Exam 11: The Corporate Taxpayer

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

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.

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

Corporations are rarely targeted in political debates over taxation.

Loraine Manufacturing, Inc. reported the following for the current tax year: What is Loraine Manufacturing's alternative minimum taxable income before any AMT exemption?

Morton Inc. is a Kansas corporation engaged exclusively in domestic manufacturing. In 2013, it earned $500,000 of qualified production income, which also equals its taxable income before the domestic manufacturing deduction. It paid compensation of $200,000 to its workforce. Calculate Morton's 2013 domestic production activities deduction and taxable income:

Palm Corporation has book income of $424,000. Book income reflects $200,000 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.

This year, Sonoma Corporation received the following dividends: Before considering the above dividends, Sonoma has taxable income of $550,000. Calculate Sonoma's allowable dividends-received deduction and taxable income.

A nonprofit corporation may incur a federal income tax if it has unrelated business income.

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

Borough, Inc. is entitled to a rehabilitation credit of $500,000 for its current tax year. The corporation's regular tax liability is $450,000. No estimated tax payments have been made. Which of the following statements is true?

Gosling, Inc., a calendar year, accrual basis corporation, reported $756,000 net income after tax on its 2012 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.

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?

Corporation F owns 95 percent of the outstanding stock of CorporationG. This year, the corporations' records provide the following information:

The corporate alternative minimum tax is designed to insure that corporations with substantial economic income will pay their fair share of the federal tax burden.

Rogers, Inc. owns 12% of Lampe Corporation's voting common stock. During the current year, Rogers generated $50,000 operating income and received $8,000 dividends from Lampe. Only $1,600 of the dividend is taxable.

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.

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

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?

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