Deck 15: Corporate Taxation

Question 1

A corporation with a net capital gain will be taxed on that gain at preferential tax rates, similar to an individual.

Answer 1

False

Question 2

Large C corporations must use the accrual basis of accounting.

Answer 2

True

Question 3

When the 80% test is met, a stockholder may recognize a gain but will not recognize a loss.

Answer 3

True

Question 4

When a corporation distributes property to shareholders that has a FMV in excess of basis, the corporation will recognize a gain.

Question 5

When a corporation is formed, if the transferors own 80% or more of the corporation immediately after the exchange, then the transaction is, generally, tax-free.

Question 6

Corporate distributions in excess of earnings and profits are a capital gain to a stockholder.

Question 7

A domestic corporation can receive a deduction for dividend income it receives from another domestic corporation.

Question 8

All C corporations file their tax returns using a Form 1120.

Question 9

A corporation makes a pro rata distribution of property to its shareholders as part of its normal operations. The FMV of the property is less than its basis. The corporation will record a loss on the distribution.

Question 10

To legally operate as a corporation in most states, the incorporators must simply file a corporate federal income tax return.

Question 11

Keisha is a shareholder in a corporation. She received a distribution of property from the earnings and profits of the corporation. Keisha will report dividend income equal to the FMV of the property received.

Question 12

Corporate tax returns are due 3.5 months after the end of their tax year, the same as individual income tax returns.

Question 13

If a domestic corporation receives a dividend from another domestic corporation, it is entitled to a dividends received deduction of 70%, 80%, or 100%.

Question 14

C Corporations are not permitted to report a net capital loss.

Question 15

The basis of property received by a corporation is equal to the basis in the hands of the shareholder plus any gain recognized by the shareholder.

Question 16

When a corporation is formed, if the sole shareholder receives stock in exchange for property subject to a liability, the shareholder will recognize a gain.

Question 17

If a corporation has a net capital loss, it can carry that loss back three years and then forward six.

Question 18

Corporate distributions to shareholders from earnings and profits are called dividends.

Question 19

When a corporation is formed, if the sole shareholder contributes property and receives, in return, stock plus property, the individual will report a taxable gain equal to the FMV of the property received.

Question 20

The maximum marginal corporate tax rate is 35%.

Question 21

The corporate alternative minimum tax exemption amount is $150,000.

Question 22

C corporations with average annual gross receipts over $5 million must use the accrual basis of accounting.

Question 23

A capital loss carryforward will create a reconciling item on Schedule M-1, but a capital loss carryback will not.

Question 24

As part of a corporate formation meeting the 80% test, an individual who contributes property and receives, in return, stock plus property, will report a taxable gain equal to the lower of the FMV of the property received or the gain on the transfer.

Question 25

Schedule L is prepared using the accounting method the corporation uses to keep its financial accounting records.

Question 26

Corporations with total receipts and total assets less than $250,000 are not required to complete Schedule L or Schedule M-1.

Question 27

Shauntae receives a distribution from a corporation in complete liquidation of his ownership interest. Shauntae could report a capital gain, but not a capital loss, from the distribution.

Question 28

A Subchapter S corporation must be a domestic corporation.

Question 29

Once a corporation properly elects to be a Subchapter S corporation, it cannot terminate its election for five years.

Question 30

The basis of a shareholder in his or her Subchapter S stock is increased by his or her share of corporate charitable contributions.

Question 31

A C corporation can become a Subchapter S corporation by filing a statement with its corporate income tax return.

Question 32

Adjusted Gross Income for a corporation is equal to sales minus cost of goods sold.

Question 33

Parent-subsidiary corporations must file a consolidated tax return.

Question 34

A parent-subsidiary group is one in which a common parent corporation owns, directly or indirectly, at least 80% of one or more other corporations.

Question 35

Corporations are not subject to alternative minimum tax.

Question 36

A Subchapter S corporation is a corporation that is taxed in a manner similar to a partnership.

Question 37

On Schedule M-1, federal income tax must be added back to taxable income.

Question 38

When a corporation is formed, the transaction is tax-free.

Question 39

Schedule M-1 reconciles from taxable income to book income.

Question 40

If a corporation has a net capital loss, the loss is carried forward indefinitely.

Question 41

A corporation may elect to become a Subchapter S corporation only at the time it is initially formed.

Question 42

A C corporation has a fiscal year-end of August 30. It requests an automatic extension of time to file its income tax return. It must file its return no later than the 15^th day of:

A) March.
B) April.
C) May.
D)June.

Question 43

Andre formed a corporation and owns all of the stock. He contributed property with a FMV of $10,000 and a basis of $7,000 and he received $1,000 cash from the corporation. Andre's basis in his stock is:

A) $7,000.
B) $8,000.
C) $10,000.
D)Some other number.

