Question 1

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

Accepted Answer

A) Schedule M-2 is used to reconcile net income computed for financial accounting purposes with taxable income reported on the corporation's tax return. 
B) The corporate return is filed on Form 1120S. 
C) Corporations can receive an automatic extension of nine months for filing the corporate return by filing Form 7004 by the due date for the return. 
D) A corporation with total assets of $7.5 million or more is required to file Schedule M-3. 
E) None of the above. 
A) Schedule M-2 is used to reconcile net income computed for financial accounting purposes with taxable income reported on the corporation's tax return. 
B) The corporate return is filed on Form 1120S. 
C) Corporations can receive an automatic extension of nine months for filing the corporate return by filing Form 7004 by the due date for the return. 
D) A corporation with total assets of $7.5 million or more is required to file Schedule M-3. 
E) None of the above. E

Question 2

Compare the basic tax and nontax factors of doing business as a partnership,an S corporation,and a C corporation.Circle the correct answers.
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Accepted Answer

The correct answers are shaded.
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Question 3

Schedule M-3 is similar to Schedule M-1 in that the form is designed to reconcile net income per books with taxable income.However,an objective of Schedule M-3 is more transparency between financial statements and tax returns than that provided by Schedule M-1.

Accepted Answer

A) True 
 B)False  True

Question 4

Norma formed Hyacinth Enterprises,a proprietorship,in the current year.During the year,Hyacinth had operating income of $400,000 and operating expenses of $240,000.In addition,Hyacinth had a long-term capital loss of $10,000.Norma withdrew $75,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses,and ignoring any self-employment taxes,how does this information affect her adjusted gross income for the year?

Accepted Answer

A) Increases Norma's adjusted gross income by $157,000 ($160,000 ordinary business income - $3,000 long-term capital loss). 
B) Increases Norma's adjusted gross income by $150,000 ($160,000 ordinary business income - $10,000 long-term capital loss). 
C) Increases Norma's adjusted gross income by $75,000. 
D) Increases Norma's adjusted gross income by $160,000. 
E) None of the above. 
A) Increases Norma's adjusted gross income by $157,000 ($160,000 ordinary business income - $3,000 long-term capital loss). 
B) Increases Norma's adjusted gross income by $150,000 ($160,000 ordinary business income - $10,000 long-term capital loss). 
C) Increases Norma's adjusted gross income by $75,000. 
D) Increases Norma's adjusted gross income by $160,000. 
E) None of the above.

Question 5

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

Accepted Answer

In general,a C corporation must adopt th

Question 6

Azul Corporation,a calendar year C corporation,received a dividend of $30,000 from Naranja Corporation.Azul owns 25% of the Naranja Corporation stock.Assuming it is not subject to the taxable income limitation,Azul's dividends received deduction is $21,000.

Accepted Answer

A) True 
 B)False

Question 7

Pink,Inc.,a calendar year C corporation,manufactures golf gloves.For the current year,Pink 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.Pink's domestic production activities deduction for the current year 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 8

During the current year,Woodchuck,Inc.,a closely held personal service corporation,has $115,000 of net active income,$40,000 of portfolio income,and $135,000 of passive activity loss.What is Woodchuck's taxable income for the current year?

Accepted Answer

A) $0 
B) $20,000 
C) $40,000 
D) $155,000 
E) None of the above 
A) $0 
B) $20,000 
C) $40,000 
D) $155,000 
E) None of the above

Question 9

A personal service corporation must use a calendar year,and is not permitted to use a fiscal year.

Accepted Answer

A) True 
 B)False

Question 10

Don,the sole shareholder of Pastel Corporation (a C corporation),has the corporation pay him a salary of $600,000 in the current year.The Tax Court has held that $200,000 represents unreasonable compensation.Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.

Accepted Answer

A) True 
 B)False

Question 11

Briefly describe the charitable contribution deduction rules applicable to C corporations.

