Question 1

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

Accepted Answer

A) True 
 B)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.

Question 3

Nancy is a 40% shareholder and president of Robin Corporation,a regular corporation.The board of directors of Robin has decided to pay Nancy a $175,000 bonus for the year based on her outstanding performance.The directors want to pay the $175,000 as salary,but Nancy would prefer to have it paid as a dividend.If both Robin Corporation and Nancy are in a 35% marginal tax bracket irrespective of the treatment of the bonus,discuss which form of payment would be most beneficial for each party.(Ignore any employment tax considerations. )

Accepted Answer

Robin Corporation prefers treating the p

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A calendar year C corporation can receive an automatic 6-month extension to file its 2012 corporate return (Form 1120)by filing Form 7004 by March 15,2013.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

Accepted Answer

A) If a limited liability company with more than one owner does not make an election,the entity is taxed as a corporation. 
B) All 50 states have passed laws that allow LLCs. 
C) An entity with more than one owner and formed as a corporation cannot elect to be taxed as a partnership. 
D) If a limited liability company with one owner does not make an election,the entity is taxed as a sole proprietorship. 
E) A limited liability company with one owner can elect to be taxed as a corporation. 
A) If a limited liability company with more than one owner does not make an election,the entity is taxed as a corporation. 
B) All 50 states have passed laws that allow LLCs. 
C) An entity with more than one owner and formed as a corporation cannot elect to be taxed as a partnership. 
D) If a limited liability company with one owner does not make an election,the entity is taxed as a sole proprietorship. 
E) A limited liability company with one owner can elect to be taxed as a corporation.

Question 7

Under the "check-the-box" Regulations,a two-owner LLC that fails to elect to be to treated as a corporation will be taxed as a sole proprietorship.

Accepted Answer

A) True 
 B)False

Question 8

On December 31,2012,Peregrine Corporation,an accrual method,calendar year taxpayer,accrued a performance bonus of $100,000 to Charles,a cash basis,calendar year taxpayer.Charles is president and sole shareholder of the corporation.When can Peregrine deduct the bonus?

Accepted Answer

A) In 2012,if the bonus was authorized by the Board of Directors and payment was made on or before March 15,2013. 
B) In 2013,if payment was made at any time during that year. 
C) In 2012,if payment was made on or before March 15,2013. 
D) In 2013,but only if payment was made on or before March 15,2013. 
E) None of the above. 
A) In 2012,if the bonus was authorized by the Board of Directors and payment was made on or before March 15,2013. 
B) In 2013,if payment was made at any time during that year. 
C) In 2012,if payment was made on or before March 15,2013. 
D) In 2013,but only if payment was made on or before March 15,2013. 
E) None of the above.

Question 9

Which of the following statements is incorrect with respect to the treatment of net operating losses by corporations?

Accepted Answer

A) A corporation may elect to forgo the carryback period and just carryforward an NOL. 
B) A corporation may claim a dividends received deduction in computing an NOL. 
C) An NOL is generally carried back 2 years and forward 20 years. 
D) Unlike individuals,corporations do not adjust their NOLs for net capital losses or nonbusiness deductions. 
E) None of the above. 
A) A corporation may elect to forgo the carryback period and just carryforward an NOL. 
B) A corporation may claim a dividends received deduction in computing an NOL. 
C) An NOL is generally carried back 2 years and forward 20 years. 
D) Unlike individuals,corporations do not adjust their NOLs for net capital losses or nonbusiness deductions. 
E) None of the above.

Question 10

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 11

Patrick,an attorney,is the sole shareholder of Gander Corporation.Gander is a personal service corporation with a fiscal year ending November 30.The corporation paid Patrick a salary of $180,000 during its fiscal year ending November 30,2012.How much salary must Gander pay Patrick during the period December 1 through December 31,2012,to permit the corporation to continue to use its fiscal year without negative tax effects?

Accepted Answer

A) $0. 
B) $30,000. 
C) $165,000. 
D) $180,000. 
E) None of the above. 
A) $0. 
B) $30,000. 
C) $165,000. 
D) $180,000. 
E) None of the above.

Question 12

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?

