Question 1

A corporation owns 90 percent of the voting power of a second corporation but only 70 percent of its total stock value. The corporations are:

Accepted Answer

The answer of A corporation owns 90 percent of the...

Question 2

Corporation A owns 50 percent of the voting stock of Corporation B. What is the minimum amount of stock that Corporation A must acquire in Corporation B to allow the two corporations to file a consolidated return.

Accepted Answer

The answer of Corporation A owns 50 percent of the...

Question 3

Corporation P files a consolidated return with Corporation S. In preparing a consolidated return, their accountant finds the following: $\begin{array}{lc}&P&S\
\text { Separate taxable income (loss) } & \$ 500,000 &(\$ 200,000\
\text { Capital gain (loss) } & (\$ 25,000)&\$ 50,000 \
\text { Charitable contributions } & \$ 20,000&\$ 10,000 \
\text { Dividend from S } & \$ 10,000
\end{array}$ What is the consolidated return taxable income?

Accepted Answer

The answer of Corporation P files a consolidated return with...

Question 4

A corporation is subject to both the personal holding company tax and the accumulated earnings tax. Its regular taxable income is $200,000. Its adjusted taxable income for imposing the personal holding company tax is $170,000 and its taxable income for determining the accumulated earnings tax is $230,000. What is the corporation's total tax liability?

Accepted Answer

$100,000 x .39 + $22,250 = $61,250 reg. tax; $170,000 x .20 = $34,000 PHC Tax; $61,250 + $34,000 = $95,250. (Only the PHC tax is imposed in addition to the regular tax.)

Question 5

A corporation that owns 72 percent of all the outstanding stock of another corporation:

Accepted Answer

The answer of A corporation that owns 72 percent of...

Question 6

Corporation P owns 85 percent of Corporation S1; Corporation S1 owns 60 percent of Corporation S2; Corporation S2 owns 90 percent of S3; Corporation S3 owns 60 percent of Corporation S4 and 15 percent of Corporation S2; Corporation S4 owns 100 percent of Corporation S5. Identify the consolidated group(s) of corporations.

Accepted Answer

The answer of Corporation P owns 85 percent of Corporation...

Question 7

An exempt organization normally operates as a:

Accepted Answer

The answer of An exempt organization normally operates as a:
...

Question 8

What is the amount of the exemption an exempt organization is permitted for unrelated business income?

Accepted Answer

The exemption amount an exempt organization is permitted for unrelated business income is $1,000. This means that the first $1,000 of gross income from an unrelated business is not subject to tax.

Question 9

What type of organization is always a private foundation?

Accepted Answer

Private foundations typically have a single major source of funding (usually gifts from one family or corporation) rather than funding from the general public. A scholarship fund that receives a significant portion of its income from investments, such as interest and dividends, fits this model, as it does not primarily rely on public support.

Question 10

What is the minimum number of individuals who must own a corporation for it to avoid meeting the personal holding company designation?

Accepted Answer

The answer of What is the minimum number of individuals...

Question 11

Corporation P owns 100 percent of Corporation S. During the year, P sold land to S for $50,000 that had a basis of $25,000 and S purchased $30,000 of materials from P that P paid $20,000 for. P reported separate income of $200,000 and S reported separate income of $30,000. What is the income that Corporation P reports on its consolidated tax return?

Accepted Answer

($200,000 + $30,000) - ($25,000 + $10,000) Separate taxable income excludes both the $25,000 and $10,000 gains.

Question 12

An exempt organization will not be assessed an unrelated business income tax if:

Accepted Answer

All of the given options are exceptions to the unrelated business income tax. If volunteers perform substantially all the work, the organization is not considered to be engaged in a trade or business. If the business sells primarily donated merchandise, the income is considered to be related to the organization's exempt purpose. And if the organization is a religious or educational institution and the business benefits its members, then the income is not deemed to be unrelated.

Question 13

What is the percentage excise tax that a disqualified person can be assessed on a prohibited transaction if that person fails to correct the transaction?

Accepted Answer

The answer of What is the percentage excise tax that...

Question 14

Tom owns 60 percent of CDF Corporation. CDF rents a building from Tom for $4,500 per month. Fair rental value for the building is only $3,000 per month. In addition, CDF employs Tom's son as the general manager at a salary of $350,000 annually. Similar positions in similar businesses pay $200,000 annually. How much rental and dividend income should Tom report on his tax return for the year?

Accepted Answer

($4,500 - $3,000) x 12 + ($350,000 - $200,000) dividend income

Question 15

Which of the following is an indication of the accumulation of earnings and profits beyond the reasonable needs of the business?

Accepted Answer

The accumulation of earnings and profits for shareholder loans indicates that the business is retaining excess profits for non-business-related purposes, which is a clear indication of accumulation of earnings beyond the reasonable needs of the business.

Quiz 10: Taxation of Corporations