Exam 17: Corporations: Introduction and Operating Rules

Beige Corporation, a C corporation, purchases a warehouse on August 1, 1996, for $1 million. Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11, 2012, for $1.2 million. What is the amount and character of the gain recognized by Beige on the sale of the realty?

The due date (not including extensions) for filing a 2012 Federal income tax return for a calendar year C corporation (Form 1120) is April 15, 2013.

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%).

Generally, corporate net operating loss can be carried back 3 years and forward 5 years to offset taxable income for those years.

Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2012.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?

Which of the following statements is incorrect regarding the dividends received deduction?

Albatross, a C corporation, had $140,000 net income from operations and a $25,000 short-term capital loss in the current year.Albatross Corporation's taxable income is $140,000.

A personal service corporation with taxable income of $100,000 will have a tax liability of $22,250.

On December 20, 2012, the directors of Quail Corporation (an accrual basis, calendar year taxpayer) authorized a cash donation of $5,000 to the American Cancer Society, a qualified charity. The payment, which is made on April 10, 2013, may be claimed as a deduction for tax year 2012.

George Judson is the sole shareholder and employee of Black Corporation, a C corporation that is engaged exclusively in engineering services. During the year, Black has gross revenues of $420,000 and operating expenses (excluding salary) of $200,000. Further, Black Corporation pays George a salary of $190,000. The salary is reasonable in amount and George is in the 35% marginal tax bracket irrespective of any income from Black. Assuming that Black Corporation distributes all after-tax income as dividends, how much total combined income tax do Black and George pay in the current year? (Ignore any employment tax considerations.)

Azul Corporation, a calendar year C corporation, received a dividend of $50,000 from Naranja Corporation. Azul owns 10% of the Naranja Corporation stock. Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $35,000.

Francisco is the sole owner of Rose Company. For 2012, the only income of Rose was a long-term capital gain of $25,000. The business made no distributions during the year to Francisco. Irrespective of Rose Company, Francisco's marginal tax rate is 35% and he has no capital asset transactions. Which of the following statements is incorrect?

Heron Corporation, a calendar year, accrual basis taxpayer, provides the following information for this year and asks you to prepare Schedule M-1:

The passive loss rules apply to closely held C corporations and to personal service corporations but not to S corporations.

Eagle Company, a partnership, had a short-term capital loss of $10,000 during the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle's short-term capital loss on his individual tax return.

Red Corporation, which owns stock in Blue Corporation, had net operating income of $200,000 for the year.Blue pays Red a dividend of $40,000.Red takes a dividends received deduction of $28,000.Which of the following statements is correct?

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.

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

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

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.