Question 1

A nondeductible charitable contribution is a permanent book/tax difference.

Accepted Answer

A) True 
 B)False

Question 2

Gosling, Inc., a calendar year, accrual basis corporation, reported $756,000 net income after tax on its 2011 financial statements prepared in accordance with GAAP. The corporation's financial records reveal the following information:
· Gosling earned $478,000 from a qualified domestic production activity.
· Gosling earned $3,500 on an investment in tax-exempt municipal bonds.
· 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 entertainment expense for book purposes.
· Gosling's federal income tax expense per books was $440,000.
a. Compute Gosling's taxable income and regular tax liability.
b. Prepare a Schedule M-1, page 5, Form 1120, reconciling Gosling's book and taxable income.

Accepted Answer

a. Taxable income: $1,145,480

Question 3

Which of the following is a primary legal characteristic of the corporate form of business?

Accepted Answer

A)  The management of the business is centered in a Board of Directors elected by the shareholders. 
B)  A shareholder must seek permission to sell his stock. 
C)  The life of the corporation will terminate when a majority of the shareholders die or cease to exist. 
D)  A shareholder is personally liable for the debts of the corporation. 
A)  The management of the business is centered in a Board of Directors elected by the shareholders. 
B)  A shareholder must seek permission to sell his stock. 
C)  The life of the corporation will terminate when a majority of the shareholders die or cease to exist. 
D)  A shareholder is personally liable for the debts of the corporation.

Question 4

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 deprecation was $90,000. Based only on these items, compute Slipper's taxable income.

Accepted Answer

A)  $505,000 
B)  $495,000 
C)  $555,000 
D)  $445,000 
A)  $505,000 
B)  $495,000 
C)  $555,000 
D)  $445,000

Question 5

Alexus Inc.'s alternative minimum taxable income before any AMT exemption is $210,000. Compute the corporation's AMT exemption:

Accepted Answer

A)  $25,000 
B)  $0 
C)  $42,500 
D)  $40,000 
A)  $25,000 
B)  $0 
C)  $42,500 
D)  $40,000

Question 6

The federal tax law considers the member corporations of an affiliated group to be a single entity for federal tax purposes. An example of this treatment is the requirement to share the 15% tax bracket.

Accepted Answer

A) True 
 B)False

Question 7

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?

Accepted Answer

A)  Fleet, Pete, and Zete are an affiliated group. 
B)  Fleet and Zete are an affiliated group. 
C)  Fleet and Pete are an affiliated group. 
D)  There is no affiliated group here. 
A)  Fleet, Pete, and Zete are an affiliated group. 
B)  Fleet and Zete are an affiliated group. 
C)  Fleet and Pete are an affiliated group. 
D)  There is no affiliated group here.

Question 8

Westside, Inc. owns 15% of Innsbrook's common stock. This year, Westside generated $50,000 operating income and received $20,000 dividends from Innsbrook. Westside's taxable income is:

Accepted Answer

A)  $56,000 
B)  $66,000 
C)  $50,000 
D)  $54,000 
A)  $56,000 
B)  $66,000 
C)  $50,000 
D)  $54,000

Question 9

The taxable income earned by a personal service corporation is taxed at a flat rate of 35%.

Accepted Answer

A) True 
 B)False

Question 10

Corporations report their taxable income and calculate the federal income tax on Form 1040.

Accepted Answer

A) True 
 B)False

Question 11

Lexington Associates, Inc. is a personal service corporation. This year, Lexington reported $75,000 of taxable income. Which of the following statements regarding Lexington's regular tax liability is true?

Accepted Answer

A)  Regular tax liability will be less than it would have been if Lexington were not a personal service corporation. 
B)  Regular tax liability will be greater than it would have been if Lexington were not a personal service corporation. 
C)  Regular tax liability will be the same as it would have been if Lexington were not a personal service corporation. 
D)  Regular tax liability will be zero. 
A)  Regular tax liability will be less than it would have been if Lexington were not a personal service corporation. 
B)  Regular tax liability will be greater than it would have been if Lexington were not a personal service corporation. 
C)  Regular tax liability will be the same as it would have been if Lexington were not a personal service corporation. 
D)  Regular tax liability will be zero.

Question 12

For a corporate taxpayer in the 34% marginal tax bracket, a $20,000 tax credit is equivalent to a $58,824 tax deduction.

Accepted Answer

A) True 
 B)False

Question 13

Assuming that the corporation has a 34% MTR, which of the following statements is true?

Accepted Answer

A)  Jacky, Inc. borrowed $500,000 and paid interest of $48,000; the after-tax cost of the interest was $31,680. 
B)  Jacky, Inc issued 1,000 shares of 7%, $100 par preferred stock for $100,000. The after-tax cost of the $7,000 dividend paid was $4,620. 
C)  Jacky, Inc issued 1,000 shares of 7%, $100 par preferred stock for $100. The after-tax cost of the $7,000 dividend paid was $2,380. 
D)  Jacky, Inc. borrowed $500,000 and paid interest of $48,000; the after-tax cost of the interest was $16,320. 
A)  Jacky, Inc. borrowed $500,000 and paid interest of $48,000; the after-tax cost of the interest was $31,680. 
B)  Jacky, Inc issued 1,000 shares of 7%, $100 par preferred stock for $100,000. The after-tax cost of the $7,000 dividend paid was $4,620. 
C)  Jacky, Inc issued 1,000 shares of 7%, $100 par preferred stock for $100. The after-tax cost of the $7,000 dividend paid was $2,380. 
D)  Jacky, Inc. borrowed $500,000 and paid interest of $48,000; the after-tax cost of the interest was $16,320.

