level income tax. 
E) None of the above. 
A) Juanita must report $120,000 of income from the corporation. 
B) The corporation must pay corporate tax on $200,000 of income. 
C) Carlos must report $120,000 of income from the partnership. 
D) The partnership is not subject to a Federal entity-level income tax. 
E) None of the above. A

Question 4

Which of the following statements is incorrect regarding the taxation of C corporations?

Accepted Answer

A) Similar to those applicable to individuals, the marginal tax rate brackets for corporations are adjusted for inflation. 
B) Taxable income of a personal service corporation is taxed at a flat rate of 35%. 
C) A tax return must be filed whether or not the corporation has taxable income. 
D) The highest corporate marginal tax rate is 39%. 
E) None of the above. 
A) Similar to those applicable to individuals, the marginal tax rate brackets for corporations are adjusted for inflation. 
B) Taxable income of a personal service corporation is taxed at a flat rate of 35%. 
C) A tax return must be filed whether or not the corporation has taxable income. 
D) The highest corporate marginal tax rate is 39%. 
E) None of the above.

Question 5

Adrian is the president and sole shareholder of Pigeon Corporation.He also lends money and rents a building to the corporation.Discuss how these business relationships between Adrian and Pigeon Corporation can help avoid double taxation. What limitations are there on the use of such relationships?

Accepted Answer

As president of Pigeon Corporation, Adri

Question 6

Discuss the purpose of Schedule M-1.Give two examples of an addition and two examples of a subtraction that could be reported on Schedule M-1.

Accepted Answer

Schedule M-1 is used to reconcile the di

Question 7

Lilac Corporation incurred $4,700 of legal and accounting fees associated with its incorporation. The $4,700 is deductible as startup expenditures on Lilac's tax return for the year in which it begins business.

Accepted Answer

A) True 
 B)False

Question 8

During 2012, 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 tax liability for 2012?

Accepted Answer

A) $42,650. 
B) $42,800. 
C) $45,650. 
D) $62,400. 
E) None of the above. 
A) $42,650. 
B) $42,800. 
C) $45,650. 
D) $62,400. 
E) None of the above.

Question 9

Crow Corporation, a C corporation, donated scientific property (basis of $30,000, fair market value of $50,000) to State University, a qualified charitable organization, to be used in research.Crow had held the property for four months as inventory. Crow Corporation may deduct $50,000 for the charitable contribution (ignoring the taxable income limitation).

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

The answer of During the current year, Coyote Corporation (a...

Question 11

Thrush Corporation files Form 1120, which reports taxable income of $200,000.The corporation's tax is $56,250.

Accepted Answer

A) True 
 B)False

Question 12

On December 31, 2012, Flamingo, Inc., a calendar year, accrual method C corporation, accrues a bonus of $50,000 to its president (a cash basis taxpayer), who owns 75% of the corporation's outstanding stock. The $50,000 bonus is paid to the president on February 1, 2013. For Flamingo's 2012 Form 1120, the $50,000 bonus will be a subtraction item on Schedule M-1.

Accepted Answer

A) True 
 B)False

Question 13

Red Corporation, a C corporation that has two equal shareholders, earned $450,000 during 2012. Orange Company, a partnership that has two equal partners, earned $450,000 during the year. Red did not make any distributions to its shareholders, and Orange's partners did not make any withdrawals. Contrast the tax treatment of the shareholders of Red Corporation and the partners of Orange Company.

Accepted Answer

A C corporation is a separate taxable en

Question 14

A calendar year C corporation with average annual gross receipts of $5 million or less must use the cash method of accounting.

Accepted Answer

A) True 
 B)False

Question 15

Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as salary instead of dividend.

Accepted Answer

A) True 
 B)False

Question 16

In 2012, Bluebird Corporation had net income from operations of $75,000. Further, Bluebird recognized a long-term capital loss of $30,000, and a short-term capital gain of $10,000. Which of the following statements is correct?

Accepted Answer

A) Bluebird Corporation may use the capital loss to offset the capital gain and must carry the net capital loss of $20,000 forward five years as a long-term capital loss. 
B) Bluebird Corporation may deduct $13,000 of the capital loss in 2012 and may carry forward the remainder of the capital loss indefinitely to offset capital gains. 
C) Bluebird Corporation will have taxable income in 2012 of $55,000. 
D) Bluebird Corporation will have taxable income in 2012 of $75,000 and will have a net capital loss of $20,000 that can be carried back 3 years and forward 5 years. 
E) None of the above. 
A) Bluebird Corporation may use the capital loss to offset the capital gain and must carry the net capital loss of $20,000 forward five years as a long-term capital loss. 
B) Bluebird Corporation may deduct $13,000 of the capital loss in 2012 and may carry forward the remainder of the capital loss indefinitely to offset capital gains. 
C) Bluebird Corporation will have taxable income in 2012 of $55,000. 
D) Bluebird Corporation will have taxable income in 2012 of $75,000 and will have a net capital loss of $20,000 that can be carried back 3 years and forward 5 years. 
E) None of the above.

Question 17

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

Accepted Answer

In general, a C corporation must adopt t

Question 18

Hippo, Inc., a calendar year C corporation, manufactures golf gloves.For 2012, Hippo had taxable income (before DPAD) of $900,000, qualified domestic production activities income of $750,000, and W-2 wages related to qualified production activities income of $140,000.Hippo's domestic production activities deduction for 2012 is:

Accepted Answer

A) $0. 
B) $12,600. 
C) $67,500. 
D) $70,000. 
E) None of the above. 
A) $0. 
B) $12,600. 
C) $67,500. 
D) $70,000. 
E) None of the above.

Question 19

Peach Corporation had $210,000 of 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 $230,000 of the passive loss in the year.

Accepted Answer

A) True 
 B)False

Question 20

Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation.Robin earned net profit of $350,000 ($520,000 gross income - $170,000 operating expenses) and distributed $80,000 to Rajib.Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.

Accepted Answer

A) True 
 B)False

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).

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income.Which of the following items is a subtraction on Schedule M-1?

Which of the following statements is incorrect regarding the taxation of C corporations?

Adrian is the president and sole shareholder of Pigeon Corporation.He also lends money and rents a building to the corporation.Discuss how these business relationships between Adrian and Pigeon Corporation can help avoid double taxation. What limitations are there on the use of such relationships?

Discuss the purpose of Schedule M-1.Give two examples of an addition and two examples of a subtraction that could be reported on Schedule M-1.

Lilac Corporation incurred $4,700 of legal and accounting fees associated with its incorporation. The $4,700 is deductible as startup expenditures on Lilac's tax return for the year in which it begins business.

During 2012, 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 tax liability for 2012?

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

Thrush Corporation files Form 1120, which reports taxable income of $200,000.The corporation's tax is $56,250.

A calendar year C corporation with average annual gross receipts of $5 million or less must use the cash method of accounting.

Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as salary instead of dividend.

In 2012, Bluebird Corporation had net income from operations of $75,000. Further, Bluebird recognized a long-term capital loss of $30,000, and a short-term capital gain of $10,000. Which of the following statements is correct?

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

Peach Corporation had $210,000 of 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 $230,000 of the passive loss in the year.

Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation.Robin earned net profit of $350,000 ($520,000 gross income - $170,000 operating expenses) and distributed $80,000 to Rajib.Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S: Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

Income Taxation of Trusts and Estates

Filters