Exam 11: The Corporate Taxpayer

Assume Jacky, Inc. is not subject to the business interest limit and has a marginal tax rate of 21%. Which of the following statements is true?

Harmon, Inc. was incorporated and began business on January 1, 2019. Its tax liability for 2019 was $36,000. Its tax liability for 2020 was $50,000. Which of the following is a correct statement concerning the payment of estimated taxes for 2020?

A significant advantage of issuing stock instead of debt financing is that payment of dividends is discretionary.

Which of the following statements regarding the taxation of corporate profits is true?

Poppy's book income of $739,300 includes a net long-term capital loss of $42,000 and federal income tax expense of $170,000. Based only on these items, Poppy's taxable income is:

Gosling, Inc., a calendar year, accrual basis corporation, reported $756,000 net income after tax on its financial statements prepared in accordance with GAAP. The corporation's financial records reveal the following information:Gosling earned $3,500 on an investment in tax-exempt municipal bonds.Gosling received an advance payment of rent this year for $25,000. This amount was not included in book income.Gosling's depreciation expense per books was $72,000, and its MACRS depreciation deduction was $105,000.Gosling recorded $58,000 of business meals and $27,000 of entertainment expense for book purposes.Gosling's federal income tax expense per books was $220,000.Compute Gosling's taxable income and regular tax liability.Prepare a Schedule M-1, page 5, Form 1120, reconciling Gosling's book and taxable income.

When price competition is fierce, the incidence of the corporate income tax

The Schedule M-3 reconciliation requires less detailed information than the Schedule M-1 reconciliation.

The purpose of Schedule M-1 is to explain the differences between financial statement income and taxable income.

Fleet, Inc. owns 85% of the stock of Pete, Inc. and 35% of the stock of Zete, Inc. The remaining stock of Pete and Zete is owned by unrelated individuals. Which of the following statements is correct?

Mandrake, Inc. has book income of $569,300. Its income includes a $50,700 bad debt expense, determined by the allowance method. Actual write offs this year were $48,000. Based only on this information, compute Mandrake's taxable income.

Fleet, Inc. owns 85% of the stock of Pete, Inc. and 35% of the stock of Zete, Inc. and 90% of the stock of Bete, Inc. Bete owns 5% of the stock of Pete and 5% of the stock of Zete. Zete owns 10% of the stock of Bete. The remaining stock of Pete and Zete is owned by unrelated individuals. Which of the following statements is correct?

Thunder, Inc. has invested in the stock of several corporations and has $500,000 current year operating income before dividends: Corporation Dividend Ownership\% Incorporated Hail, Inc. \ 52,000 14 Delaware Hurricane Company 17,500 62 France Lightening, Inc. 2,800 41 Utah Tornado Corporation 131,000 92 New Jersev Calculate Thunder's dividends-received deduction and taxable income:

Corporations with more than $1 million taxable income must pay 100% of their current federal income tax liability in the form of quarterly estimate payments to avoid an underpayment penalty.

Loda Inc. made an $8,300 nondeductible charitable contribution and a $2,000 nondeductible political contribution this year. Which of the following statements is true?

The stock of Wheel Corporation, a U.S. company, is publicly traded, with no single shareholder owning more than 5 percent of its outstanding stock. Wheel owns 90 percent of the outstanding stock of Axle, Inc, also a U.S. company. Axle owns 100% of the outstanding stock of Tire Corporation, a German company. Wheel and Tire each own 50 percent of the outstanding stock of Bumper, Inc., a U.S. company. Wheel and Axle each own 50 percent of the outstanding stock of Trunk Corporation, a U.S. company. Which of these corporations form an affiliated group eligible to file a consolidated tax return?

Brace, Inc. owns 90% of West common stock. This year, Brace generated $50,000 operating income and received $10,000 dividends from West. Brace's taxable income is:

Corporations with less than $1 million of taxable income are not required to make quarterly estimated tax payments.

Franton Co., a calendar year, accrual basis corporation, reported $2,076,000 net income after tax on its current year financial statements prepared in accordance with GAAP. The corporation's financial records reveal the following information.Federal tax expense per books was $660,000.Franton received $22,400 of dividends from its < 1% investment in Microsoft and General Motors stock.Bad debt expense was $12,900, and write-offs of uncollectible accounts receivable totaled $16,300.Book depreciation was $110,890, and MACRS depreciation was $94,700.Franton paid a $50,000 fine to the City of Albany for illegal trash dumping.Compute Franton's taxable income and regular tax liability.

Cranston Corporation has accumulated minimum tax credits of $924,000 from tax years prior to 2018. If 2018 regular tax before credits is $152,000, Cranston's allowable minimum tax credit for 2018 is: