Question 1

The corporate marginal tax rates range from 10% to 39%,while the individual marginal tax rates range from 15% to 35%.

Accepted Answer

A) True 
 B)False  True

Question 2

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).

Accepted Answer

A) True 
 B)False  True

Question 3

Discuss the purpose of Schedule M-1.Give two examples of an addition and two examples of a subtraction that could be reported on Schedule M-1.

Accepted Answer

Schedule M-1 is used to reconcile the differences between net income per books with taxable income (before any dividends received deduction and NOL deduction).Examples of items that are additions include Federal income tax expense,excess of capital losses over capital gains,income subject to tax but not recognized for book purposes,book depreciation in excess of tax depreciation,and nondeductible expenditures (e.g. ,fines and penalties,meals and entertainment disallowance).Examples of items that are subtractions include tax-exempt income (e.g. ,life insurance proceeds),tax depreciation in excess of book depreciation,carryover amounts deductible in current year but expensed in prior year for book purposes (e.g. ,charitable contribution carryover deductible in current year),and domestic production activities deduction.

Question 4

For a corporation in 2010,the domestic production activities deduction is equal to 9% of the lower of (1)qualified production activities income or (2)taxable income.However,the deduction cannot exceed 50% of the W-2 wages related to qualified production activities income.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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. )

Accepted Answer

A)  $64,875.
B)  $70,000.
C)  $74,875.
D)  $81,375.
E)  None of the above.

Question 7

Emma,the sole shareholder of Quail Corporation (a C corporation),has the corporation pay her a salary of $300,000 in 2010.The Tax Court has held that $80,000 represents unreasonable compensation.Assuming Emma is in the 35% bracket in 2010,the Tax Court's holding will increase total tax she pays in 2010.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  The highest corporate marginal tax rate is 39%.
B)  Taxable income of a personal service corporation is taxed at a flat rate of 39%.
C)  A tax return must be filed whether or not the corporation has taxable income.
D)  Unlike those applicable to individuals,the marginal tax rate brackets for corporations are not adjusted for inflation.
E)  None of the above.

Question 9

Ed,an individual,incorporates two separate businesses that he owns by establishing two new corporations.Each corporation generates taxable income of $90,000.Each corporation will have a tax liability of $26,725.

Accepted Answer

A) True 
 B)False

Question 10

Sage,Inc. ,a closely held corporation that is not a PSC,has a $110,000 passive loss,$90,000 of active income,and $25,000 of portfolio income during the year.How much of the passive loss can Sage deduct in the current year?

Accepted Answer

A)  $0.
B)  $25,000.
C)  $90,000.
D)  $110,000.
E)  None of the above.

Question 11

Corporate taxpayers have a few advantages over individual taxpayers with respect to charitable contribution deductions.Briefly describe the differences in tax treatment of charitable contributions that favor corporate taxpayers.

Accepted Answer

The answer of Corporate taxpayers have a few advantages over...

Question 12

Almond Corporation,a calendar year C corporation,had taxable income of $900,000,$1.1 million,and $790,000 for 2007,2008,and 2009,respectively.Almond's taxable income is $1.5 million for 2010.Compute the minimum estimated tax payments for 2010 for Almond Corporation.

Accepted Answer

The answer of Almond Corporation,a calendar year C corporation,had taxable...

Question 13

Thrush Corporation files Form 1120,which reports taxable income of $110,000.The corporation's tax is $26,150.

Accepted Answer

A) True 
 B)False

Question 14

Describe the Federal tax treatment of entities formed as limited liability companies.

Accepted Answer

The answer of Describe the Federal tax treatment of entities...

Question 15

Maize Corporation had $200,000 operating income and $90,000 operating expenses during the year.In addition,Maize had a $25,000 long-term capital gain and a $16,000 short-term capital loss.Compute Maize's taxable income for the year.

Accepted Answer

A)  $91,000.
B)  $94,000.
C)  $110,000.
D)  $119,000.
E)  None of the above.

