Question 1

The four primary legal characteristics of a corporation are unlimited liability, limited life, free transferability of interests, and centralized management.

Accepted Answer

A) True 
 B)False  False

Question 2

In its first taxable year, Platform, Inc. generated a $100,000 net operating loss and made a $10,000 cash donation to a local charity. In its second year, Platform generated $350,000 operating income and made a $20,000 donation to the same charity. Compute Platform's taxable income for its second year.

Accepted Answer

A)   $225,000
B)   $220,000
C)   $320,000
D)   $230,000 A

Question 3

Eagle, Inc. made a contribution to the Boy Scouts of $65,000 during 2020. The corporation's taxable income before any charitable contribution deduction was $200,000. The corporation has a current charitable contribution deduction of $65,000.

Accepted Answer

A) True 
 B)False  False

Question 4

After 2017, a 1.4% excise tax applies to the net investment income of all colleges and universities.

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)   After 2017, the credit is available only for costs incurred to rehabilitate certified historic structures.
B)   The credit is intended to encourage businesses to undertake urban renewal projects.
C)   The credit is claimed only in the year in which the rehabilitated property is placed in service.
D)   The credit equals 20 percent of qualified rehabilitation costs.

Question 7

Liston, Inc. had taxable income of $1 million for calendar year 2020. Compute Liston's regular tax liability.

Accepted Answer

A)   $340,000
B)   $350,000
C)   $210,000
D)   $200,000

Question 8

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

Accepted Answer

A)   Consolidated taxable income is $769,000.
B)   If a consolidated return is filed, Queens, Inc. will receive immediate tax benefit from its operating loss.
C)   If Brooklyn, Inc. is a foreign corporation, it can be part of a consolidated return.
D)   The corporations are not required to file a consolidated tax return if they are an affiliated group; however, they may elect to do so.

Question 9

A corporation with a June 30 fiscal year earns $1 million for its tax year ended June 30, 2018. Regular tax liability on this income is $210,000.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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:

Accepted Answer

A)   21%
B)   0%
C)   10.5%
D)   None of these choices are correct

Question 12

Honu, Inc. has book income of $1,200,000. Book income includes $380,000 income tax expense, $10,000 of municipal bond interest income, and $150,000 of business meals expense. Based only on these items, compute Honu's taxable income.

Accepted Answer

A)   $1,580,000
B)   $1,665,000
C)   $1,720,000
D)   $1,645,000

Question 13

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

Accepted Answer

A)   Treat all corporations as passthrough entities for federal tax purposes.
B)   Enact tax legislation that would make dividends nontaxable to all of the corporation's shareholders.
C)   Allow corporate shareholders a credit on their tax returns for the taxes paid by the corporation on the profits currently distributed to shareholders as dividends.
D)   All of the these choices would avoid double taxation.

Question 14

For 2020, corporations are allowed a deduction for charitable contributions, limited to 25 percent of taxable income before the deduction.

Accepted Answer

A) True 
 B)False

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

After 2017, a 37% excise tax applies to compensation in excess of $1 million paid to executives of tax-exempt organizations.

Accepted Answer

A) True 
 B)False

Question 17

The only alternative to double taxation of corporate earnings is to treat corporations as passthrough entities, similar to partnerships.

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

A corporation that owns more than $10 million of total assets uses which schedule to reconcile book income to taxable income?

Accepted Answer

A)   Schedule M-1
B)   Schedule M-2
C)   Schedule M-3
D)   Schedule M-4

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 11: The Corporate Taxpayer

The four primary legal characteristics of a corporation are unlimited liability, limited life, free transferability of interests, and centralized management.

Eagle, Inc. made a contribution to the Boy Scouts of $65,000 during 2020. The corporation's taxable income before any charitable contribution deduction was $200,000. The corporation has a current charitable contribution deduction of $65,000.

After 2017, a 1.4% excise tax applies to the net investment income of all colleges and universities.

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.

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

Liston, Inc. had taxable income of $1 million for calendar year 2020. Compute Liston's regular tax liability.

A corporation with a June 30 fiscal year earns $1 million for its tax year ended June 30, 2018. Regular tax liability on this income is $210,000.

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

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:

Honu, Inc. has book income of $1,200,000. Book income includes $380,000 income tax expense, $10,000 of municipal bond interest income, and $150,000 of business meals expense. Based only on these items, compute Honu's taxable income.

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

For 2020, corporations are allowed a deduction for charitable contributions, limited to 25 percent of taxable income before the deduction.

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.

After 2017, a 37% excise tax applies to compensation in excess of $1 million paid to executives of tax-exempt organizations.

The only alternative to double taxation of corporate earnings is to treat corporations as passthrough entities, similar to partnerships.

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.

A corporation that owns more than $10 million of total assets uses which schedule to reconcile book income to taxable income?

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