Exam 5: Other Corporate Tax Levies

Khuns Corporation, a personal holding company, reports the following: Rental income $50,000 Depreciation 10,000 Interest expense 5,000 Real estate taxes 2,000 Maintenance expenses 5,000 Administrative expenses 5,000 Calculate Khuns Corporation's adjusted income from rents (AIR).

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Question 1

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Rental income $50,000
Minus: depreciation (10,000)
interest ( 5,000)
Real estate taxes ( 2,000)
Adjusted income from rents $33,000

Eagle Corporation, a personal holding company, has the following results: Taxable income $200,000 Dividends-received deduction 30,000 Excess charitable contributions 10,000 Long-term capital gains 10,000 Federal income taxes 61,000 Calculate the PHC tax.

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Question 2

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Taxable income $200,000
Plus: dividends-received deduction 30,000
Minus: excess charitable contributions ( 10,000)
Long-term capital gains (net of taxes)* ( 7,900)*
Federal income taxes ( 42,000)
Undistributed personal holding company income $170,100
Times: rate × 0.20
Personal holding company tax $ 34,020
*$10,000 - (0.21 × $10,000) = $7,900

Green Corporation, a closely held operating corporation, reports the following: Taxable income $200,000 Long-term capital gain 30,000 Dividends-received deduction 20,000 Federal income taxes on long-term capital gain 11,700 Accumulated earnings credit 80,000 Federal income taxes 42,000 Calculate Green's accumulated taxable income.

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Question 3

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Taxable income $200,000
Plus: dividends-received deduction 20,000
Minus: LTCG (net of taxes)* ( 23,700)
Minus: accumulated earnings credit ( 80,000)
Minus: federal income taxes ( 42,000)
Accumulated taxable income $ 74,300
*$30,000 * .21% = $1,300 $30,000 - $6,300 = $23,700

Raptor Corporation is a PHC for 2019 and reports $200,000 of taxable income on its federal income tax return. Operating profit $100,000 Long-term capital gain 80,000 Dividends (20%-owned corporation) 90,000 Interest 100,000 Gross income 370,000 Salaries expense (50,000) General and administrative expense (25,000) Dividends-received deduction (72,000) Taxable income $223,000 Regular tax liability $ 46,830 What is Raptor's PHC tax, assuming that it does not pay any dividends?

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Question 4

Which of the following actions cannot be used to eliminate a possible personal holding company tax liability involving a corporation owned by a mother and a father?

(Multiple Choice)

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Question 5

When computing the accumulated earnings tax, the dividends-paid deduction is not available for

(Multiple Choice)

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Question 6

Which of the following entities is subject to the accumulated earnings tax?

(Multiple Choice)

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Question 7

A high tax bracket individual can enhance the avoidance of income taxes through a C corporation by having the corporation retain its after tax earnings so that when the individual dies, his or her heirs can liquidate the corporation and realize little to no gain because of a step-up in basis.

(True/False)

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Question 8

Identify which of the following statements is true.

(Multiple Choice)

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Question 9

A high tax bracket individual can enhance the avoidance of income taxes through a C corporation by having the corporation retain its after tax earnings rather than paying them out as a dividend.

(True/False)

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Question 10

Smartmoney, Inc. was formed by three wealthy dentists to pool their investment funds. They each invested $200,000 in the corporation, which was immediately used to purchase stocks to be held as investments. The first year, the corporation received dividends of $70,000 and filed a tax return paying a corporation tax in the amount of $7,350 [($70,000 dividends - $35,000 DRD) × .21 = $7,350]. The IRS audits this corporation and sends a tax bill in the amount of $12,530 ($62,650 UPHCI × 0.20 = $12,530) plus underpayment penalty and interest. What is this additional tax and what should the dentists do about it? What action(s) do you recommend the corporation take for the tax year in question and subsequent tax years?

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Question 11

Lake Corporation is a personal holding company. Lake reports the following results for the current year: Rental income $100,000 Operating profit 80,000 Dividend income 30,000 Interest income 20,000 Depreciation 30,000 Mortgage interest expense 18,000 Real estate taxes 8,000 Other expenses 20,000 No dividends are paid during the current year or the 2-and-one-half-month throwback period. The mortgage relates to the rental properties. Calculate the adjusted income from rents exclusion from personal holding company income.

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Question 12

The following information is reported by Acme Corporation. Cost of goods sold $350,000 Average inventory balance 35,000 Average accounts receivable balance 65,000 Sales (all on account) 325,000 Average accounts payable balance 45,000 Operating expenses (excluding depreciation) 500,000 Purchases 40,000 What is Acme Corporation's average operating cycle as a percentage of the year?

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Question 13

Identify which of the following statements is true.

(Multiple Choice)

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Question 14

When using the Bardahl formula, an increase in annual credit sales (while holding the average accounts receivable balance constant) has which of the following effects on the working capital requirements?

(Multiple Choice)

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Question 15

What is a personal holding company?

(Essay)

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Question 16

All of the following are recognized as reasons for accumulating earnings except

(Multiple Choice)

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Question 17

The personal holding company tax might be imposed

(Multiple Choice)

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Question 18

What is the effect of the two-pronged test that allows the exclusion from PHCI of certain AIR (adjusted income from rents)?

(Essay)

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Question 19

When computing the accumulated earnings tax, which of the following is not a reduction to arrive at accumulated taxable income?

(Multiple Choice)

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Question 20

Showing 1 - 20 of 59

Khuns Corporation, a personal holding company, reports the following: Rental income $50,000 Depreciation 10,000 Interest expense 5,000 Real estate taxes 2,000 Maintenance expenses 5,000 Administrative expenses 5,000 Calculate Khuns Corporation's adjusted income from rents (AIR).

Eagle Corporation, a personal holding company, has the following results: Taxable income $200,000 Dividends-received deduction 30,000 Excess charitable contributions 10,000 Long-term capital gains 10,000 Federal income taxes 61,000 Calculate the PHC tax.

Which of the following actions cannot be used to eliminate a possible personal holding company tax liability involving a corporation owned by a mother and a father?

When computing the accumulated earnings tax, the dividends-paid deduction is not available for

Which of the following entities is subject to the accumulated earnings tax?

A high tax bracket individual can enhance the avoidance of income taxes through a C corporation by having the corporation retain its after tax earnings so that when the individual dies, his or her heirs can liquidate the corporation and realize little to no gain because of a step-up in basis.

Identify which of the following statements is true.

A high tax bracket individual can enhance the avoidance of income taxes through a C corporation by having the corporation retain its after tax earnings rather than paying them out as a dividend.

Identify which of the following statements is true.

When using the Bardahl formula, an increase in annual credit sales (while holding the average accounts receivable balance constant) has which of the following effects on the working capital requirements?

What is a personal holding company?

All of the following are recognized as reasons for accumulating earnings except

The personal holding company tax might be imposed

What is the effect of the two-pronged test that allows the exclusion from PHCI of certain AIR (adjusted income from rents)?

When computing the accumulated earnings tax, which of the following is not a reduction to arrive at accumulated taxable income?

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