Accepted Answer

Tax year of deduction: In general,a char

Question 12

During the current year,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 income tax liability for the year?

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 13

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%).

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Briefly discuss the requirements for the dividends received deduction.

Accepted Answer

The dividends received deduction (DRD) i

Question 16

Donald owns a 45% interest in a partnership that earned $130,000 in the current year.He also owns 45% of the stock in a C corporation that earned $130,000 during the year.Donald received $20,000 in distributions from each of the two entities during the year.With respect to this information,Donald must report $78,500 of income on his individual income tax return for the year.

Accepted Answer

A) True 
 B)False

Question 17

During the current year,Owl Corporation (a C corporation),a retailer of children's apparel,made the following donations to qualified charitable organizations.
​
 
How much qualifies for the charitable contribution deduction (ignoring the taxable income limitation)?

Accepted Answer

A) $63,000 
B) $65,000 
C) $90,500 
D) $92,500 
E) None of the above 
A) $63,000 
B) $65,000 
C) $90,500 
D) $92,500 
E) None of the above

Question 18

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 19

Contrast the tax treatment of capital gains and losses of C corporations with that of individual taxpayers.

Accepted Answer

The definition of capital assets is the

Question 20

Rachel is the sole member of an LLC,and Jordan is the sole shareholder of a C corporation.Both businesses were started in the current year,and each business has a long-term capital gain of $10,000 for the year.Neither business made any distributions during the year.With respect to this information,which of the following statements is correct?

Accepted Answer

A) The C corporation receives a preferential tax rate on the LTCG of $10,000. 
B) The LLC must pay corporate tax on taxable income of $10,000. 
C) Jordan must report $10,000 of LTCG on his tax return. 
D) Rachel must report $10,000 of LTCG on her tax return. 
E) None of the above. 
A) The C corporation receives a preferential tax rate on the LTCG of $10,000. 
B) The LLC must pay corporate tax on taxable income of $10,000. 
C) Jordan must report $10,000 of LTCG on his tax return. 
D) Rachel must report $10,000 of LTCG on her tax return. 
E) None of the above.

Exam 17: Corporations: Introduction and Operating Rules

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

Compare the basic tax and nontax factors of doing business as a partnership,an S corporation,and a C corporation.Circle the correct answers. ​ ​

Schedule M-3 is similar to Schedule M-1 in that the form is designed to reconcile net income per books with taxable income.However,an objective of Schedule M-3 is more transparency between financial statements and tax returns than that provided by Schedule M-1.

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

Azul Corporation,a calendar year C corporation,received a dividend of $30,000 from Naranja Corporation.Azul owns 25% of the Naranja Corporation stock.Assuming it is not subject to the taxable income limitation,Azul's dividends received deduction is $21,000.

During the current year,Woodchuck,Inc.,a closely held personal service corporation,has $115,000 of net active income,$40,000 of portfolio income,and $135,000 of passive activity loss.What is Woodchuck's taxable income for the current year?

A personal service corporation must use a calendar year,and is not permitted to use a fiscal year.

Briefly describe the charitable contribution deduction rules applicable to C corporations.

During the current year,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 income tax liability for the year?

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%).

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

Briefly discuss the requirements for the dividends received deduction.

During the current year,Owl Corporation (a C corporation),a retailer of children's apparel,made the following donations to qualified charitable organizations. ​ How much qualifies for the charitable contribution deduction (ignoring the taxable income limitation)?

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

Contrast the tax treatment of capital gains and losses of C corporations with that of individual taxpayers.

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

Property Transactions, capital Gains and Losses, sec1231, and 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 Reorganization

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters

Compare the basic tax and nontax factors of doing business as a partnership,an S corporation,and a C corporation.Circle the correct answers.

During the current year,Owl Corporation (a C corporation),a retailer of children's apparel,made the following donations to qualified charitable organizations. How much qualifies for the charitable contribution deduction (ignoring the taxable income limitation)?