Question 1

A significant advantage of issuing stock instead of debt is that payment of dividends is discretionary.

Accepted Answer

A) True 
 B)False

Question 2

The domestic production activities deduction is computed as a percentage of the greater of taxable income or net income from qualified production activities.

Accepted Answer

A) True 
 B)False

Question 3

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:

Accepted Answer

A) $53,000 
B) $58.000 
C) $50,000 
D) $52,000

Question 4

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.

Question 5

Frazier, Inc. paid a $150,000 cash dividend to its shareholders. The corporation cannot deduct this payment on its corporate income tax return.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

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

Accepted Answer

A) The corporate dividends-received deduction is reported on Line 8 of Schedule M-1. 
B) A corporation incurring nondeductible fines and penalties would report those amounts on line 5 of Schedule M-1. 
C) Line 2 of schedule M-1 should reflect the corporation's actual federal income tax liability for the current year. 
D) A corporation realizing a current gain on a like-kind exchange that is deferred for tax purposes would not report that gain on Schedule M-1.

Question 9

The Schedule M-3 reconciliation requires less detailed information than the M-1 reconciliation.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Sonic Corporation has a 35% 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) 35% 
B) 24.5% 
C) 10.5% 
D) None of the above

Question 12

In its first taxable year, Platform, Inc. generated a $200,000 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) $120,000 
B) $135,000 
C) $320,000 
D) $130,000

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 $21,000 dividends-received deduction.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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

Accepted Answer

A) $14,000,000 
B) $13,600,000 
C) $15,600,000 
D) $16,000,000

Question 16

A corporate taxpayer would prefer a $50,000 deduction to a $50,000 credit.

Accepted Answer

A) True 
 B)False

Question 17

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

Question 18

The domestic production activities deduction is a permanent book/tax difference.

Accepted Answer

A) True 
 B)False

Question 19

Pocahontas, Inc. had the following results for its first two years of operation:  Which of the following statements is true?

Accepted Answer

A) There is an AMT credit carryback from 2009 to 2008. 
B) There is an AMT credit carryover from 2009 to 2010. 
C) There is an AMT credit carryover from 2008 to 2009. 
D) There is an AMT credit carryback from 2008 to 2007.

Question 20

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

Exam 11: The Corporate Taxpayer

A significant advantage of issuing stock instead of debt is that payment of dividends is discretionary.

The domestic production activities deduction is computed as a percentage of the greater of taxable income or net income from qualified production activities.

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:

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

Frazier, Inc. paid a $150,000 cash dividend to its shareholders. The corporation cannot deduct this payment on its corporate income tax return.

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.

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.

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

The Schedule M-3 reconciliation requires less detailed information than the M-1 reconciliation.

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.

Sonic Corporation has a 35% 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:

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 $21,000 dividends-received deduction.

In determining the incidence of the corporate income tax:

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

A corporate taxpayer would prefer a $50,000 deduction to a $50,000 credit.

The domestic production activities deduction is a permanent book/tax difference.

Pocahontas, Inc. had the following results for its first two years of operation: Which of the following statements is true?

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.