Deck 10: Taxation of Corporations

Question 1

In 2017, the tax rate on corporate income from $100,000 to $335,000 is a rate higher than for any other increment of corporate income. In 2018, the corporate tax rate is a flat tax rate.

Answer 1

True

Question 2

A corporation's general business credit cannot completely eliminate its income tax liability.

Answer 2

False

Question 3

For 2017, the corporate alternative minimum tax was paid in addition to the regular corporate income tax.

Answer 3

True

Question 4

All corporations whose income tax liability is less than $1,000,000 in the current year can avoid an underpayment penalty if each of their estimated tax payments is 25 percent or more of their immediately preceding tax year's tax liability.

Question 5

Corporations are allowed a charitable contribution deduction equal to 10% of gross profit.

Question 6

If property is distributed to a shareholder as a dividend, the dividend is equal to the property's
fair market value.

Question 7

In determining consolidated net income, each corporation first must compute separate taxable income.

Question 8

A corporate net operating loss incurred in 2017 can be carried forward for twenty years after being carried back two years.

Question 9

A partial liquidation occurs when only a few of a corporation's shareholders have their stock redeemed by a corporation.

Question 10

A corporation that only has accumulated earnings and profits cannot make a dividend distribution.

Question 11

The accumulated earnings tax and the personal holding company tax can both apply to a corporation in place of the regular corporate income tax.

Question 12

The Schedule L of Form 1120 is a corporate balance sheet as determined by the tax laws.

Question 13

In 2017, a corporation's deduction for qualified U.S. production activities was 9% of qualified production activities income up to a maximum of 50% of applicable wages paid during the year.

Question 14

A corporation can elect to carry a capital loss back first to the third preceding tax year before it is carried forward five years; alternatively, it can elect to only carry the capital loss forward.

Question 15

Regular corporations are free to choose any fiscal or calendar year as their tax year.

Question 16

Intercompany dividends are one of many items eliminated in preparing a consolidated tax return.

Question 17

An individual shareholder may receive sale treatment on a corporate redemption if the shareholder has all of his or her stock redeemed and no related parties own any of the same corporation's stock.

Question 18

The unextended due date for a corporate tax return is the 15^th day of the fourth month after the close of its tax year.

Question 19

A controlled corporate group can consist of a parent and subsidiary or two corporations owned by the same individual.

Question 20

A corporation must have positive earnings and profits in both its current earnings and profits account and its accumulated earnings and profits account to make a taxable dividend distribution.

Question 21

What do the M-1 and M-2 schedules on a Form 1120 show?

Question 22

What is meant by attribution of stock ownership?

Question 23

What are the ownership requirements for filing a consolidated return?

Question 24

What is the limit for corporate charitable contribution deductions?

Question 25

What avenues are available to a corporation to obtain capital for operations?

Question 26

Who is a disqualified person?

Question 27

What are the six characteristics of a corporation?

Question 28

What is the purpose of earnings and profits?

Question 29

When is the unrelated business tax assessed on an exempt organization?

Question 30

What are the minimum and maximum corporate tax rates excluding surtaxes for tax year 2017? How does your answer change for 2018?

Question 31

What is a major advantage of the corporate form for owner-employees?

Question 32

What is the result of a corporation's distribution of appreciated or depreciated property as a dividend?

Question 33

What are two penalty taxes that apply to corporations and what is the penalty tax rate?

Question 34

What are the various ownership requirements for a corporation receiving dividends to be eligible for a
dividend received deduction?

Question 35

The GGH Corporation, a calendar-year, accrual-basis corporation, has $400,000 of gross receipts and $320,000 of expenses from its service business. In addition, it has $5,000 of tax-exempt interest income, $20,000 of dividends from an affiliated corporation, a $10,000 short-term capital loss, and authorized a charitable contribution of $15,000 on December 15, which it paid on March 31 of the next tax year. What is GGH's taxable income and income tax liability for the current tax year?

Question 36

What is JEB Corporation's taxable income and income tax if it has gross sales revenue of $3,000,000, cost of sales of $1,800,000, other expenses of $1,100,000, dividend income of $20,000 (10 percent ownership) and a charitable contribution of $25,000?

Question 37

What is a corporate redemption?

