Exam 2: Corporations: Introduction and Operating Rules

Grebe Corporation,a closely held corporation that is not a PSC,had $75,000 of active income,$60,000 of portfolio income,and a $105,000 passive loss during the year.How much of the passive loss can Grebe deduct in the current year?

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:

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.

Ivory Corporation,a calendar year,accrual method C corporation,has two cash method,calendar year shareholders who are unrelated to each other.Craig owns 55% of the stock,and Oscar owns the remaining 45%.During 2012,Ivory paid a salary of $200,000 to each shareholder.On December 31,2012,Ivory accrued a bonus of $50,000 to each shareholder.Assuming that the bonuses are paid to the shareholders on February 1,2013,compute Ivory Corporation's 2012 deduction for the above amounts.

Canary Corporation,which sustained a $5,000 net capital loss during the year,will enter $5,000 as a addition item on Schedule M-1.

In the current year,Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum,a qualified public charity.The museum included the painting in its permanent collection.Oriole Corporation purchased the painting 5 years ago for $10,000.Oriole's charitable contribution deduction is $30,000 (ignoring the taxable income limitation).

Orange Corporation owns stock in White Corporation and has net operating income of $400,000 for the year.White Corporation pays Orange a dividend of $60,000.What amount of dividends received deduction may Orange claim if it owns 15% of White stock (assuming Orange's dividends received deduction is not limited by its taxable income)?

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.

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.

Black Corporation,an accrual basis taxpayer,was formed and began operations on February 1,2012.During its first year of operations (February 1 - December 31,2012),Black incurred the following expenses: fee paid to state of incorporation of $2,000,accounting and legal services incident to organization of $9,000,and expenses related to the printing and sale of stock certificates of $10,000.Black has $11,000 of qualified organizational expenditures that it may elect to amortize.

Copper Corporation owns stock in Bronze Corporation and has net operating income of $900,000 for the year.Bronze Corporation pays Copper a dividend of $150,000.What amount of dividends received deduction may Copper claim if it owns 85% of Bronze stock (assuming Copper's dividends received deduction is not limited by its taxable income)?

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

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.

Compare the taxation of C corporations with that of individual taxpayers.Provide several examples of similarities and differences in your discussion.

Luis is the sole shareholder of a C corporation,and Eduardo owns a sole proprietorship.Both businesses were started in 2012,and each business has a long-term capital gain of $20,000 for the year.Neither business made any distributions during the year.With respect to this information,which of the following statements is incorrect?

For a corporation in 2012,the domestic production activities deduction is equal to 9% of the higher of (1)qualified production activities income or (2)taxable income.However,the deduction cannot exceed 50% of the W-2 wages related to qualified production activities income.

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

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

Erin Corporation,a personal service corporation,had $230,000 of active income,$40,000 of portfolio income,and a $250,000 passive loss during the year.How much is Erin's taxable income?

During the current year,Violet,Inc. ,a closely held corporation (not a PSC),has $130,000 of passive loss,$90,000 of active business income,and $70,000 of portfolio income.How much is Violet's taxable income for the current year?