Question 1

The Guava Corporation has book net income of $90,000 for the current year. Included in this figure are the following items which are reported on the corporation's Schedule M-1, Reconciliation of Income (Loss) per Books with Income per Return.
1. Federal income tax expense $25,000
2. Depreciation deducted on books, not deductible for tax purposes 4,000
3. Deduction for 50 percent of meals and entertainment expense not allowed for tax purposes 3,000
4. Deduction for payroll tax penalties not allowed for tax purposes 2,000
5. Tax exempt interest income included in book income but not in tax return income 12,000
Based on the above information, calculate the Guava Corporation's taxable income for the year. Show your calculations.

Accepted Answer

The answer of The Guava Corporation has book net income...

Question 2

A corporation must reconcile, to the IRS's satisfaction, the differences between net income as shown on the company's books and taxable income (before special deductions and net operating losses) as shown on the tax return.

Accepted Answer

This statement is true. Corporations must reconcile net income shown on their books with taxable income shown on their tax returns to ensure compliance with tax laws and regulations.

Question 3

The F. Repens Corporation has taxable income of $250,000 for the current year, including dividends of $60,000 received from 30 percent-owned domestic corporations. How much is the F. Repens Corporation's dividends received deduction for the current year?

Accepted Answer

The dividends received deduction for dividends received from a 30 percent-owned domestic corporation is 50 percent. Therefore, the deduction is $60,000 x 50% = $30,000. The taxable income is reduced to $220,000 ($250,000 - $30,000). The dividends received deduction cannot exceed 50% of taxable income, which in this case is $110,000 ($220,000 x 50%). Since the deduction is only $30,000, it does not exceed the limit and the deduction is $30,000.

Question 4

Schedule M-1 on Form 1120 shows the reconciliation of a corporation's tax liability to the tax expense on the corporation's books.

Accepted Answer

Schedule M-1 on Form 1120 is used to reconcile the corporation's income per its books with its income per the tax return, not to reconcile the corporation's tax liability with the tax expense on its books.

Question 5

Which of the following items is not generally a schedule M-1 adjustment?

Accepted Answer

The answer of Which of the following items is not...

Question 6

What is the purpose of Schedule M-1?

Accepted Answer

The answer of What is the purpose of Schedule M-1?...

Question 7

Ficus, Inc. began business on March 1, 2016, and elected to file its income tax return on a calendar-year basis. The corporation incurred $800 in organizational expenditures. Assuming the corporation does not elect to expense but chooses to amortize the costs over 180 months, the maximum allowable deduction for amortization of organizational expenditures in 2016 is:

Accepted Answer

The organizational expenditures are amortized over 180 months. For 2016, the corporation can deduct the monthly amortization amount for the 10 months from March to December. The monthly amortization is $800/180 = $4.44. Therefore, the deduction for 2016 is $4.44 * 10 = $44.44.

Question 8

A regular corporation with excess charitable contributions may carry the excess forward to the 5 succeeding tax years.

Accepted Answer

This is true according to the IRS. A regular corporation can carry forward excess charitable contributions for up to 5 years. This allows the corporation to still receive tax benefits for their charitable giving, even if they were not able to fully utilize it in the current year.

Question 9

To prevent triple taxation, a corporation is entitled to deduct 50 percent of the dividends received from other domestic corporations.

Accepted Answer

The answer of To prevent triple taxation, a corporation is...

Question 10

Corporations can elect to deduct up to $5,000 of organizational costs in the year they begin business, assuming their total organizational expenses do not exceed $50,000.

Accepted Answer

This is correct according to the IRS rules for deducting organizational costs for corporations.

Question 11

During the current year, the Melaleuca Corporation received dividends from 50-percent-owned domestic corporations in the amount of $100,000.
a.​
​
Assuming that in addition to the dividend income the corporation has gross income from operations of $250,000 and deductible operating expenses of $210,000, calculate the amount of the corporation's dividends received deduction for the current year.
b.​
​
If, instead of $250,000 in gross income from operations, the corporation has $200,000 in gross income from operations and the same amount of dividends and expenses, calculate the amount of the corporation's dividends received deduction for the current year.