Question 38

How does a corporation treat a net short-term capital loss realized in the current year?

Question 39

What is the difference between current earnings and profits and accumulated earnings and profits?

Question 40

Why is preferred stock so named?

Question 41

A large corporation had a net long-term capital loss in 2018 and net operating loss in 2018. What are the earliest year(s) to which these losses can be carried?

A) 2013 for both
B) 2019 for both
C) 2015 for the capital loss; 2013 for the NOL
D) 2015 for the capital loss; 2019 (or the first subsequent year with net income) for the NOL

Question 42

The Willow Corporation reported $400,000 of taxable income. In making a conversion to book income, the accountant had to adjust for the following: a $25,000 Section 179 deduction, but book depreciation would have been $5,000; a fine of $12,500 for overweight trucks; and a net capital loss of $10,000. What is Willow Corporation's book income?

A) $422,500
B) $412,500
C) $402,500
D) $397,500

Question 43

Chum Corporation distributed $20,000 cash to George, its sole Class A common stockholder in May of the current year and it made a $20,000 cash distribution to Bennie its sole Class B common stockholder in December of the current year. The corporation has $15,000 in current earnings and profits for the year and $18,000 in accumulated earnings and profits. How will the corporation identify the distribution to George and Bennie?

Question 44

An exempt organization has dividend income of $200,000. It receives contributions of $350,000 and grants totaling $175,000. Is this a private foundation?

Question 45

A corporation has pre-tax book income of $324,000. In determining this income, the corporation included $2,000 of tax-exempt interest, $6,000 of dividends from an affiliated corporation, a capital loss of $50,000 and $3,000 of excess book depreciation. What is the corporation's taxable income?

A) $369,000
B) $328,000
C) $269,000
D) $263,000

Question 46

In 2018, the corporate tax rate is:

A) Less than the maximum individual tax rate
B) More than the maximum individual tax rate
C) 34 percent
D) 39 percent

Question 47

Bamboo Corporation has $130,000 of operating income, a $20,000 long-term capital loss, a $10,000 dividend from a corporation in which it owns 5 percent of the shares, and a charitable contribution of $18,000. What is the corporation's taxable income and income tax? Identify any carryovers.

Question 48

Continental Corporation has $1,000,000 in common stock and $1,000,000 in 7 percent 10-year bonds in its capital structure. How much does Continental save in taxes in current dollars over the 10 years the bonds are outstanding by having these bonds instead of an all-equity capital structure? Assume Continental has a 21 percent tax rate in all years.

Question 49

Badluck Corporation decided to liquidate due to the economy. It distributed its only two assets to its sole shareholder, Jason: a truck valued at $4,000 with a basis of $8,000 (original cost $24,000) and a unique machine valued at $50,000 that had a zero basis (original cost $40,000). Jason has a basis in his stock in Badluck that he purchased five years ago for $38,000. Explain the tax consequences to Badluck and Jason on the liquidation.

Question 50

The local garden club, an exempt organization, had gross unrelated business income during the year of $14,000. Its costs associated with this income were $8,900. What is its unrelated business income tax in 2018?

Question 51

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits.
Corporate charitable contributions in excess of 10 percent limit.
b. A fine for monopolistic practices
c. Net operating loss carryovers
d. Life insurance proceeds
e. Expenses related to tax-exempt income
f. Capital loss carryovers
g. Dividends received deduction
h. Federal income tax refunds
i. Disallowed losses on sales to related parties
j. Section 179 expense in excess of allowable depreciation

Question 52

Which of these is not considered an advantage of the corporate business form?

A) A shareholder employee's salary is fully deductible from corporate income
B) Shareholders are not taxed on corporate income until it is distributed to them
C) Shareholder-employees can participate in employee fringe benefits
D) Corporate shareholders cannot deduct corporate losses from their income

Question 53

A clothing manufacturing corporation donates last year's inventory to the Red Cross for use in its disaster relief efforts. The clothes have a fair market value of $200,000 and a basis to the corporation of $75,000. What is its charitable contribution deduction?

A) $200,000
B) $150,000
C) $137,500
D) $100,000

Question 54

Which of the following is not a characteristic of a corporation?

