Exam 11: The Corporate Income Tax

The accumulated earnings tax will not be imposed on accumulations that can be shown to be necessary to meet the reasonable needs of the business.

For its year ended December 31, 2019, Cupressa Corporation, an S corporation, had net income of $216,000 which included $180,000 of ordinary income from operations and a $36,000 net long-term capital gain. During 2019, a total of $90,000 was distributed to the corporation's nine equal shareholders, all of whom are on a calendar-year tax basis. For 2019, each shareholder should report:

A regular corporation with excess charitable contributions may carry the excess forward to the five succeeding tax years. ​

S corporations pay taxes at a higher rate than do regular corporations.

Roberta and Sally formed the Alder Corporation on October 1, 2019. On the same date, Roberta paid $75,000 cash to Alder Corporation for 1,500 shares of the corporation's common stock. Simultaneously, Sally received 100 shares of Alder Corporation's stock for services rendered. How much should Sally include in her taxable income for 2019, and what will be the basis of her Alder Corporation stock? Taxable Income Basis of Stock a. \ 0 \ 0 b. \ 0 \ 5,000 c. \ 5,000 \ 0 d. \ 5,000 \ 5,000 e. None of these

The Cat Corporation had $20,000 of book income in the current year. The following is a list of differences between federal and book income and expenses: Federal income tax expense deducted for books Depreciation deducted on books Depreciation deducted on tax return 50 percent of meals expense not allowed as an expense for taxes Charitable contributions carried over from prior years and deducted on the current year tax return Current year taxable gain on an installment sale which was reported on the books in a previous ye Prepaid interest not deductible in the current year for tax purposes but claimed as a deduction for purposes Nondeductible club dues Based on the above information, calculate the Cat Corporation's federal taxable income for the year. Show your calculations.

As a general rule, the transfer of property by a taxpayer to a corporation in exchange solely for 100 percent of the stock does not result in a taxable transaction.

The Nandina Corporation was formed and began operations on July 1 of the current year and incurred the following expenses during the year: State fees for incorporation \ 800 Legal and accounting fees incident to organization 1,700 Legal fees for the issuance of stock 600 Temporary directors' fees 1,100 If the corporation chooses not to expense but rather amortizes organizational costs over 180 months, what is the amount of its amortization expense for the current year?

Which of the following statements is true of corporations?

A corporation may carry forward capital losses for an indefinite period.

Schedule M-1 on Form 1120 shows the reconciliation of a corporation's tax liability to the tax expense on the corporation's books.

Calculate the corporate tax liability in each of the following circumstances: a.X Corporation has taxable income of $250,000 for its current calendar tax year. b.Y Corporation has $1,600,000 in taxable income for the current tax year. c.Z Corporation has taxable income of $100,000, before capital gains and losses, a short-term capital loss of $30,000, and a long-term capital gain of $10,000 in the current tax year.

In the current year, Apricot Corporation had taxable income of $120,000. Included in taxable income was a $10,000 capital gain. The $120,000 of taxable income does not include a $15,000 capital loss carryforward available from the previous year. What is Apricot Corporation's current year income tax liability before any tax credits?

Corporations are granted favorable tax treatment for short-term capital losses.

If a corporation's status as an S corporation is involuntarily terminated in the middle of the tax year, the corporation must file an S corporation tax return for the first half of the tax year and a regular corporation tax return for the second half of the tax year.

Corporations may be subject to the alternative minimum tax.

If the shareholders of an S corporation voluntarily revoke the corporation's S corporation status in the sixth month of the tax year and the revocation does not specify a prospective revocation date, the corporation is a regular corporation for that tax year.

Which of the following is true with respect to capital gains and losses of a corporation?

The Sapote Corporation is a manufacturing corporation. The corporation has accumulated earnings of $450,000 and the corporation cannot establish a reasonable business need for any of that amount. What is the amount of the accumulated earnings tax, if any, that will be imposed on the corporation?

Fran, George, and Helen form FGH Corporation. In exchange for 300 shares of stock of the corporation, Fran contributes property with a basis of $15,000, fair market value of $50,000 and subject to a liability of $20,000 which the corporation assumed. George contributes property with a basis of $20,000, fair market value of $30,000 in exchange for 250 shares of stock of the corporation with a value of $25,000 plus $5,000 cash. Helen performs services for the corporation and receives $2,000 worth of stock (20 shares) in exchange for the services. a.What is the amount of Fran's recognized gain or loss on the transaction? b.What is Fran's basis in the stock of the corporation? c.What is the corporation's basis in the property received from Fran? d.What is the amount of George's recognized gain or loss on the transaction? e.What is George's basis in the stock of the corporation?