Accepted Answer

The answer of During the current year, the Melaleuca Corporation...

Question 12

The Peach Corporation is a regular corporation that contributes $25,000 cash to qualified charitable organizations during the current year. The corporation has net taxable income of $190,000 before deducting the contributions.
a.​
What is the amount of Peach Corporation's allowable deduction for charitable contributions for the current year?
b.What may the corporation do with any excess amount of contributions?

Accepted Answer

The answer of The Peach Corporation is a regular corporation...

Question 13

For the year ended December 31, 2016, Prunus, Inc., reported net income before federal income tax expense of $800,000 per the corporation's books. This figure included the following items: What is the taxable income of Prunus, Inc. for 2016?

Accepted Answer

The answer of For the year ended December 31, 2016,...

Question 14

The Lagerstroemia Corporation was formed on January 1, 2016. Calculate the Lagerstroemia Corporation's taxable income or loss for 2016 given the following information:

Accepted Answer

The answer of The Lagerstroemia Corporation was formed on January...

Question 15

The Nandina Corporation was formed and began operations on July 1, 2016, and incurred the following expenses during the year: If the corporation chooses not to expense but rather amortizes organizational costs over 180 months, what is the amount of its amortization expense for 2016?

Accepted Answer

The answer of The Nandina Corporation was formed and began...

Question 16

The Bay Fig Corporation has $350,000 of taxable income from operations for the current year, and dividends of $50,000 received from 10 percent-owned domestic corporations. How much is the Bay Fig Corporation's dividends received deduction for the current year?

Accepted Answer

The dividends received deduction for dividends received from 10 percent-owned domestic corporations is 50 percent of the dividends received. Therefore, the deduction in this case is $25,000 (50% x $50,000). Since the taxable income from operations is $350,000, the deduction is limited to 50 percent of that amount, or $175,000. However, since the dividends received deduction cannot exceed taxable income, the deduction is limited to $175,000 - $350,000 = $0. Therefore, the dividends received deduction in this case is $0.

Question 17

ABC Company owns 40 percent of JMT Company and 95 percent of DEM Company. JMT pays an $80,000 dividend to ABC and DEM pays a $40,000 dividend to ABC in the current year. Assuming that ABC has $1,000,000 of taxable income, calculate ABC's dividends received deduction for the current year.

Accepted Answer

The answer of ABC Company owns 40 percent of JMT...

Question 18

In the current year, Parvifolia, Inc. had $400,000 of revenue from operations and $160,000 of dividends from non-affiliated 15 percent-owned domestic corporations. The corporation's deductible operating expenses totaled $410,000. What is Parvifolia, Inc.'s dividends received deduction for the current year?

Accepted Answer

The dividends received deduction for the current year is calculated as follows:

Dividends received deduction = lesser of
- 20 percent of dividends from non-affiliated 15 percent-owned domestic corporations (20% x $160,000 = $32,000)
- taxable income before dividends received deduction ($400,000 - $410,000 = -$10,000)
Therefore, the dividends received deduction is $32,000 because it is the lesser of the two options.

Question 19

Brokers' fees incurred in the issuance of a corporation's stock are considered organizational expenditures.

Accepted Answer

Brokers' fees incurred in the issuance of a corporation's stock are not considered organizational expenditures; they are directly related to the financing or capital structure of the corporation and are typically capitalized as part of the costs of issuing the stock.

Question 20

The Cat Corporation had $20,000 of book income in the current year. The following is a list of differences between federal and book income and expenses:
Based on the above information, calculate the Cat Corporation's federal taxable income for the year. Show your calculations.

Accepted Answer

The answer of The Cat Corporation had $20,000 of book...

Quiz 11: The Corporate Income Tax