A) Associates
B) Limited life
C) Limited liability
D) Profit-motive

Question 55

Coho is a corporation that has $1,100,000 of gross revenue and $1,021,000 of deductible expenses? What is its income tax liability for 2018?

A) $79,000
B) $30,494
C) $25,110
D) $16,590

Question 56

A corporation has $400,000 of before-tax book income. In determining this, the corporation included $50,000 from an insurance policy paid because of the controller's death, $4,000 of premiums on other key-person life insurance policies, $10,000 interest on State of Nevada bonds, an addition of $15,000 to its bad debt reserves (bad debt expense was $20,000), and book depreciation of $34,000. The corporation's tax depreciation is $29,000. Calculate the corporation's taxable income.

Question 57

Solvay Corporation owns 15 percent of Wooster Corporation. Wooster pays Solvay a $20,000 dividend. Wooster's taxable income, including the dividend but before the dividend received deduction, is $18,000. What is Solvay's income tax liability?

Question 58

Which of the following could be an indication that corporate debt is disguised equity?

A) Debt is issued to the shareholders in the same proportion as stock
B) The debt has a specified maturity date
C) The debt has a specified interest rate
D) Interest is paid annually

Question 59

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
Insurance premium on key-person life insurance.
b. Tax-exempt bond interest income
c. Tax depreciation in excess of book depreciation
d. Fines and bribes
e. Nondeductible portion of meals and entertainment
f. Federal income tax
g. Carryover of a charitable contribution from a prior year
h. Increase in cash value of key-person life insurance
i. Bad debt expense in excess of the addition to bad debt reserves
j. Excess of book depreciation over tax depreciation
k. Expenses related to tax-exempt income
l. Excess capital losses over capital gains

Question 60

Soho is a personal service corporation that has $1,200,000 of gross revenue and $1,021,000 of deductible expenses? What is its income tax liability for 2018?

A) $62,650
B) $37,590
C) $26,850
D) $16,590

Question 61

Jude received a $25,000 distribution from BC Corporation that the corporation identified as $15,000 dividend and $10,000 return of capital. What effect does this distribution have on Jude's taxable income if his basis in the stock of BC is $8,000?

A) Increase of $25,000
B) Increase of $17,000
C) Increase of $15,000
D) Increase of $10,000

Question 62

Moranza Corporation, which has current earnings and profits (CE&P) of $10,000 and accumulated earnings and profits (AE&P) of $30,000, makes a $15,000 distribution to its sole shareholder, Justin, at the end of the current year. Justin has a basis in his Moranza stock of $2,000. What is the amount of taxable income Justin must report from the Moranza distribution?

A) 0
B) $10,000
C) $12,000
D) $15,000

Question 63

Borneo Corporation has $21,000 in current earnings and profits and $5,000 of accumulated earnings and profits. Borneo distributes $20,000 of income to its shareholders on June 15 and another $10,000 on December 15. How much of the December 15 distribution is taxable as a dividend?

A) $21,000
B) $10,000
C) $7,000
D) $5,000

Question 64

What is JJ Corporation's balance in accumulated earnings and profits at the beginning of year 2 if in year 1 it made a $40,000 distribution to its shareholders, its current earnings and profits was $35,000, and its accumulated earnings and profits was $25,000 at the beginning of year 1?

A) $65,000
B) $30,000
C) $25,000
D) $20,000

Question 65

A corporation has a July 30 year end. What is the last date it can file its return due for its July 30, 2018 year end if it files an extension?

A) December 31, 2018
B) November 15, 2018
C) March 15, 2019
D) May 15, 2019

Question 66

Alpha Corporation's adjusted taxable income is $100,000 for 2017 and $200,000 for 2018. Alpha makes charitable contributions of $15,000 in 2017 and $19,000 in 2018. What are Alpha's charitable contribution deductions in determining its taxable income for 2017 and 2018, respectively?

A) $10,000 and $19,000
B) $10,000 and $20,000
C) $15,000 and $19,000
D) $15,000 and $20,000

Question 67

Soledad received one stock right for every two shares of stock she owned. She owned 100 shares that she purchased two years ago for $1,000. Each of the 50 rights that she received allows her to purchase one share of stock for $15. The stock is currently selling for $22 per share. What is her basis in the 50 stock rights?