Question 44

Heather and Howie form HH Company. In exchange for 50% of the stock, Heather contributes cash of $7,000. For the remaining 50%, Howie contributes a truck with a FMV of $7,000 (basis of $10,000). Which of the following statements is correct?

A) Howie will report a loss of $3,000.
B) The basis of the truck to HH Company is $7,000.
C) Howie will have a basis in his stock of $10,000.
D)All of the statements are correct.

Question 45

A corporation can deduct a charitable contribution of up to 50% of its adjusted gross income.

Question 46

Corporate distributions to shareholders are called dividends.

Question 47

Basira transfers land with a FMV of $900,000 to a newly formed corporation in exchange for all of the stock. The land has a basis of $500,000 and debt of $300,000. Basira's taxable gain from this transaction is:

A) $0.
B) $300,000.
C) $400,000.
D)$500,000.

Question 48

A C corporation has a fiscal year-end of November 30. It does not request an extension of time to file its income tax return. It must file its return no later than the 15^th day of:

A) January.
B) February.
C) March.
D)April.

Question 49

Which of the following statements is incorrect?

A) A corporation can choose the fiscal year-end of its choice when it files its first tax return without approval of the IRS.
B) A corporation with average annual gross receipts of $10 million must use the accrual basis of accounting.
C) A calendar year corporation must file its tax return no later than April 15 of the following year.
D)C corporations must annually file a Form 1120 tax return.

Question 50

If a shareholder receives cash from a corporation in complete liquidation of his or her ownership interest and the cash received is less than the shareholder's basis in the stock, the shareholder will report a loss.

Question 51

Schedule M-1 reconciles from net income per books to net income per the tax law.

Question 52

Initially, corporations with average annual gross receipts for the last three years of $5 million or less are not subject to the corporate AMT rules.

Question 53

A corporation can elect to be taxed as a Subchapter S corporation if it meets certain requirements including that it has 100 or fewer shareholders, all of whom are individuals, estates, and certain trusts.

Question 54

Which of the following statements is correct?

A) If a corporation has a net operating loss, it can carry the loss back three years and then forward twenty years.
B) A net capital loss can be carried back three years and then forward five years.
C) The first estimated payment of a corporation is due on the 15^th day of the third month of the fiscal year.
D)A corporation is entitled to a charitable deduction of 10% of its gross income before certain items.

Question 55

Felix transfers land with a FMV of $900,000 to a newly formed corporation in exchange for all of the stock. The land has a basis of $300,000 and debt of $500,000. The basis of the land, in the hands of the corporation is:

A) $300,000.
B) $500,000.
C) $600,000.
D)$900,000.

Question 56

A corporation must file Form 1120 2½ months after the end of its fiscal year.

Question 57

Schedule L is a reconciliation of net income per books to net income per the tax law.

Question 58

In 2012, the first year of its existence, Chartreuse Corporation had a net capital loss of $3,000. In 2013 and 2014, it had net capital gains of $5,000 and $8,000, respectively. In 2015, the company reported a net capital loss of $12,000. What is the amount of capital loss carryforward to 2016?

A) $0.
B) ($1,000).
C) ($2,000).
D)($4,000).

Question 59

Andre formed a corporation and owns all of the stock. He contributed property with a FMV of $10,000 and a basis of $7,000 and he received $1,000 cash from the corporation. Andre's taxable gain is:

A) $0.
B) $1,000.
C) $3,000.
D)$10,000.

Question 60

A shareholder of a Subchapter S corporation is required to personally report his or her proportionate share of corporate net income.

Question 61

Which of the following statements is incorrect?

A) A distribution from earnings and profits in excess of stockholder basis is a nontaxable return of capital.
B) Distributions paid in excess of earnings and profits are nontaxable to the extent of stockholder basis.
C) A distribution of appreciated property creates a gain to the corporation.
D)Earnings and profits are conceptually similar to retained earnings.

Question 62

Khaki Company is a Subchapter S corporation. It properly reported net income of $100,000 for financial statement purposes. It had charitable contributions of $5,000 and dividend income of $10,000 from a large domestic publicly traded company. What is the ordinary business income of Khaki Company that will be reported to its shareholders on Schedule K-1?

A) $90,000.
B) $93,000.
C) $95,000.
D)$100,000.

Question 63

A shareholder's basis in Subchapter S stock is increased by his or her share of all of the following except:

A) Capital contributions.
B) The shareholder's proportionate share of corporate debt.
C) Interest income.
D)Loans from the shareholder to the corporation.

Question 64

Keisha owns 100% of DEF Company and has a basis of $10,000 in its stock. DEF has earnings and profits of $9,000 and distributes a cash dividend to Keisha of $12,000. Keisha has a:

A) Capital gain of $2,000.
B) Dividend of $12,000.
C) Nontaxable distribution of $1,000.
D)Nontaxable distribution of $3,000.