Accepted Answer

A) If Rose Company is a sole proprietorship or S corporation,Francisco must report the $25,000 long-term capital gain on his personal income tax return. 
B) If Rose Company is a C corporation,Francisco will report none of the $25,000 long-term capital gain on his personal income tax return. 
C) If Rose Company is a sole proprietorship or S corporation,a preferential tax rate applies to the $25,000 long-term capital gain. 
D) If Rose Company is a C corporation,a preferential tax rate does not apply to the $25,000 long-term capital gain. 
E) None of the above. 
A) If Rose Company is a sole proprietorship or S corporation,Francisco must report the $25,000 long-term capital gain on his personal income tax return. 
B) If Rose Company is a C corporation,Francisco will report none of the $25,000 long-term capital gain on his personal income tax return. 
C) If Rose Company is a sole proprietorship or S corporation,a preferential tax rate applies to the $25,000 long-term capital gain. 
D) If Rose Company is a C corporation,a preferential tax rate does not apply to the $25,000 long-term capital gain. 
E) None of the above.

Question 13

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 calendar...

Question 14

During the current year,Thrasher,Inc. ,a closely held personal service corporation,has $67,500 of active business income,$52,500 of portfolio income,and $120,000 of passive loss.How much of the passive loss can Thrasher deduct in the current year?

Accepted Answer

A) $0. 
B) $52,500. 
C) $67,500. 
D) $120,000. 
E) None of the above. 
A) $0. 
B) $52,500. 
C) $67,500. 
D) $120,000. 
E) None of the above.

Question 15

During the current year,Waterthrush Company had operating income of $510,000 and operating expenses of $400,000.In addition,Waterthrush had a long-term capital gain of $30,000.How does Lucinda,the sole owner of Waterthrush Company,report this information on her individual income tax return under following assumptions?

Accepted Answer

The answer of During the current year,Waterthrush Company had operating...

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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. )

Accepted Answer

The answer of During the current year,Shrike Company had $220,000...

Question 18

Eagle Corporation owns stock in Hawk Corporation and has taxable income of $100,000 for the year before considering the dividends received deduction.Hawk Corporation pays Eagle a dividend of $130,000,which was considered in calculating the $100,000.What amount of dividends received deduction may Eagle claim if it owns 25% of Hawk's stock?

Accepted Answer

A) $0. 
B) $80,000. 
C) $100,000. 
D) $104,000. 
E) None of the above. 
A) $0. 
B) $80,000. 
C) $100,000. 
D) $104,000. 
E) None of the above.

Question 19

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.

Accepted Answer

The answer of During the current year,Lavender Corporation,a C corporation...

Question 20

What is a limited liability company? What favorable nontax and tax attributes does the LLC entity form offer taxpayers?

Accepted Answer

Similar to the corporate entity form,a l

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

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?

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

A calendar year C corporation can receive an automatic 6-month extension to file its 2012 corporate return (Form 1120)by filing Form 7004 by March 15,2013.

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

Under the "check-the-box" Regulations,a two-owner LLC that fails to elect to be to treated as a corporation will be taxed as a sole proprietorship.

On December 31,2012,Peregrine Corporation,an accrual method,calendar year taxpayer,accrued a performance bonus of $100,000 to Charles,a cash basis,calendar year taxpayer.Charles is president and sole shareholder of the corporation.When can Peregrine deduct the bonus?

Which of the following statements is incorrect with respect to the treatment of net operating losses by corporations?

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

During the current year,Thrasher,Inc. ,a closely held personal service corporation,has $67,500 of active business income,$52,500 of portfolio income,and $120,000 of passive loss.How much of the passive loss can Thrasher deduct in the current year?

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.

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. )

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.

What is a limited liability company? What favorable nontax and tax attributes does the LLC entity form offer taxpayers?

Understanding and Working With the Federal Tax Law

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, operation, and Basis

Partnerships: Distributions, transfer of Interests, and Terminations

S: Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 2: Corporations: Introduction and Operating Rules

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

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?

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

A calendar year C corporation can receive an automatic 6-month extension to file its 2012 corporate return (Form 1120)by filing Form 7004 by March 15,2013.

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

Under the "check-the-box" Regulations,a two-owner LLC that fails to elect to be to treated as a corporation will be taxed as a sole proprietorship.

On December 31,2012,Peregrine Corporation,an accrual method,calendar year taxpayer,accrued a performance bonus of $100,000 to Charles,a cash basis,calendar year taxpayer.Charles is president and sole shareholder of the corporation.When can Peregrine deduct the bonus?

Which of the following statements is incorrect with respect to the treatment of net operating losses by corporations?

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

During the current year,Thrasher,Inc. ,a closely held personal service corporation,has $67,500 of active business income,$52,500 of portfolio income,and $120,000 of passive loss.How much of the passive loss can Thrasher deduct in the current year?

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.

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. )

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.

What is a limited liability company? What favorable nontax and tax attributes does the LLC entity form offer taxpayers?

Understanding and Working With the Federal Tax Law

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, operation, and Basis

Partnerships: Distributions, transfer of Interests, and Terminations

S: Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters