Question 1

Aaron, Inc. is a nonprofit corporation that collects and distributes food for needy families. Aaron, Inc. also operates a small grocery store for profit. Which of the following statements is true?

Accepted Answer

A)  The income from the collection and distribution of food and the income from grocery store are taxable. 
B)  No income from either of the activities is taxable. 
C)  Only the income from the collection and distribution of food is taxable. 
D)  Only the income from the grocery store is taxable.

Question 2

Wave Corporation owns 90% of the stock of Surf, Inc. Each corporation reports the following separate items for the current tax year:
 $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$Wave $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Surf
Ordinary operating income (loss)  $\quad$ $\quad$ $\quad$$ 500,000  $\quad$ $\quad$ $\quad$$ (100,000 )
Capital gain (loss)  $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ (5,000 )  $\quad$ $\quad$ $\quad$ $\quad$ $\quad$7,000
Section 1231 gain (loss)  $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$3,000  $\quad$ $\quad$ $\quad$ $\quad$ (10,000 )
Compute consolidated taxable income if Wave and Surf file a consolidated federal income tax return:

Accepted Answer

A)  $400,000. 
B)  $395,000. 
C)  $410,000. 
D)  $500,000.

Question 3

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.

Accepted Answer

A)  $569,300 
B)  $572,000 
C)  $566,600 
D)  $528,600

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

For a consolidated group of corporations, 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.

Accepted Answer

A) True 
 B)False

Question 6

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?

Accepted Answer

A)  Wheel, Axle, Tire, Bumper, and Trunk are an affiliated group. 
B)  Wheel, Axle, and Tire are an affiliated group. 
C)  Wheel and Axle are an affiliated group. 
D)  Wheel, Axle, and Trunk are an affiliated group.

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

Corporations with less than $1 million of taxable income are not required to make quarterly estimated tax payments.

Accepted Answer

A) True 
 B)False

Question 9

New York, Inc. owns 100% of Brooklyn, Inc. and Queens, Inc. Taxable income for the three corporations for their first year was as follows:
New York $\quad$$\quad$$\quad$$\quad$$ 628,000
Brooklyn $\quad$$\quad$$\quad$$\quad$$\quad$246,000
Queens $\quad$$\quad$$\quad$$\quad$$\quad$(105,000 )
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 10

Bisou Inc. made a $48,200 contribution to charity this year. Only $39,000 of the contribution was deductible. Bisou can carry the $9,200 nondeductible contribution back three years and forward five years.

Accepted Answer

A) True 
 B)False

Question 11

Thunder, Inc. has invested in the stock of several corporations and has $500,000 current year operating income before dividends:
Calculate Thunder's dividends-received deduction and taxable income:

Accepted Answer

A)  DRD, $152,920; taxable income, $347,080. 
B)  DRD, $135,420; taxable income, $533,660. 
C)  DRD, $152,920; taxable income, $544,480. 
D)  DRD $169,640; taxable income, $330,360.

Question 12

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 13

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 14

Cranston Corporation has accumulated minimum tax credits of $924,000 from tax years prior to 2018. If 2018 regular tax before credits is $152,000, Cranston's allowable minimum tax credit for 2018 is:

Accepted Answer

A)  $0 
B)  $152,000 
C)  $924,000 
D)  $538,000

Question 15

In determining the incidence of the corporate income tax:

Accepted Answer

A)  Corporations may pass the tax burden onto consumers in the form of higher prices 
B)  Corporate shareholders may bear the burden of the corporate tax in the form of lower return on investment 
C)  Corporate employees may bear the burden of the corporate tax in the form of lower compensation 
D)  All of the above parties may bear the indirect burden of the corporate income tax

Question 16

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 the above

Question 17

Palm Corporation has book income of $424,000. Book income reflects $130,000 federal 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.

Accepted Answer

A)  $569,000 
B)  $539,000 
C)  $589,000 
D)  $519,000

Question 18

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 depreciation 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

Question 19

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 20

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:

Accepted Answer

A)  $855,900 
B)  $951,000 
C)  $781,000 
D)  $909,000

Exam 11: The Corporate Taxpayer

Aaron, Inc. is a nonprofit corporation that collects and distributes food for needy families. Aaron, Inc. also operates a small grocery store for profit. Which of the following statements is true?

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.

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

For a consolidated group of corporations, 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.

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.

Corporations with less than $1 million of taxable income are not required to make quarterly estimated tax payments.

Bisou Inc. made a $48,200 contribution to charity this year. Only $39,000 of the contribution was deductible. Bisou can carry the $9,200 nondeductible contribution back three years and forward five years.

Thunder, Inc. has invested in the stock of several corporations and has $500,000 current year operating income before dividends: Calculate Thunder's dividends-received deduction and taxable income:

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.

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.

Cranston Corporation has accumulated minimum tax credits of $924,000 from tax years prior to 2018. If 2018 regular tax before credits is $152,000, Cranston's allowable minimum tax credit for 2018 is:

In determining the incidence of the corporate income tax:

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:

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

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: