Exam 10: Taxation of Corporations

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

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

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

Corporation P owns 100 percent of Corporation S. During the year, P sold land to S for $50,000 that had a basis of $25,000 and S purchased $30,000 of materials from P that P paid $20,000 for. P reported separate income of $200,000 and S reported separate income of $30,000. What is the income that Corporation P reports on its consolidated tax return?

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

Corporation P files a consolidated return with Corporation S. In preparing a consolidated return, their accountant finds the following: What is the consolidated return taxable income?

Christopher and Ashley, brother and sister, each own 50 percent (1,000 shares) of the stock of Walcott Corporation. This year, Walcott redeems 400 of Christopher's shares in a qualifying redemption in exchange for land valued at $300,000 (basis $175,000). The corporation's E&P prior to the redemption was $350,000. Walcott's tax rate is 21 percent. What is Walcott's E&P after the redemption?

What is the percentage excise tax that a disqualified person can be assessed on a prohibited transaction if that person fails to correct the transaction?

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

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.

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.

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?

What are the six characteristics of a corporation?

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?

For tax years after 2017, a new 21 percent excise tax is imposed on compensation in excess of paid to a covered employee by an exempt organization. A 1.4 percent excise tax applies to the net investment income of private colleges and university with at least 500 students and assets of at least per student beginning with the 2018 tax year.

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?

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?

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

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?

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