Question 1

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?

Accepted Answer

The answer of Teal Corporation has taxable income of $320,000.The...

Question 2

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

Accepted Answer

The answer of A corporation subject to AMT has AMT...

Question 3

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.

Accepted Answer

According to the IRS, the corporate alternative minimum tax exemption begins to phase out for AMT income of $150,000, and is completely phased out at AMT income of $310,000 or more. Therefore, Choice D is the correct answer.

Question 4

Which of the following statements is incorrect?

Accepted Answer

A distribution from earnings and profits in excess of stockholder basis is taxable as a dividend to the extent of earnings and profits, not a nontaxable return of capital.

Question 5

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

Accepted Answer

The answer of Which of the following items is subtracted...

Question 6

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

Accepted Answer

When a corporation makes a nonliquidating distribution of appreciated property to its shareholders, the corporation must recognize a gain as if the property were sold at its fair market value. The shareholders do not recognize a gain upon receipt; instead, they adjust their basis in the stock.

Question 7

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

Accepted Answer

While filing a consolidated tax return is often advantageous for parent-subsidiary groups, it is not mandatory. Therefore, statement B is incorrect.

Question 8

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.

Accepted Answer

Gold Corporation's taxable income is calculated as follows:
Net income before charitable contribution = $35,000 
Charitable contribution = 100 bats x ($40 FMV - $30 basis) = $1,000 
Taxable income = $35,000 - $1,000 = $34,000

Since the charitable contribution did not exceed 10% of Gold's taxable income, there is no charitable contribution carryforward. Therefore, the correct answer is C.

Question 9

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?

Accepted Answer

Taxable income before DRD is $174,000. Since there is a dividend from a large publicly-traded domestic corporation, Red Corporation is entitled to a DRD. The DRD for a dividend received from a domestic corporation is 50% of the dividends received, which in this case is $10,000 (50% of $20,000). Therefore, taxable income after DRD is $164,000 ($174,000 - $10,000). Additionally, Red Corporation made a cash contribution of $25,000 to a qualified charitable organization, which is deductible on their tax return. Therefore, taxable income of Red Corporation is $142,600 ($164,000 - $25,400).

Question 10

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

Accepted Answer

The shareholder's basis in S corporation stock is increased by capital contributions (A), interest income (C), and loans from the shareholder to the corporation (D), but not by the shareholder's proportionate share of corporate debt (B), as this does not directly affect the shareholder's equity in the corporation.

Question 11

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:

Accepted Answer

The answer of Saffron Corporation has book income of $200,000...

Question 12

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

Accepted Answer

The AMT exemption amount for corporations with AMT income between $175,000 and $335,000 is $40,000 minus 25% of the excess over $175,000. In this case, the excess over $175,000 is $25,000, so 25% of that is $6,250. Subtracting that from $40,000 gives us $33,750. However, the AMT exemption amount can never be less than the regular tax liability minus the foreign tax credit. Since we don't have enough information to calculate the regular tax liability or the foreign tax credit, we can assume they are both zero, which means the minimum AMT exemption amount for this corporation is $0. However, since $33,750 is greater than $0, the correct answer is C ($27,500).

Question 13

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?

Accepted Answer

Caesar does not report dividend income in a complete liquidation. Instead, he reports a capital gain or loss based on the difference between the amount received and his basis in the stock. In this case, his basis is $35,000 and he received $40,000 worth of cash and property with a basis of $50,000. Therefore, he has a capital gain of $5,000 ($40,000 - $35,000). The nontaxable return of capital is also correct ($35,000). The loss recorded by Roman Company is irrelevant for tax purposes.

Question 14

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?

Accepted Answer

To calculate the tax liability, we first need to determine the taxable income after charitable contributions. Thus, taxable income is $80,000. Using the corporate tax rate table, the tax liability for a taxable income of $80,000 is $15,790. Therefore, the answer is B.

Question 15

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

Accepted Answer

The answer of Which of the following items is subtracted...

Question 16

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:

Accepted Answer

Keisha has a dividend of $9,000, which is considered an ordinary dividend as it is less than or equal to her basis in the stock. The remaining $3,000 is a return of capital, which is nontaxable until Keisha's basis in the stock is reduced to zero. Therefore, Keisha has a nontaxable distribution of $3,000.

Question 17

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?

Accepted Answer

For an S corporation, both charitable contributions and dividend income are separately stated items and not included in the calculation of ordinary business income. Therefore, the ordinary business income reported to shareholders on Schedule K-1 would be the net income of $100,000 without any adjustments for the charitable contributions or the dividend income, making it $100,000. However, since the question seems to imply asking for the adjusted ordinary business income considering typical adjustments, subtracting the charitable contributions ($5,000) from the net income would result in $95,000, which aligns with the usual treatment of these items for tax purposes. This suggests there might be a misunderstanding in the explanation process, but based on standard tax treatment, ordinary income would typically be reported before these deductions and separately stated.

Question 18

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?

Accepted Answer

The answer of Sunshine Company has book income of $250,000.It...

Question 19

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?

Accepted Answer

The answer of Windy Company has taxable income before DRD...

Question 20

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

Accepted Answer

To elect Subchapter S status, the election form must be signed by all shareholders, not just 80%.

Quiz 15: Corporate Taxation

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

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.

Which of the following statements is incorrect?

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

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

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

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

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:

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

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?

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?

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

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:

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?

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?

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