FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 17: Corporations: Introduction and Operating Rules

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

Grackle Corporation, a personal service corporation, had $230,000 of net active income, $40,000 of portfolio income, and a $250,000 passive activity loss during the year. How much is Grackle's taxable income?

A) $20,000.
B) $40,000.
C) $270,000.
D) $520,000.
E) None of the above.

F) None of the above
G) A) and E)

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements is incorrect regarding the taxation of C corporations?

A) Similar to those applicable to individuals, the marginal tax rate brackets for corporations are adjusted for inflation.
B) Taxable income of a personal service corporation is taxed at a flat rate of 35%.
C) A tax return must be filed whether or not the corporation has taxable income.
D) The highest corporate marginal tax rate is 39%.
E) None of the above.

F) C) and D)
G) A) and B)

Correct Answer

verified

Show Answer

Question 3

True/False

Review LaterAdd Note

Albatross, a C corporation, had $140,000 net income from operations and a $25,000 short-term capital loss in the current year. Albatross Corporation's taxable income is $140,000.

Crow Corporation, a C corporation, donated scientific property (basis of $30,000, fair market value of $50,000) to State University, a qualified charitable organization, to be used in research. Crow had held the property for four months as inventory. Crow Corporation may deduct $50,000 for the charitable contribution (ignoring the taxable income limitation).

Eagle Corporation owns stock in Hawk Corporation and has taxable income of $100,000 for the year before considering the dividends received deduction. Hawk Corporation pays Eagle a dividend of $130,000, which was considered in calculating the $100,000. What amount of dividends received deduction may Eagle claim if it owns 15% of Hawk's stock?

What is the purpose of Schedule M-3? Which corporations are required to file Schedule M-3?

Heron Corporation, a calendar year C corporation, had an excess charitable contribution for 2013 of $5,000. In 2014, Heron made a further charitable contribution of $20,000. Heron's 2014 deduction is limited to $15,000 (10% of taxable income). The 2014 contribution must be applied first against the $15,000 limitation.

Quail Corporation is a C corporation with net income of $125,000 during the current year. If Quail paid dividends of $25,000 to its shareholders, the corporation must pay tax on $100,000 of net income. Shareholders must report the $25,000 of dividends as income.

If a C corporation uses straight­line depreciation on real estate (§ 1250 property), no portion of a gain on the sale of the property will be recaptured as ordinary income.

On December 26, 2014, the board of directors of Taupe Corporation, a calendar year, accrual method C corporation, authorized a contribution of land to a qualified charitable organization. The land (basis of $75,000, fair market value of $125,000) was acquired five years ago and held as an investment. For purposes of the taxable income limitation applicable to charitable deductions, Taupe has taxable income of $800,000 and $950,000 for 2014 and 2015, respectively. Describe the tax consequences to Taupe Corporation under the following independent situations. a. The donation is made on February 20, 2015. b. The donation is made on April 10, 2015.

Heron Corporation, a calendar year, accrual basis taxpayer, provides the following information for this year and asks you to prepare Schedule M-1: $\begin{array}{lr}\text { Net income per books (after-tax) } & \$ 239,700 \\\text { Taxable income } & 195,000 \\\text { Federal income tax liability } & 59,3000\\\text { Interest income from tax-exempt bonds }&5,000\\\text { Interest paid on loan incurred to purchase tax-exempt bonds } & 2,000 \\\text { Life insurance proceeds received as a result of death of Heron's }& 100,000\\ \text {president}\\ \text {Premiums paid on policy on life of Heron's president}&4,500\\ \text {Excess of capital losses over capital gains}&2,000\\ \text {Retained earnings at beginning of year}&375,000\\ \text {Cash dividends paid}&90,000\\ \text {Tax depreciation in excess of book depreciation}&7,500\end{array}$

Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profit of $75,000 ($250,000 gross income - $175,000 operating expenses) and distributed $25,000 to each partner. Peach must pay tax on $75,000 of income.

Beige Corporation, a C corporation, purchases a warehouse on August 1, 1998, for $1 million. Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11, 2014, for $1.2 million. What is the amount and character of the gain recognized by Beige on the sale of the realty?

On December 31, 2014, Lavender, Inc., an accrual basis C corporation, accrues a $50,000 bonus to Barry, its vice president and a 40% shareholder. Lavender pays the bonus to Barry, who is a cash basis taxpayer, on March 13, 2015. Lavender can deduct the bonus in 2015, the year in which it is included in Barry's gross income.

Briefly describe the charitable contribution deduction rules applicable to C corporations.

Copper Corporation owns stock in Bronze Corporation and has net operating income of $900,000 for the year. Bronze Corporation pays Copper a dividend of $150,000. What amount of dividends received deduction may Copper claim if it owns 85% of Bronze stock (assuming Copper's dividends received deduction is not limited by its taxable income) ?

In 2014, Bluebird Corporation had net income from operations of $100,000. Further, Bluebird recognized a long- term capital gain of $30,000, and a short-term capital loss of $45,000. Which of the following statements is correct?

Nancy Smith is the sole shareholder and employee of White Corporation, a C corporation that is engaged exclusively in accounting services. During the current year, White has operating income of $320,000 and operating expenses (excluding salary) of $150,000. Further, White Corporation pays Nancy a salary of $100,000. The salary is reasonable in amount and Nancy is in the 33% marginal tax bracket irrespective of any income from White. Assuming that White Corporation distributes all after-tax income as dividends, how much total combined income tax do White and Nancy pay in the current year? (Ignore any employment tax considerations.)

Dawn is the sole shareholder of Thrush Corporation, a C corporation. In the current year, Thrush earned $350,000 and distributed $75,000 to Dawn. Kirk is the sole shareholder of Swallow Corporation, an S corporation. In the current year, Swallow earned $350,000 and distributed $75,000 to Kirk. Contrast the tax treatment of Thrush Corporation and Dawn with the tax treatment of Swallow Corporation and Kirk.

During the current year, Woodchuck, Inc., a closely held personal service corporation, has $115,000 of net active income, $40,000 of portfolio income, and $135,000 of passive activity loss. What is Woodchuck's taxable income for the current year?