Question 16

In connection with the deduction of organizational expenditures under § 248,comment on the following:

Accepted Answer

The answer of In connection with the deduction of organizational...

Question 17

Canary Corporation,which sustained a $5,000 net capital loss during the year,will enter $5,000 as a subtraction item on Schedule M-1.

Accepted Answer

A) True 
 B)False

Question 18

During the current year,Flamingo Corporation,a regular corporation in the book publishing business,made charitable contributions to qualified organizations as follows:
  Flamingo Corporation's taxable income (before any charitable contribution)is $1 million.

Accepted Answer

The answer of During the current year,Flamingo Corporation,a regular corporation...

Question 19

Warbler Corporation,an accrual method regular corporation,was formed and began operations on July 1,2010.The following expenses were incurred during its first year of operations (July 1 - December 31,2010):

Accepted Answer

The answer of Warbler Corporation,an accrual method regular corporation,was formed...

Question 20

Bear Corporation has a net short-term capital gain of $35,000 and a net long-term capital loss of $200,000 during 2010.Bear Corporation has taxable income from other sources of $600,000.Prior years' transactions included the following:  Compute the amount of Bear's capital loss carryover to 2011.

Accepted Answer

A)  $0.
B)  $105,000.
C)  $165,000.
D)  $200,000.
E)  None of the above.

Exam 17: Corporations: Introduction and Operating Rules

The corporate marginal tax rates range from 10% to 39%,while the individual marginal tax rates range from 15% to 35%.

Discuss the purpose of Schedule M-1.Give two examples of an addition and two examples of a subtraction that could be reported on Schedule M-1.

For a corporation in 2010,the domestic production activities deduction is equal to 9% of the lower of (1)qualified production activities income or (2)taxable income.However,the deduction cannot exceed 50% of the W-2 wages related to qualified production activities income.

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

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

Ed,an individual,incorporates two separate businesses that he owns by establishing two new corporations.Each corporation generates taxable income of $90,000.Each corporation will have a tax liability of $26,725.

Sage,Inc. ,a closely held corporation that is not a PSC,has a $110,000 passive loss,$90,000 of active income,and $25,000 of portfolio income during the year.How much of the passive loss can Sage deduct in the current year?

Corporate taxpayers have a few advantages over individual taxpayers with respect to charitable contribution deductions.Briefly describe the differences in tax treatment of charitable contributions that favor corporate taxpayers.

Almond Corporation,a calendar year C corporation,had taxable income of $900,000,$1.1 million,and $790,000 for 2007,2008,and 2009,respectively.Almond's taxable income is $1.5 million for 2010.Compute the minimum estimated tax payments for 2010 for Almond Corporation.

Thrush Corporation files Form 1120,which reports taxable income of $110,000.The corporation's tax is $26,150.

Describe the Federal tax treatment of entities formed as limited liability companies.

Maize Corporation had $200,000 operating income and $90,000 operating expenses during the year.In addition,Maize had a $25,000 long-term capital gain and a $16,000 short-term capital loss.Compute Maize's taxable income for the year.

In connection with the deduction of organizational expenditures under § 248,comment on the following:

Canary Corporation,which sustained a $5,000 net capital loss during the year,will enter $5,000 as a subtraction item on Schedule M-1.

During the current year,Flamingo Corporation,a regular corporation in the book publishing business,made charitable contributions to qualified organizations as follows: Flamingo Corporation's taxable income (before any charitable contribution)is $1 million.

Warbler Corporation,an accrual method regular corporation,was formed and began operations on July 1,2010.The following expenses were incurred during its first year of operations (July 1 - December 31,2010):

Bear Corporation has a net short-term capital gain of $35,000 and a net long-term capital loss of $200,000 during 2010.Bear Corporation has taxable income from other sources of $600,000.Prior years' transactions included the following: Compute the amount of Bear's capital loss carryover to 2011.