Exam 11: The Corporate Taxpayer

Aaron, Inc. is a nonprofit corporation that collects and distributes food for needy families. Aaron, Inc. also operates a small grocery store for profit. Which of the following statements is true?

Wave Corporation owns 90% of the stock of Surf, Inc. Each corporation reports the following separate items for the current tax year: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Wave $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Surf Ordinary operating income (loss) $\quad$ $\quad$ $\quad$ $ 500,000 $\quad$ $\quad$ $\quad$ $ (100,000 ) Capital gain (loss) $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ (5,000 ) $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 7,000 Section 1231 gain (loss) $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 3,000 $\quad$ $\quad$ $\quad$ $\quad$ (10,000 ) Compute consolidated taxable income if Wave and Surf file a consolidated federal income tax return:

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.

The stock of closely held corporations is typically restricted as to transferability by some type of buy-sell agreement.

For a consolidated group of corporations, Schedule M-3 reconciles worldwide financial statement net income to the financial statement net income of those corporations permitted to be included in the U.S. consolidated tax return group.

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?

An affiliated group consists of a parent company that directly owns 80% of at least one subsidiary corporation plus all other subsidiaries that are 80% owned within the group.

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

New York, Inc. owns 100% of Brooklyn, Inc. and Queens, Inc. Taxable income for the three corporations for their first year was as follows: New York $\quad$$\quad$$\quad$$\quad$ $ 628,000 Brooklyn $\quad$$\quad$$\quad$$\quad$$\quad$ 246,000 Queens $\quad$$\quad$$\quad$$\quad$$\quad$ (105,000 ) Which of the following statements is false?

Bisou Inc. made a $48,200 contribution to charity this year. Only $39,000 of the contribution was deductible. Bisou can carry the $9,200 nondeductible contribution back three years and forward five years.

Thunder, Inc. has invested in the stock of several corporations and has $500,000 current year operating income before dividends: Calculate Thunder's dividends-received deduction and taxable income:

A corporation is required to report differences between book and taxable income on either Schedule M-1 or Schedule M-3 of the corporate income tax return.

Donatoni Corporation owns 40% of Market, Inc. voting common stock. During the current year, Donatoni received a $30,000 dividend from Market. Donatoni must report the dividend as gross income, and is allowed a $15,000 dividends-received deduction.

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:

In determining the incidence of the corporate income tax:

Sonic Corporation has a 21% marginal tax rate and received $10,000 of dividends from Roller, Inc., a U.S. corporation in which Sonic owns less than 2% of the outstanding stock. Sonic's effective tax rate on the Roller dividend is:

Palm Corporation has book income of $424,000. Book income reflects $130,000 federal income tax expense and $55,000 depreciation expense. Tax depreciation expense computed under MACRS is $65,000. Palm received $25,000 of prepaid rent not included in book income. Based only on these items, compute Palm's taxable income.

Slipper Corporation has book income of $500,000. Book income includes a $50,000 gain on the sale of equipment. The equipment originally cost $110,000 and was sold for $75,000. Accumulated book depreciation was $85,000; accumulated MACRS depreciation was $90,000. Based only on these items, compute Slipper's taxable income.

Which of the following statements regarding the rehabilitation credit is false?

Forward Inc.'s book income of $739,000 includes a net long-term capital loss of $42,000 and charitable contribution of $170,000. Taxable income shown on the Schedule M-1 would be: