Deck 11: The Corporate Income Tax

Question 1

For 2011,the Butternut Corporation has net income on its books of $75,000,including the following items: Federal tax depreciation exceeds the depreciation deducted on the books by $7,250.What is the corporation's taxable income?

A)$75,000
B)$85,000
C)$97,250
D)$100,000
E)$107,250

Answer 1

D

Question 2

For 2011,M & K Corporation had taxable income of $125,000 before capital gains of $20,000,capital losses of $15,000,and a capital loss carryover from 2010 of $10,000.For 2011,M & K Corporation has:

A)Taxable income after capital gains and losses of $120,000.
B)A capital loss carryover of $25,000.
C)Net taxable capital gains of $5,000.
D)Deductible capital losses of $20,000.

Answer 2

D

Question 3

The Sapote Corporation is a manufacturing corporation.The corporation has accumulated earnings of $500,000 and the corporation cannot establish a reasonable business need for any of that amount.What is the amount of the accumulated earnings tax (if any)that will be imposed on the corporation?

A)$75,000
B)$190,000
C)$37,500
D)$133,000
E)$175,000

Answer 3

C

Question 4

Firethorn Corporation began business on May 1,2011,and elected to file its income tax return on a calendar-year basis.The corporation incurred $3,000 in organizational expenditures.Assuming the corporation elects to amortize the costs over 180 months,the maximum allowable deduction for amortization of organizational expenditures in 2011 is:

A)$200
B)$133
C)$100
D)$50
E)None of the above.

Question 5

In 2011,which of the following is a requirement for qualification as an S corporation?

A)The corporation must be a domestic corporation
B)The corporation must have 85 or fewer shareholders
C)The corporation must have only two classes of stock outstanding
D)The shareholders of the corporation must not be resident aliens.
E)All of the above.

Question 6

The Brush Cherry Corporation has a $75,000 loss from operations (excluding dividends received)for 2011,and dividends of $150,000 received from 30%-owned domestic corporations.How much is the Brush Cherry Corporation's dividends received deduction for 2011?

A)$45,000
B)$75,000
C)$105,000
D)$120,000
E)None of the above.

Question 7

If the following businesses are owned by the employees and are set up as corporations,which would be considered a personal service corporation?

A)The tire store
B)Barber shop
C)Restaurant
D)Law firm

Question 8

Which of the following is true concerning Schedule M-1 on a corporate tax return?

A)Schedule M-1 does not reflect adjustments for net operating losses and special deductions such as the dividends received deduction.
B)Tax exempt income is reported on Schedule M-1 as an add back.
C)Schedule M-1 starts with taxable income and makes adjustments to reconcile to book income.
D)Federal income tax expense is reported on Schedule M-1 as a subtraction.

Question 9

In 2011,Parsley Corp had $385,000 of revenue from operations and $120,000 of dividends from non-affiliated 25%-owned domestic corporations.The corporation's operating expenses totaled $400,000.Parsley Corp's dividends received deduction for 2011 is:

A)$30,000
B)$105,000
C)$120,000
D)$84,000
E)$96,000

Question 10

Phil forms the Elm Corporation during 2011.He transfers property with a fair market value of $550,000 to Elm Corporation in exchange for 100 percent of the stock in the corporation.Phil's basis in the property transferred was $250,000 and the corporation assumed a $150,000 mortgage on the property.If the fair market value of the stock received by Phil is $400,000,what is the corporation's basis in the property received from Phil and what is Phil's basis in the stock?

A)$100,000 and $100,000
B)$250,000 and $150,000
C)$400,000 and $550,000
D)$100,000 and $400,000
E)$250,000 and $100,000

Question 11

For the year ended December 31,2011,Prunus,Inc. ,reported book net income of $900,000 after federal income tax expense was recorded on the corporation's books.The corporation also has interest income from tax exempt securities,interest expense to carry the investment and a capital loss on the sale of land.To arrive at taxable income,it would be necessary to:

A)Add interest income on tax-exempt municipal securities to the after-tax income
B)Deduct the loss on sale of land as an investment
C)Subtract interest expense on a loan to purchase tax-exempt municipal securities
D)Add the amount of the federal tax expense.
E)All of the above.

Question 12

For 2011,Sleevo Shirt Corporation had net income before the charitable contributions deduction of $10,000 and charitable contributions of $15,000. Sleevo Shirt Corporation may deduct charitable contributions of:

A)$0
B)$1,000
C)$10,000
D)$15,000

Question 13

In regards to the corporate alternative minimum tax (AMT):

A)There is an adjustment to taxable income for accelerated depreciation.
B)The tax applies to all corporations.
C)The AMT exemption is completely phased out for corporations with alternative minimum taxable income (AMTI)of more than $150,000.
D)A deduction for medical expenses must be added back to taxable income in computing alternative minimum taxable income (AMTI).

Question 14

Ted forms the Nutshell Corporation during the 2011 tax year.To form the corporation,Ted transfers assets having a fair market value of $550,000 to Nutshell Corporation for 100 percent of the corporation's stock.Ted's adjusted basis in the assets transferred was $250,000 and Nutshell Corporation assumed a $175,000 mortgage on the assets.If the fair market value of the stock received by Ted is $375,000,what is his basis in the stock received from the corporation?

A)$550,000
B)$375,000
C)$425,000
D)$250,000
E)$75,000

Question 15

Which of the following is true?

A)Corporate capital losses may be deducted against ordinary income.
B)Corporate capital gains are taxed at a capital gains tax rate of 15 percent for the year 2011.
C)Corporate capital losses may be used only to offset capital gains.
D)Corporate capital losses not used currently may be carried back 3 years and forward indefinitely until used.

Question 16

On July 1,2011,Gordon formed Johns Corporation.On that same date,Gordon paid $150,000 cash and transferred property with an adjusted basis of $150,000 to Johns Corporation in exchange for 3,000 shares of the corporation's common stock.The property transferred had a fair market value of $185,000 on the date of the transfer.Johns Corporation had no other shares of common stock outstanding on July 1,2011.As a result of this transaction,Gordon's basis in the stock and Johns Corporation's basis in the property (other than the cash),respectively,are:

A)$185,000 and $150,000
B)$300,000 and $185,000
C)$150,000 and $150,000
D)$300,000 and $150,000
E)None of the above.

Question 17

Accumulated earnings tax

A)Is a tax on corporations with over one million dollars of income.
B)Is imposed at 35 percent.
C)Is not imposed on a corporation if accumulated income is $250,000 or less ($150,000 for service corporations).
D)Does not apply to small corporations.

Question 18

Choose the correct statement.

A)S corporations file their tax returns on Form 1120.
B)The tax return for a calendar year-end corporation is due on April 15.
C)Corporations must make estimated payments.
D)Corporations may file a 6 month extension for filing their tax returns and paying their tax liability.

Question 19

The first estimated payment for a corporation with a year end of January 31 is due on:

A)February 15
B)March 15
C)April 15
D)May 15

Question 20

Please choose the correct answer.

A)Corporations use the same tax rates as individual taxpayers.
B)Personal service corporations are taxed at a flat 35 percent.
C)"Bubbles" in the tax rates occur when the marginal rates take advantage of the lower tax rates.
D)The highest marginal corporate tax rate is 25 percent.