Exam 2: Corporations: Introduction and Operating Rules

Pelican,Inc. ,a closely held corporation (not a PSC),has a $350,000 loss from a passive activity,$135,000 of active income,and $160,000 of portfolio income.How much is Pelican's taxable income?

During 2010,Sparrow Corporation,a calendar year C corporation,had operating income of $510,000,operating expenses of $370,000,a short-term capital loss of $25,000,and a long-term capital gain of $80,000.How much is Sparrow's tax liability for 2010?

Zircon Corporation donated scientific property worth $300,000 to City University (a qualified charitable organization)to be used in research.The basis of the property was $140,000,and Zircon had held it for ten months as inventory.Zircon Corporation may deduct $220,000 as a charitable contribution (ignoring the taxable income limitation).

On April 8,2010,Oriole Corporation donated a painting worth $75,000 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 $25,000.Oriole's charitable contribution deduction is $25,000 (ignoring the taxable income limitation).

Pierre is the sole shareholder of Pine Corporation (a C corporation),which has annual taxable income of approximately $100,000.He decides to transfer half of the Pine assets to Oak Corporation (a new C corporation of which Pierre is sole shareholder)in order to reduce overall corporate income taxes.Will Pierre's plan work? Discuss.

Income that is included in net income per books but not included in taxable income is an addition item on Schedule M-1.

On December 20,2010,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 15,2011,may be claimed as a deduction for tax year 2010.

In the current year,Plum Corporation,a computer manufacturer,donated 100 laptop computers to a local school district (a qualified educational organization).The computers were constructed by Plum earlier this year,and the school district allocated the computers among its various schools where they will be used for educational purposes.Plum's basis in the computers is $70,000,and their fair market value is $250,000.What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation)?

During the current year,Kingbird Corporation (a calendar year C corporation)had the following income and expenses: On October 1,Kingbird Corporation made a contribution to a qualified charitable organization of $6,300 in cash (not included in any of the above items).Determine Kingbird's charitable contribution deduction for the current year.

Quail Corporation is a C corporation with net income of $300,000 during 2010.If Quail paid dividends of $50,000 to its shareholders,the corporation must pay tax on $300,000 of net income.Shareholders must report the $50,000 of dividends as income.

Compensation that is determined to be unreasonable is usually treated as a constructive dividend to the shareholder and is not deductible by the corporation.

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 $300,000 and operating expenses (excluding salary)of $100,000.Further,Black Corporation pays George a salary of $150,000.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. )

Falcon Corporation,a C corporation,had gross receipts of $3 million in 2007,$7 million in 2008,and $6 million in 2009.Hawk Corporation,a personal service corporation (PSC),had gross receipts of $3 million in 2007,$5 million in 2008,and $4 million in 2009.Which of the corporations will be allowed to use the cash method of accounting in 2010?

Eagle Corporation owns stock in Hawk Corporation and has taxable income of $160,000 for the year before considering the dividends received deduction.Hawk Corporation pays Eagle a dividend of $200,000,which was considered in calculating the $160,000.What amount of dividends received deduction may Eagle claim if it owns 15% of Hawk's stock?

Fender Corporation was organized in 2008 and had profits in 2008 and 2009.The corporation had an NOL in 2010.The corporation should elect to forgo carrying the NOL back:

During the current year,Yellow Company had operating income of $380,000 and operating expenses of $300,000.In addition,Yellow had a long-term capital loss of $50,000.Based on this information,how does Alexandria,the sole owner of Yellow Company,report this information on her individual income tax return under following assumptions?

Starling Corporation,a closely held personal service corporation,has $150,000 of active income,$60,000 of portfolio income,and a $165,000 passive loss during the year.How much of the passive loss can Starling deduct in the current year?

All corporations that maintain inventory for sale to customers are required to use the accrual method of accounting for all income and expense items.

A corporation may elect to amortize startup expenditures over the 60-month period beginning with the month in which the corporation begins business.

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