Question 14

Which of the following statements regarding Schedule M-3 is false?

Accepted Answer

A)  The IRS developed Schedule M-3 with the goal of increasing transparency between reported net income for financial accounting purposes and reported net income for tax purposes. 
B)  Schedule M-3 reports the temporary versus permanent characterization of book-tax differences. 
C)  Part I of 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. 
D)  Schedule M-3 replaces Schedule M-1 for all tax years beginning after December 31, 2004. 
A)  The IRS developed Schedule M-3 with the goal of increasing transparency between reported net income for financial accounting purposes and reported net income for tax purposes. 
B)  Schedule M-3 reports the temporary versus permanent characterization of book-tax differences. 
C)  Part I of 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. 
D)  Schedule M-3 replaces Schedule M-1 for all tax years beginning after December 31, 2004.

Question 15

Which of the following statements regarding corporate tax filing requirements is false?

Accepted Answer

A)  Corporations must file their annual federal income tax returns by the 15th day of the third month following the close of the taxable year. 
B)  Corporations may request an automatic six-month extension of time to file their federal income tax returns. 
C)  An extension of the income tax filing deadline does not extend the payment deadline for any balance of tax due for the taxable year. 
D)  Corporations must file their annual federal income tax returns by 15th day of the fourth month following the close of the taxable year. 
A)  Corporations must file their annual federal income tax returns by the 15th day of the third month following the close of the taxable year. 
B)  Corporations may request an automatic six-month extension of time to file their federal income tax returns. 
C)  An extension of the income tax filing deadline does not extend the payment deadline for any balance of tax due for the taxable year. 
D)  Corporations must file their annual federal income tax returns by 15th day of the fourth month following the close of the taxable year.

Question 16

Franton Co., a calendar year, accrual basis corporation, reported $2,076,000 net income after tax on its 2010 financial statements prepared in accordance with GAAP. The corporation's financial records reveal the following information.
· Federal tax expense per books was $1,069,000.
· Franton received $22,400 of dividends from its 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.

Accepted Answer

Taxable income: $3,207,790 = $2,076,000

Question 17

Which of the following statements regarding the domestic production activities deduction is false?

Accepted Answer

A)  The deduction is equivalent to a reduced tax rate on income from any qualified activity. 
B)  The amount of the deduction allowed for any tax year cannot exceed 50% of the total compensation paid to the corporation's U.S. workforce. 
C)  The deduction equals a percentage of the lesser of the corporation's net income from qualified activities or its taxable income before the deduction. 
D)  The deduction is only available for U.S. taxpayers engaged in manufacturing activities. 
A)  The deduction is equivalent to a reduced tax rate on income from any qualified activity. 
B)  The amount of the deduction allowed for any tax year cannot exceed 50% of the total compensation paid to the corporation's U.S. workforce. 
C)  The deduction equals a percentage of the lesser of the corporation's net income from qualified activities or its taxable income before the deduction. 
D)  The deduction is only available for U.S. taxpayers engaged in manufacturing activities.

A nondeductible charitable contribution is a permanent book/tax difference.

Which of the following is a primary legal characteristic of the corporate form of business?

Alexus Inc.'s alternative minimum taxable income before any AMT exemption is $210,000. Compute the corporation's AMT exemption:

The federal tax law considers the member corporations of an affiliated group to be a single entity for federal tax purposes. An example of this treatment is the requirement to share the 15% tax bracket.

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?

Westside, Inc. owns 15% of Innsbrook's common stock. This year, Westside generated $50,000 operating income and received $20,000 dividends from Innsbrook. Westside's taxable income is:

The taxable income earned by a personal service corporation is taxed at a flat rate of 35%.

Corporations report their taxable income and calculate the federal income tax on Form 1040.

Lexington Associates, Inc. is a personal service corporation. This year, Lexington reported $75,000 of taxable income. Which of the following statements regarding Lexington's regular tax liability is true?

For a corporate taxpayer in the 34% marginal tax bracket, a $20,000 tax credit is equivalent to a $58,824 tax deduction.

Assuming that the corporation has a 34% MTR, which of the following statements is true?

Which of the following statements regarding Schedule M-3 is false?

Which of the following statements regarding corporate tax filing requirements is false?

Which of the following statements regarding the domestic production activities deduction is false?

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 11: The Corporate Taxpayer

A nondeductible charitable contribution is a permanent book/tax difference.

Which of the following is a primary legal characteristic of the corporate form of business?

Alexus Inc.'s alternative minimum taxable income before any AMT exemption is $210,000. Compute the corporation's AMT exemption:

The federal tax law considers the member corporations of an affiliated group to be a single entity for federal tax purposes. An example of this treatment is the requirement to share the 15% tax bracket.

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?

Westside, Inc. owns 15% of Innsbrook's common stock. This year, Westside generated $50,000 operating income and received $20,000 dividends from Innsbrook. Westside's taxable income is:

The taxable income earned by a personal service corporation is taxed at a flat rate of 35%.

Corporations report their taxable income and calculate the federal income tax on Form 1040.

Lexington Associates, Inc. is a personal service corporation. This year, Lexington reported $75,000 of taxable income. Which of the following statements regarding Lexington's regular tax liability is true?

For a corporate taxpayer in the 34% marginal tax bracket, a $20,000 tax credit is equivalent to a $58,824 tax deduction.

Assuming that the corporation has a 34% MTR, which of the following statements is true?

Which of the following statements regarding Schedule M-3 is false?

Which of the following statements regarding corporate tax filing requirements is false?

Which of the following statements regarding the domestic production activities deduction is false?

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters