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Exam 2: Corporations: Introduction and Operating Rules

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Question 41

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In the current year, Crimson, Inc., a calendar C corporation, has income from operations of $180,000 and operating deductions of $225,000. Crimson also had $30,000 of dividends from a 15% stock ownership in a domestic corporation. Which of the following statements is correct with respect to Crimson for the current year?

A) Crimson's NOL is $15,000.
B) A dividends received deduction is not allowed in computing Crimson's NOL.
C) The NOL is carried back 3 years and forward 10 years by Crimson.
D) Crimson's dividends received deduction is $21,000.
E) None of the above.

F) All of the above
G) A) and C)

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Question 42

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A personal service corporation must use a calendar year, and is not permitted to use a fiscal year.

A) True
B) False

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Question 43

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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).

Pablo, a sole proprietor, sold stock held as an investment for a $40,000 long-term capital gain. Pablo's marginal tax rate is 33%. Loon Corporation, a C corporation, sold stock held as an investment for a $40,000 long-term capital gain. Loon's marginal tax rate is 35%. What tax rates are applicable to these capital gains?

Income that is included in net income per books but not included in taxable income is a subtraction item on Schedule M-1.

Red Corporation, which owns stock in Blue Corporation, had net operating income of $200,000 for the year. Blue pays Red a dividend of $40,000. Red takes a dividends received deduction of $28,000. Which of the following statements is correct?

Carrot Corporation, a C corporation, has a net short-term capital gain of $65,000 and a net long-term capital loss of $250,000 during 2015. Carrot Corporation had taxable income from other sources of $720,000. Prior years' transactions included the following: Compute the amount of Carrot's capital loss carryover to 2016.

Adrian is the president and sole shareholder of Pigeon Corporation. He also lends money and rents a building to the corporation. Discuss how these business relationships between Adrian and Pigeon Corporation can help avoid double taxation. What limitations are there on the use of such relationships?

Schedule M-1 is used to reconcile net income as computed for financial accounting purposes with taxable income reported on the corporation's income tax return.

Eagle Company, a partnership, had a short-term capital loss of $10,000 during the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle's short-term capital loss on his individual tax return.

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

The passive loss rules apply to closely held C corporations and to personal service corporations but not to S corporations.

Grebe Corporation, a closely held corporation that is not a PSC, had $75,000 of net active income, $60,000 of portfolio income, and a $105,000 passive activity loss during the year. How much of the passive activity loss can Grebe deduct in the current year?

Copper Corporation, a C corporation, had gross receipts of $5 million in 2012, $6 million in 2013, and $3 million in 2014. Gold Corporation, a personal service corporation (PSC) , had gross receipts of $4 million in 2012, $7 million in 2013, and $5 million in 2014. Which of the corporations will be allowed to use the cash method of accounting in 2015?

Lucinda is a 60% shareholder in Rhea Corporation, a calendar year S corporation. During the year, Rhea Corporation had gross income of $550,000 and operating expenses of $380,000. In addition, the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000. During the year, Rhea Corporation distributed $50,000 to Lucinda. With respect to this information, which of the following statements is correct?

During the current year, Violet, Inc., a closely held corporation (not a PSC) , has $55,000 of passive activity loss, $80,000 of net active income, and $20,000 of portfolio income. How much is Violet's taxable income for the current year?

Don, the sole shareholder of Pastel Corporation (a C corporation), has the corporation pay him a salary of $600,000 in the current year. The Tax Court has held that $200,000 represents unreasonable compensation. Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.

Rachel is the sole member of an LLC, and Jordan is the sole shareholder of a C corporation. Both businesses were started in the current year, and each business has a long-term capital gain of $10,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is correct?

Robin Corporation, a calendar year C corporation, had taxable income of $1.9 million, $1.2 million, and $900,000 for 2012, 2013, and 2014, respectively. Robin has taxable income of $1.5 million for 2015. The minimum 2015 estimated tax installment payments for Robin are:

A personal service corporation with taxable income of $100,000 will have a tax liability of $22,250.