Question 1

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

Accepted Answer

A) True 
 B)False

Question 2

Dawn is the sole shareholder of Thrush Corporation, a 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 3

Azure Corporation, a C corporation, had a long-term capital gain of $50,000 in the current year. The maximum amount of tax applicable to the capital gain is $7,500 ($50,000 × 15%).

Accepted Answer

A) True 
 B)False

Question 4

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

Question 5

Azul Corporation, a calendar year C corporation, received a dividend of $30,000 from Naranja Corporation. Azul owns 25% of the Naranja Corporation stock. Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $21,000.

Accepted Answer

A) True 
 B)False

Question 6

In the current year, Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum, a qualified public charity. The museum included the painting in its permanent collection. Oriole Corporation purchased the painting 5 years ago for $10,000. Oriole's charitable contribution deduction is $30,000 (ignoring the taxable income limitation).

Accepted Answer

A) True 
 B)False

Question 7

Ed, an individual, incorporates two separate businesses that he owns by establishing two new C corporations. Each corporation generates taxable income of $50,000. As a general rule, each corporation will have a tax liability of $11,125.

Accepted Answer

A) True 
 B)False

Question 8

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2014. Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year. The corporation distributed $45,000 to Juanita, and the partnership distributed $45,000 to Carlos. Which of the following statements relating to 2014 is incorrect?

Accepted Answer

A)  Juanita must report $120,000 of income from the corporation. 
B)  The corporation must pay corporate tax on $200,000 of income. 
C)  Carlos must report $120,000 of income from the partnership. 
D)  The partnership is not subject to a Federal entity-level income tax. 
E)  None of the above. 
A)  Juanita must report $120,000 of income from the corporation. 
B)  The corporation must pay corporate tax on $200,000 of income. 
C)  Carlos must report $120,000 of income from the partnership. 
D)  The partnership is not subject to a Federal entity-level income tax. 
E)  None of the above.

Question 9

For a corporation, the domestic production activities deduction is equal to 9% of the lesser 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 10

In 2015, Bluebird Corporation had net income from operations of $100,000. Further, Bluebird recognized a long-term capital gain of $30,000, and a short-term capital loss of $45,000. Which of the following statements is correct?

Accepted Answer

A)  Bluebird Corporation will have taxable income in 2015 of $100,000 and will have a net capital loss of $15,000 that can be carried back 3 years and forward 5 years. 
B)  Bluebird Corporation may use the capital loss to offset the capital gain and must carry the net capital loss of $15,000 forward five years as a short-term capital loss. 
C)  Bluebird Corporation may deduct $33,000 of the capital loss in 2015 and may carry forward the remainder of the capital loss indefinitely to offset capital gains. 
D)  Bluebird Corporation will have taxable income in 2015 of $85,000. 
E)  None of the above. 
A)  Bluebird Corporation will have taxable income in 2015 of $100,000 and will have a net capital loss of $15,000 that can be carried back 3 years and forward 5 years. 
B)  Bluebird Corporation may use the capital loss to offset the capital gain and must carry the net capital loss of $15,000 forward five years as a short-term capital loss. 
C)  Bluebird Corporation may deduct $33,000 of the capital loss in 2015 and may carry forward the remainder of the capital loss indefinitely to offset capital gains. 
D)  Bluebird Corporation will have taxable income in 2015 of $85,000. 
E)  None of the above.

Question 11

Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as dividend instead of salary.

Accepted Answer

A) True 
 B)False

Question 12

In each of the following independent situations, determine the corporation's income tax liability. Assume that all corporations use a calendar year 2015.
​   
​

Accepted Answer

The answer of In each of the following independent situations,...

Question 13

As a general rule, C corporations must use the cash method of accounting. However, under several exceptions to this rule (e.g., average annual gross receipts of $5 million or less for the most recent 3-year period), a C corporation can use the accrual method.

Accepted Answer

A) True 
 B)False

Question 14

What is the purpose of Schedule M-3? Which corporations are required to file Schedule M-3?

Accepted Answer

Schedule M-3 was created, in part, in re

Question 15

Ivory Corporation, a calendar year, accrual method C corporation, has two cash method, calendar year shareholders who are unrelated to each other. Craig owns 35% of the stock, and Oscar owns the remaining 65%. During 2015, Ivory paid a salary of $100,000 to each shareholder. On December 31, 2015, Ivory accrued a bonus of $25,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 3, 2016, compute Ivory Corporation's 2015 deduction for the above amounts.

