Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The taxable income earned by a personal service corporation is taxed at a flat rate of 35%.

Accepted Answer

A) True 
 B)False

Question 3

Corporations are allowed a deduction for charitable contributions, limited to 10 percent of taxable income before the deduction.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  $55,000 
B)  $135,000 
C)  $122,000 
D)  $82,000

Question 5

Corporations are required to pay their federal tax liability in four quarterly estimated tax installments.

Accepted Answer

A) True 
 B)False

Question 6

At least three corporations are required to form an affiliated group.

Accepted Answer

A) True 
 B)False

Question 7

Dividends-received deductions generally are not allowed for dividends from foreign corporations.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Morton Inc. is a Kansas corporation engaged exclusively in domestic manufacturing. This year, 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 domestic production activities deduction and taxable income:

Accepted Answer

A)  Deduction $45,000; taxable income $455,000 
B)  Deduction $30,000; taxable income $470,000 
C)  Deduction $0; taxable income $500,000 
D)  Deduction $45,000; taxable income $255,000

Question 10

Silver Bullet Inc. reported the following for its current tax year:  Compute Silver Bullet's total income tax liability.

Accepted Answer

A)  $22,000. 
B)  $83,250. 
C)  $61,250. 
D)  $141,525.

Question 11

Which of the following statements regarding the taxation of corporate profits is true?

Accepted Answer

A)  Dividends payments are deductible in computing corporate taxable income. 
B)  The tax treatment of corporate dividends creates a bias in favor of debt financing. 
C)  Corporations cannot deduct interest payments in computing corporate taxable income. 
D)  Corporations with high debt-to-equity ratios have less burdensome cash flow commitments and lower risk of insolvency.

Question 12

Which of the following statements regarding the domestic production activities deduction is false?

Accepted Answer

A)  The deduction is equivalent to a reduced tax rate on income from any qualified activity. 
B)  The amount of the deduction allowed for any tax year cannot exceed 50% of the total compensation paid to the corporation's U.S. workforce. 
C)  The deduction equals a percentage of the lesser of the corporation's net income from qualified activities or its taxable income before the deduction. 
D)  The deduction is only available for U.S. taxpayers engaged in manufacturing activities.

Question 13

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 14

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 15

Corporations are rarely targeted in political debates over taxation.

Accepted Answer

A) True 
 B)False

Question 16

The rate schedule for determining the regular tax liability of a corporation includes rates ranging from 15% to 39%.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

A)  Fleet, Pete, and Zete are an affiliated group. 
B)  Fleet and Zete are an affiliated group. 
C)  Fleet and Pete are an affiliated group. 
D)  There is no affiliated group here.

Question 18

TasteCo, Inc. reported $210,500 of taxable income this year. What is its regular tax liability?

Accepted Answer

A)  $82,095 
B)  $65,345 
C)  $73,675 
D)  $71,570

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

The answer of Gosling, Inc., a calendar year, accrual basis...

Exam 11: The Corporate Taxpayer

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

The taxable income earned by a personal service corporation is taxed at a flat rate of 35%.

Corporations are allowed a deduction for charitable contributions, limited to 10 percent of taxable income before the deduction.

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

Corporations are required to pay their federal tax liability in four quarterly estimated tax installments.

At least three corporations are required to form an affiliated group.

Dividends-received deductions generally are not allowed for dividends from foreign corporations.

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.

Silver Bullet Inc. reported the following for its current tax year: Compute Silver Bullet's total income tax liability.

Which of the following statements regarding the taxation of corporate profits is true?

Which of the following statements regarding the domestic production activities deduction is false?

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

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

Corporations are rarely targeted in political debates over taxation.

The rate schedule for determining the regular tax liability of a corporation includes rates ranging from 15% to 39%.

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?

TasteCo, Inc. reported $210,500 of taxable income this year. What is its regular tax liability?

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