Exam 3: The Corporate Income Tax

Super Corporation gives a painting to a museum for public display on August 6. The painting was purchased on April 3 of the same year for $20,000 and is worth $30,000 at the date of gift. Also, Super accrues a charitable contribution on December 30 and pays the $12,000 contribution on February 1 of the next year. Super Corporation is a calendar-year corporation that uses the accrual method of accounting. Before considering the 10% limitation rule, the maximum deduction for the current year is

Westwind Corporation reports the following results for the current year: What are Westwind's taxable income and regular tax liability before credits for the current year?

Dexter Corporation reports the following results for the current year: In addition, Dexter has a $25,000 NOL carryover from the preceding tax year. What is Dexter's taxable income for the current year?

Newco Corporation has asked you to help determine whether it should use the accrual method or the cash method of accounting. What are the tax issues involved in making this determination?

Sun and Moon Corporations each have only one class of stock outstanding. Their stock ownership is shown below. Which of the four stock ownership changes that are illustrated is the minimum change that is needed if Sun and Moon Corporations are to be brother-sister corporations under the 50%-80% requirements? (Assume the two corporations are equally valued.)

If a controlling shareholder sells depreciable property to a controlled corporation and the property is depreciable by the purchaser, any gain on the sale is a 1231 gain.

On December 10 of the past year Dell Corporation (a calendar-year taxpayer)accrued an obligation for a $100,000 bonus to Muriel, a sales representative who had had an outstanding year. Muriel owns no Dell Corporation stock. The bonus is paid on May 5 of the current year. What is Dell's deduction for last year? What is Dell's deduction for this year?

Identify which of the following statements is true.

All of the taxable income of a personal service corporation is taxed at a flat 21% rate.

Paul, who owns all the stock in Rodgers Corporation, purchases a truck from the corporation in January. The truck cost $11,000 and has an adjusted basis of $9,000. Paul pays Rodgers the truck's $7,000 FMV. Paul sells the truck later in the tax year to an unrelated party for $12,000. What is the amount and character of the income that Paul will report on this year's tax return?

Green Corporation is incorporated on March 1 and begins business on June 1. Green's first tax year ends on October 31, i.e., a short year. Green incurs the following expenses during the year: What is the deduction for organizational expenses if Green chooses to deduct its costs as soon as possible?

The dividends-received deduction is designed to reduce double taxation of corporate dividends payable to individual shareholders.

Trail Corporation has gross profits on sales of $140,000 and deductible expenses of $180,000. In addition, Trail has a net capital gain of $60,000. Trail's taxable income is

Identify which of the following statements is true.

Andy owns 20% of North Corporation and 60% of Tent Corporation. North and Tent have only one class of stock outstanding. Barbara owns 50% of North Corporation and 20% of Tent Corporation. North and Tent Corporations will be brother-sister corporations if

Corporations may deduct the adjusted basis of inventory plus one-half of the excess of the property's FMV over its adjusted basis if the inventory is used for the care of the ill, needy, or infants.

Identify which of the following statements is true.

Quality Corporation, a regular corporation, has an opportunity to realize $50,000 of additional income in either the current year or next year. What tax issues need to be considered in determining when to realize the income?

Ryan Corporation sells a commercial building and land. The sales proceeds attributable to the building is $145,000. When purchased, the building is allocated $75,000 of the purchase price. The firm has depreciated the building using the MACRS rules. The MACRS deductions taken total $60,000. What is the amount and character of Ryan's recognized gain?

Sparks Corporation receives a dividend of $100,000 from Jill Corporation, a C corporation. Sparks owns 70% of Jill Corporation stock. Sparks' dividends-received deduction is $65,000.