Deck 10: Taxation of Corporations

Question 1

The unextended due date for a corporate tax return is the 15^th day of the fourth month after the close of its tax year.

Answer 1

True

Question 2

The Schedule L of Form 1120 is a corporate balance sheet as determined by the tax laws.

Answer 2

False

Question 3

In 2019, a corporation with unused alternative minimum tax credits can offset them against its regular corporate income tax.

Answer 3

True

Question 4

An individual shareholder may receive sale treatment on a corporate redemption if the shareholder has all of his or her stock redeemed and no related parties own any of the same corporation's stock.

Question 5

A corporation with a tax liability of $20,000 cannot use a general business credit to completely eliminate its income tax liability.

Question 6

In 2018 and 2019, the corporate tax rate is a flat tax rate.

Question 7

In determining consolidated net income, each corporation first must compute separate taxable income.

Question 8

Regular corporations are free to choose any fiscal or calendar year as their tax year.

Question 9

Corporations are allowed a charitable contribution deduction equal to 10% of gross profit.

Question 10

In 2019, a corporation is allowed a 60 percent dividend received deduction if it owns at least 20 percent of the corporation paying the dividend.

Question 11

If property is distributed to a shareholder as a dividend, the dividend is equal to the property's
fair market value.

Question 12

A corporation that only has accumulated earnings and profits cannot make a dividend distribution.

Question 13

A controlled corporate group can consist of a parent and subsidiary or two corporations owned by the same individual.

Question 14

A corporation must have positive earnings and profits in both its current earnings and profits account and its accumulated earnings and profits account to make a taxable dividend distribution.

Question 15

A corporate carrying a net operating loss forward that was incurred in 2017 can only carry it forward for twenty years after being carried back two years.

Question 16

Intercompany dividends are one of many items eliminated in preparing a consolidated tax return.

Question 17

All corporations whose income tax liability is less than $1,000,000 in the current year can avoid an underpayment penalty if each of their estimated tax payments is 25 percent or more of their immediately preceding tax year's tax liability.

Question 18

The accumulated earnings tax and the personal holding company tax can both apply to a corporation in place of the regular corporate income tax.

Question 19

A corporation can elect to carry a capital loss back first to the third preceding tax year before it is carried forward five years; alternatively, it can elect to only carry the capital loss forward.

Question 20

A partial liquidation occurs when only a few of a corporation's shareholders have their stock redeemed by a corporation.

Question 21

Alpha Corporation's adjusted taxable income is $100,000 for 2018 and $200,000 for 2019.Alpha makes charitable contributions of $15,000 in 2018 and $19,000 in 2019.What are Alpha's charitable contribution deductions in determining its taxable income for 2018 and 2019, respectively?

A)$10,000 and $19,000
B)$10,000 and $20,000
C)$15,000 and $19,000
D)$15,000 and $20,000

Question 22

A large corporation had a net long-term capital loss in 2019 and net operating loss in 2019.What are the earliest year(s) to which these losses can be carried?

A)2014 for both
B)2020 for both
C)2016 for the capital loss; 2014 for the NOL
D)2016 for the capital loss; 2020 (or the first subsequent year with net income) for the NOL

Question 23

Jude received a $25,000 distribution from BC Corporation that the corporation identified as $15,000 dividend and $10,000 return of capital.What effect does this distribution have on Jude's taxable income if his basis in the stock of BC is $8,000?

A)Increase of $25,000
B)Increase of $17,000
C)Increase of $15,000
D)Increase of $10,000

Question 24

M&E Corporation has two shareholders, Marco and Edward.M&E Corporation has current E&P of $50,000 and a deficit in accumulated E&P of $40,000.M&E Corporation is in the 25% marginal tax bracket.M&E Corporation distributes investment land to these shareholders.The land distributed to Marco has a FMV of $30,000 and a basis to M&E Corporation of $24,000.The land distributed to Edward has a FMV of $30,000 and a basis to M&E Corporation of $26,000.Marco's basis for his stock is $2,000.Edward's basis for his stock is $1,000.How much gain, if any, does M&E Corporation recognize on the distribution of this land to its shareholders?

A)$0
B)$4,000
C)$6,000
D)$10,000

Question 25

What is Gigantic Corporation's net tax liability if its taxable income is $325,000 and it has a general business credit of $125,000?

A)$200,000
B)$63,750
C)$10,813
D)0

Question 26

Avalanche Corporation has $70,000 of net income from operations during the current year.In addition it received $180,000 of dividend income from another corporation in which it has a 10% ownership interest.What is Avalanche's dividends received deduction for this year?

A)$70,000
B)$90,000
C)$144,000
D)$180,000

Question 27

A corporation has pre-tax book income of $324,000.In determining this income, the corporation included $2,000 of tax-exempt interest, $6,000 of dividends from an affiliated corporation, a capital loss of $50,000 and $3,000 of excess book depreciation.What is the corporation's taxable income?

A)$369,000
B)$328,000
C)$269,000
D)$263,000

Question 28

A corporation has a July 31 year end.What is the last date it can file its return due for its July 31, 2019 year end if it files an extension?

