Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the current 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:

Accepted Answer

A)  $63,000. 
B)  $73,000. 
C)  $80,000. 
D)  $90,000. 
E)  None of the above. 
A)  $63,000. 
B)  $73,000. 
C)  $80,000. 
D)  $90,000. 
E)  None of the above.

Question 3

Adrian is the president and sole shareholder of Pigeon Corporation. He also lends money and rents a building to the corporation. Discuss how these business relationships between Adrian and Pigeon Corporation can help avoid double taxation. What limitations are there on the use of such relationships?

Accepted Answer

As president of Pigeon Corporation, Adri

Question 4

Carrot Corporation, a C corporation, has a net short-term capital gain of $65,000 and a net long-term capital loss of $250,000 during 2018. Carrot Corporation had taxable income from other sources of $720,000. Prior years' transactions included the following:   Compute the amount of Carrot's capital loss carryover to 2019.

Accepted Answer

A)  $0 
B)  $32,000 
C)  $45,000 
D)  $185,000 
E)  None of the above 
A)  $0 
B)  $32,000 
C)  $45,000 
D)  $185,000 
E)  None of the above

Question 5

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)  $32,700 
B)  $33,600 
C)  $45,650 
D)  $62,400 
E)  None of the above 
A)  $32,700 
B)  $33,600 
C)  $45,650 
D)  $62,400 
E)  None of the above

Question 6

For purposes of the accumulated earnings tax, earnings can be accumulated for reasonable needs of the business.
List several examples of what is included and several examples of what is not included in the reasonable needs of the business.

Accepted Answer

Reasonable needs of the business include

Question 7

The limitation on the deduction of business interest does not apply to noncorporate taxpayers.

Accepted Answer

A) True 
 B)False

Question 8

Peach Corporation had $210,000 of net active income, $45,000 of portfolio income, and a $230,000 passive loss during the current year. If Peach is a closely held C corporation that is not a PSC, it can deduct $210,000 of the passive loss in the year.

Accepted Answer

A) True 
 B)False

Question 9

Briefly discuss the current year requirements for the dividends received deduction.

Accepted Answer

The dividends received deduction (DRD) i

Question 10

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 11

Because of the taxable income limitation, no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.

Accepted Answer

A) True 
 B)False

Question 12

Employment taxes apply to all entity forms of operating a business. As a result, employment taxes are a neutral factor in selecting the most tax effective form of operating a business.

Accepted Answer

A) True 
 B)False

Question 13

Opal Corporation, an accrual method, calendar year taxpayer, was formed and began operations on July 1, 2018. The following expenses were incurred during the first tax year (July 1 through December 31, 2018) of operations.   Assuming a § 248 election, what is Opal's deduction for organizational expenditures for 2018?

Accepted Answer

A)  $593. 
B)  $460. 
C)  $5,427. 
D)  $5,627. 
E)  None of the above. 
A)  $593. 
B)  $460. 
C)  $5,427. 
D)  $5,627. 
E)  None of the above.

Question 14

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 15

Almond Corporation, a calendar year C corporation, had taxable income of $900,000, $1.1 million, and $1.2 million for 2016, 2017, and 2018, respectively. Almond's taxable income is $2 million for 2019. Compute the minimum estimated tax payments for 2018 for Almond Corporation.

Accepted Answer

A corporation that had taxable income of

Question 16

In the current year, Tern, Inc., a calendar year C corporation, has $9 million of adjusted taxable income, $300,000 of business interest income, zero floor plan financing interest, and $3.2 million of business interest expense. Tern has average gross receipts for the prior three-year period of $45 million. Which of the following statements is correct about the treatment of Tern's business interest expense?

Accepted Answer

A)  Current year deduction of $3.2 million. 
B)  Current year deduction of $2,790,000, carryforward of $410,000. 
C)  Current year deduction of $2,790,000, carryback of $410,000. 
D)  Current year deduction of $3 million, carryforward of $200,000. 
E)  Current year deduction of $3 million, carryback of $200,000. 
A)  Current year deduction of $3.2 million. 
B)  Current year deduction of $2,790,000, carryforward of $410,000. 
C)  Current year deduction of $2,790,000, carryback of $410,000. 
D)  Current year deduction of $3 million, carryforward of $200,000. 
E)  Current year deduction of $3 million, carryback of $200,000.

Question 17

Patrick, an attorney, is the sole shareholder of Gander Corporation, a C corporation. Gander is a personal service corporation with a fiscal year ending November 30 (pursuant to a § 444 election). The corporation paid Patrick a salary of $180,000 during its fiscal year ending November 30, 2018. How much salary must Gander pay Patrick during the period December 1 through December 31, 2018, 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 18

Dawn is the sole shareholder of Thrush Corporation, a calendar year C corporation. In the current year, Thrush earned $350,000 and distributed $75,000 to Dawn. Kirk is the sole shareholder of Swallow Corporation, an S corporation. In the current year, Swallow earned $350,000 and distributed $75,000 to Kirk. Contrast the tax treatment of Thrush Corporation and Dawn with the tax treatment of Swallow Corporation and Kirk.

Accepted Answer

A C corporation is a separate taxable en

Question 19

Schedule M-1 is used to reconcile net income as computed for financial accounting purposes with taxable income reported on the corporation's income tax return.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 17: Corporations: Introduction and Operating Rules

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

Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the current 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:

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?

For purposes of the accumulated earnings tax, earnings can be accumulated for reasonable needs of the business. List several examples of what is included and several examples of what is not included in the reasonable needs of the business.

The limitation on the deduction of business interest does not apply to noncorporate taxpayers.

Peach Corporation had $210,000 of net active income, $45,000 of portfolio income, and a $230,000 passive loss during the current year. If Peach is a closely held C corporation that is not a PSC, it can deduct $210,000 of the passive loss in the year.

Briefly discuss the current year 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)?

Because of the taxable income limitation, no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.

Employment taxes apply to all entity forms of operating a business. As a result, employment taxes are a neutral factor in selecting the most tax effective form of operating a business.

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?

Almond Corporation, a calendar year C corporation, had taxable income of $900,000, $1.1 million, and $1.2 million for 2016, 2017, and 2018, respectively. Almond's taxable income is $2 million for 2019. Compute the minimum estimated tax payments for 2018 for Almond Corporation.

Schedule M-1 is used to reconcile net income as computed for financial accounting purposes with taxable income reported on the corporation's income tax return.

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.

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, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

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