Exam 11: The Corporate Taxpayer

The corporate characteristic of limited liability is more important to the shareholders than the characteristic of centralized management.

In terms of dispersal of ownership, corporations are classified as either closely held or publicly held.

Hearth, Inc. reported $30,000 of depreciation expense on its financial statements. For federal income tax purposes, it deducted depreciation of $35,000. This book/tax difference would result in an increase to net income per books on the Schedule M-1 or M-3.

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

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:

Pocahontas, Inc. had the following results for its first two years of operation: Which of the following statements is true?

New York, Inc. owns 100% of Brooklyn, Inc. and Queens, Inc. Taxable income for the three corporations for their first year was as follows: Which of the following statements is false?

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?

Sunny Vale Co. reported the following for the current tax year: Compute Sunny Vale's total income tax liability.

Grumond was incorporated on January 1, 2004, and adopted a calendar year for tax purposes. It had the following gross receipts for its first six taxable years: For which of these years is Grumond exempt from AMT?

In determining the incidence of the corporate income tax:

Eagle, Inc. made a contribution to the Boy Scouts of $25,000 during its current tax year. The corporation's taxable income before any charitable contribution deduction was $200,000. The corporation has a current charitable contribution deduction of $25,000.

For its current tax year, Volcano, Inc. reported the following: Compute Volcano's alternative minimum tax.

If a corporation's depreciation expense for regular tax purposes is $32,000 and its depreciation expense for alternative minimum tax purposes is $28,000, such corporation will have a negative (decrease) depreciation adjustment for alternative minimum taxable income.

Corporations with taxable incomes in excess of $18,333,333 have a 35% marginal tax rate and a 35% average tax rate.

AMT adjustments can only increase a corporation's alternative minimum taxable income.

Most tax credits for which a corporate taxpayer would be eligible are nonrefundable.

Honu, Inc. has book income of $1,200,000. Book income includes $620,000 income tax expense, $10,000 of municipal bond interest income, and $150,000 of meals and entertainment expense. Based only on these items, compute Honu's taxable income.

A corporation that is unable to meet its original filing deadline may obtain an automatic twelve-month extension of the time to file its federal income tax return.

Which of the following statements regarding Schedule M-1 is true?