Question 65

Windy Company has taxable income before DRD of $200,000. Included in that amount is a $10,000 dividend from a domestic corporation owned 10% by Windy and a $30,000 dividend from a domestic corporation owned 60% by Windy. What is the taxable income of Windy Company?

A) $181,000.
B) $179,000.
C) $169,000.
D)$168,000.

Question 66

Caesar owns 100% of Roman Company and his basis in its stock is $35,000. He receives cash of $10,000 and property with FMV of $30,000 and basis of $50,000 in complete liquidation of his ownership interest. As a result of this transaction, which of the following statements is incorrect?

A) Caesar reports dividend income of $40,000.
B) Caesar has a nontaxable return of capital of $35,000.
C) Roman Company records a loss of $20,000.
D)Caesar reports a capital gain of $5,000.

Question 67

Red Corporation has taxable income before DRD of $174,000. Included in that amount is a dividend of $20,000 from a large publicly-traded domestic corporation. Red also made a $25,000 cash contribution to a qualified charitable organization. The contribution is not included in the net income amount given. What is taxable income of Red Corporation?

A) $135,000.
B) $140,600.
C) $142,600.
D)$144,000.

Question 68

Blue Company has taxable income of $90,000 before charitable contributions. The company made a $10,000 cash contribution to the local university. What is the tax liability of the company for the year?

A) $15,450.
B) $15,790.
C) $18,850.
D)$22,250.

Question 69

Which of the following statements is incorrect with respect to parent-subsidiary corporations?

A) If a consolidated tax return is filed, losses on intercompany sales cannot be immediately recognized.
B) A parent-subsidiary group must file a consolidated tax return.
C) A parent-subsidiary group is one where a common parent corporation owns, directly or indirectly, at least 80% of one or more other corporations.
D)With a consolidated return, net losses of one company can offset net income from another company.

Question 70

Which of the following items is subtracted from book income to arrive at taxable income?

A) Federal income tax expense on the income statement.
B) Book depreciation that is in excess of tax depreciation.
C) Life insurance proceeds.
D)Final month rent collected at lease signing.

Question 71

A corporation subject to AMT has AMT income of $190,000. What is the amount of alternative minimum tax?

A) $30,000.
B) $32,000.
C) $37,500.
D)$38,000.

Question 72

What is the AMT exemption amount for a corporation with AMT income of $200,000?

A) $0.
B) $12,500.
C) $27,500.
D)$40,000.

Question 73

Which of the following will disqualify a corporation from electing Subchapter S status?

A) The corporation has 80 shareholders.
B) The corporation has one class of stock.
C) The election form is signed by 80% of the shareholders.
D)All shareholders are U.S. citizens except for 10% who are resident aliens.

Question 74

Sunshine Company has book income of $250,000. It also has tax depreciation in excess of book depreciation of $30,000 and $10,000 of interest on tax-exempt bonds. Without regard to tax expense, what is Sunshine's taxable income?

A) $210,000.
B) $230,000.
C) $270,000.
D)$290,000.

Question 75

Saffron Corporation has book income of $200,000, which includes tax expense of $40,000 and a net capital loss of $10,000. Saffron's taxable income is:

A) $210,000.
B) $230,000.
C) $240,000.
D)$250,000.

Question 76

Teal Corporation has taxable income of $320,000. The corporation had total travel and entertainment expenses of $50,000, charitable contributions of $10,000, and tax depreciation in excess of book depreciation of $45,000. Without regard to tax expense for financial statement purposes, what is the book net income of Teal?

A) $215,000.
B) $305,000.
C) $340,000.
D)None of these.

Question 77

Grape Corporation makes a nonliquidating distribution of appreciated property to its shareholders.

A) The shareholders will report a gain.
B) The corporation will report a gain.
C) The shareholders will report dividend income equal to the basis of the property distributed.
D)The corporation will report dividend expense equal to the fair value of the property distributed.

Question 78

Gold Corporation sells baseball bats and reported net income of $35,000 before charitable contributions. It contributed 100 bats to a local high school. Each bat has a FMV of $40 and a basis of $30. Determine Gold's taxable income and charitable contribution carryforward.

A) Taxable income of $31,000, carryforward of zero.
B) Taxable income of $31,500, carryforward of $500.
C) Taxable income of $32,000, carryforward of zero.
D)Taxable income of $35,000, carryforward of $4,000.

Question 79

Which of the following items is subtracted from book income to arrive at taxable income?

A) The excess of capital losses over capital gains.
B) Charitable contributions in excess of the 10% limit.
C) 50% of travel and entertainment expenses.
D)Interest received on tax-exempt bonds.

Question 80

The corporate alternative minimum tax exemption begins to phase out for AMT income of _______, and is completely phased out at AMT income of _______ or more.

A) $40,000; $150,000
B) $40,000; $310,000
C) $150,000; $300,000
D)$150,000; $310,000