A) $0
B) $137.25
C) $159.09
D) $274.51

Question 68

Monroe Corporation reported the following results for the current year: In addition to the above, Monroe Corporation has a $5,000 NOL carryforward available from last year. What is Monroe Corporation's taxable income for the current year?

A) $28,250
B) $14,000
C) $19,050
D) $19,500

Question 69

Ponoco Corporation, which has current earnings and profits (CE&P) of $10,000 and accumulated earnings and profits (AE&P) of $30,000, makes a $41,000 distribution to its sole shareholder, Greg, at the end of the current year. Greg has a basis in his Ponoco stock of $2,000. What is the amount of taxable income Greg must report from the Ponoco distribution?

A) $1,000
B) $10,000
C) $40,000
D) $41,000

Question 70

Monroe Corporation reported the following results for the current year: Included in the above is $5,000 of qualified production activities income. In addition, Monroe Corporation has a $5,000 NOL carryforward from last year. How much can Monroe Corporation take as a charitable contribution deduction in the current year?

A) $15,000
B) $10,500
C) $10,000
D) $5,000

Question 71

Marlin Inc., a calendar-year corporation, has gross income from operations of $160,000 and dividend income of $100,000 from a 25% owned domestic corporation for the current year. Deductible business expenses for the year are $170,000. What is Marlin's dividend received deduction for this year?

A) $50,000
B) $58,500
C) $65,000
D) $100,000

Question 72

What is Gigantic Corporation's net tax liability if its taxable income is $325,000 and it has a general business credit of $125,000?

A) $200,000
B) $63,750
C) $10,813
D) 0

Question 73

Whyley Corporation, a C corporation, has gross profits on sales of $50,000 and deductible expenses of $60,000. In addition, Whyley has a net capital gain of $30,000. Whyley's taxable income is:

A) 0
B) $10,000
C) $20,000
D) $30,000

Question 74

Which of the following is not a positive adjustment to taxable income to determine current earnings and profits?

A) Federal income taxes paid
B) Proceeds of life insurance
C) Capital loss carryovers
D) Dividend received deduction

Question 75

Cloud Corporation has a taxable income of $100,000 in 2018 along with a $30,000 general business credit. What is the amount of its credit carryover and the last year to which the carryover could be used?

A) $70,000, 2038
B) $9,000, 2038
C) $9,000, 2027
D) $13,125, 2038

Question 76

BarBRanch has had taxable income of $450,000, $570,000, $760,000 and $680,000 in years 2015 through 2018, respectively. What were the equal minimum quarterly estimated tax payments for 2018 that BarBRanch should have made in 2018 to avoid any penalty?

A) $35,576
B) $57,800
C) $64,600
D) $170,000

Question 77

Monroe Corporation reported the following results for the current year: In addition to the above, Monroe Corporation has a $5,000 NOL carryforward from last year. How much can Monroe Corporation take as a dividend received deduction for the current year?

A) $80,000
B) $61,750
C) $76,000
D) $65,000

Question 78

M&E Corporation has two shareholders, Marco and Edward. M&E Corporation has current E&P of $50,000 and a deficit in accumulated E&P of $40,000. M&E Corporation is in the 25% marginal tax bracket. M&E Corporation distributes investment land to these shareholders. The land distributed to Marco has a FMV of $30,000 and a basis to M&E Corporation of $24,000. The land distributed to Edward has a FMV of $30,000 and a basis to M&E Corporation of $26,000. Marco's basis for his stock is $2,000. Edward's basis for his stock is $1,000. How much gain, if any, does M&E Corporation recognize on the distribution of this land to its shareholders?

A) $0
B) $4,000
C) $6,000
D) $10,000

Question 79

Alpha Corporation's adjusted taxable income is $100,000 for 2017 and $200,000 for 2018. Alpha makes charitable contributions of $15,000 in 2017 and $19,000 in 2018. How much can Alpha carry forward for its charitable contributions in computing its 2019 taxable income?

A) $9,000
B) $5,000
C) $4,000
D) $1,000

Question 80

Avalanche Corporation has $70,000 of net income from operations during the current year. In addition it received $180,000 of dividend income from another corporation in which it has a 10% ownership interest. What is Avalanche's dividends received deduction for this year?

A) $70,000
B) $90,000
C) $144,000
D) $180,000