Accepted Answer

A)  $250,000 
B)  $225,000 
C)  $200,000 
D)  $125,000 
E)  None of above 
A)  $250,000 
B)  $225,000 
C)  $200,000 
D)  $125,000 
E)  None of above

Question 16

A corporation must file a Federal income tax return even if it has no taxable income for the year.

Accepted Answer

A) True 
 B)False

Question 17

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 18

During the current year, Quartz Corporation (a calendar year C corporation) has the following transactions:   
Quartz owns 25% of ABC Corporation's stock. How much is Quartz Corporation's taxable income (loss) for the year?

Accepted Answer

Quartz has an NOL, computed as

Question 19

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

Accepted Answer

A) True 
 B)False

Question 20

An expense that is deducted in computing net income per books but not deductible in computing taxable income is a subtraction item on Schedule M-1.

Accepted Answer

A) True 
 B)False

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

Azure Corporation, a C corporation, had a long-term capital gain of $50,000 in the current year. The maximum amount of tax applicable to the capital gain is $7,500 ($50,000 × 15%).

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.

Azul Corporation, a calendar year C corporation, received a dividend of $30,000 from Naranja Corporation. Azul owns 25% of the Naranja Corporation stock. Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $21,000.

Ed, an individual, incorporates two separate businesses that he owns by establishing two new C corporations. Each corporation generates taxable income of $50,000. As a general rule, each corporation will have a tax liability of $11,125.

For a corporation, the domestic production activities deduction is equal to 9% of the lesser 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.

In 2015, Bluebird Corporation had net income from operations of $100,000. Further, Bluebird recognized a long-term capital gain of $30,000, and a short-term capital loss of $45,000. Which of the following statements is correct?

Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as dividend instead of salary.

In each of the following independent situations, determine the corporation's income tax liability. Assume that all corporations use a calendar year 2015.

As a general rule, C corporations must use the cash method of accounting. However, under several exceptions to this rule (e.g., average annual gross receipts of $5 million or less for the most recent 3-year period), a C corporation can use the accrual method.

What is the purpose of Schedule M-3? Which corporations are required to file Schedule M-3?

A corporation must file a Federal income tax return even if it has no taxable income for the year.

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?

During the current year, Quartz Corporation (a calendar year C corporation) has the following transactions: Quartz owns 25% of ABC Corporation's stock. How much is Quartz Corporation's taxable income (loss) for the year?

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

An expense that is deducted in computing net income per books but not deductible in computing taxable income is a subtraction item on Schedule M-1.

Understanding and Working With the Federal Tax Law

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 2: Corporations: Introduction and Operating Rules

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

Azure Corporation, a C corporation, had a long-term capital gain of $50,000 in the current year. The maximum amount of tax applicable to the capital gain is $7,500 ($50,000 × 15%).

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.

Azul Corporation, a calendar year C corporation, received a dividend of $30,000 from Naranja Corporation. Azul owns 25% of the Naranja Corporation stock. Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $21,000.

Ed, an individual, incorporates two separate businesses that he owns by establishing two new C corporations. Each corporation generates taxable income of $50,000. As a general rule, each corporation will have a tax liability of $11,125.

For a corporation, the domestic production activities deduction is equal to 9% of the lesser 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.

In 2015, Bluebird Corporation had net income from operations of $100,000. Further, Bluebird recognized a long-term capital gain of $30,000, and a short-term capital loss of $45,000. Which of the following statements is correct?

Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as dividend instead of salary.

In each of the following independent situations, determine the corporation's income tax liability. Assume that all corporations use a calendar year 2015. ​ ​

As a general rule, C corporations must use the cash method of accounting. However, under several exceptions to this rule (e.g., average annual gross receipts of $5 million or less for the most recent 3-year period), a C corporation can use the accrual method.

What is the purpose of Schedule M-3? Which corporations are required to file Schedule M-3?

A corporation must file a Federal income tax return even if it has no taxable income for the year.

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?

During the current year, Quartz Corporation (a calendar year C corporation) has the following transactions: Quartz owns 25% of ABC Corporation's stock. How much is Quartz Corporation's taxable income (loss) for the year?

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

An expense that is deducted in computing net income per books but not deductible in computing taxable income is a subtraction item on Schedule M-1.

Understanding and Working With the Federal Tax Law

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

In each of the following independent situations, determine the corporation's income tax liability. Assume that all corporations use a calendar year 2015.