Exam 11: The Corporate Taxpayer

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.

The purpose of Schedule M-1 is to explain the differences between financial statement income and taxable income.

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:

A corporation's minimum tax credit can reduce the corporation's future regular tax liability if regular tax liability exceeds tentative minimum tax in that year.

John's, Inc. manufactures and sells fine furniture. What is John's regular tax liability if it had taxable income of $40,000,000?

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

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

Franton Co., a calendar year, accrual basis corporation, reported $2,076,000 net income after tax on its 2013 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.

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.

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

Brace, Inc. owns 90% of West common stock. This year, Brace generated $50,000 operating income and received $10,000 dividends from West. Brace's taxable income is:

Fleet, Inc. owns 85% of the stock of Pete, Inc. and 35% of the stock of Zete, Inc. and 90% of the stock of Stock ownership of Bete, Inc. Bete owns 5% of the stock of Pete and 5% of the stock of Zete. Zete owns 10% of the stock of Bete. The remaining stock of Pete and Zete is owned by unrelated individuals. Which of the following statements is correct?

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.

Which of the following is a means to avoid the double taxation burden imposed on the profits of corporations?

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

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

Tropical Corporation was formed in 2013. For 2013 through 2015, its regular and tentative minimum tax were as follows: a. Compute Tropical's tax due for each year. b. In 2016, Tropical's regular taxable income is $2,000,000, and it has positive AMT adjustments of $500,000 and AMT preferences of $600,000. Compute Tropical's regular tax, tentative minimum tax, and tax due for 2016.

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

Angel Corporation's current-year regular tax liability is $40,000. Angel is eligible for a general business credit of $45,000. The corporation will receive a $5,000 refund of federal income tax.