A)December 31, 2019
B)November 15, 2019
C)March 15, 2020
D)May 15, 2020

Question 29

The Willow Corporation reported $400,000 of taxable income.In making a conversion to book income, the accountant had to adjust for the following: a $25,000 Section 179 deduction, but book depreciation would have been $5,000; a fine of $12,500 for overweight trucks; and a net capital loss of $10,000.What is Willow Corporation's book income?

A)$422,500
B)$412,500
C)$402,500
D)$397,500

Question 30

Monroe Corporation reported the following results for the current year: $\begin{array}{llcc} \text { Gross income from operations } &\$150,000 \\ \text { Operating expenses } &154,000\\ \text { Dividends from \( 30 \% \) owned domestic corporation } &100,000\\ \text { Long-term capital gain } &2,000\\ \text { Short-term capital loss} &(3,000)\\ \text { Charitable contributions } &15,000\\\end{array}$

In addition to the above, Monroe Corporation has a $5,000 NOL carryforward from last year.How much can Monroe Corporation take as a dividend received deduction for the current year?

A)$80,000
B)$61,750
C)$76,000
D)$65,000

Question 31

Soho is a personal service corporation that has $1,200,000 of gross revenue and $1,021,000 of deductible expenses? What is its income tax liability for 2019?

A)$62,650
B)$37,590
C)$26,850
D)$16,590

Question 32

Cloud Corporation has a taxable income of $100,000 in 2019 along with a $30,000 general business credit.What is the amount of its credit carryover and the last year to which the carryover could be used?

A)$70,000, 2039
B)$9,000, 2039
C)$9,000, 2028
D)$13,125, 2039

Question 33

Borneo Corporation has $21,000 in current earnings and profits and $5,000 of accumulated earnings and profits.Borneo distributes $20,000 of income to its shareholders on June 15 and another $10,000 on December 15.How much of the December 15 distribution is taxable as a dividend?

A)$21,000
B)$10,000
C)$7,000
D)$5,000

Question 34

Alpha Corporation's adjusted taxable income is $100,000 for 2018 and $200,000 for 2019.Alpha makes charitable contributions of $15,000 in 2018 and $19,000 in 2019.How much and from which tac year is Alpha's carry forward for its charitable contributions in computing its 2020 taxable income?

A)$1,000 from 2017
B)$1,000 from 2018
C)$4,000 from 2017
D)$4,000 from 2018

Question 35

BarBRanch has had taxable income of $450,000, $570,000, $760,000 and $680,000 in years 2016 through 2019, respectively.What were the equal minimum quarterly estimated tax payments for 2019 that BarBRanch should have made in 2019 to avoid any penalty?

A)$35,576
B)$57,800
C)$64,600
D)$170,000

Question 36

Monroe Corporation reported the following results for the current year: $\begin{array}{llcc} \text { Gross income from operations } &\$150,000 \\ \text { Operating expenses } &154,000\\ \text { Dividends from \( 30 \% \) owned domestic corporation } &100,000\\ \text { Long-term capital gain } &2,000\\ \text { Short-term capital loss} &(3,000)\\ \text { Charitable contributions } &15,000\\\end{array}$
Included in the above is $5,000 of qualified production activities income.In addition, Monroe Corporation has a $5,000 NOL carryforward from last year.How much can Monroe Corporation take as a charitable contribution deduction in the current year?

A)$15,000
B)$10,500
C)$10,000
D)$5,000

Question 37

Whyley Corporation, a C corporation, has gross profits on sales of $50,000 and deductible expenses of $60,000.In addition, Whyley has a net capital gain of $30,000.Whyley's taxable income is:

A)0
B)$10,000
C)$20,000
D)$30,000

Question 38

Coho is a corporation that has $1,100,000 of gross revenue and $1,021,000 of deductible expenses? What is its income tax liability for 2019?

A)$79,000
B)$30,494
C)$25,110
D)$16,590

Question 39

Marlin Inc., a calendar-year corporation, has gross income from operations of $160,000 and dividend income of $100,000 from a 25% owned domestic corporation for the current year.Deductible business expenses for the year are $170,000.What is Marlin's dividend received deduction for this year?

A)$50,000
B)$58,500
C)$65,000
D)$100,000

Question 40

Monroe Corporation reported the following results for the current year: $\begin{array}{llcc} \text { Gross income from operations } &\$150,000 \\ \text { Operating expenses } &154,000\\ \text { Dividends from \( 30 \% \) owned domestic corporation } &100,000\\ \text { Long-term capital gain } &2,000\\ \text { Short-term capital loss} &(3,000)\\ \text { Charitable contributions } &15,000\\\end{array}$

In addition to the above, Monroe Corporation has a $5,000 NOL carryforward available from last year.What is Monroe Corporation's taxable income for the current year?

A)$28,250
B)$14,000
C)$19,050
D)$19,500

Question 41

The outstanding stock of Riccardo Corporation is owned as follows: $\begin{array} { l l } \text { Robert } & \text { 100 shares } \\\text {Megan (Robert's daughter) } & 100 \text { shares } \\\text { Kyle (Robert's cousin)} & 100 \text { shares } \\\text { RMD, Inc. } &\underline{ \text { 100 shares }} \\\text { Total shares autstanding } & \text { 400 shares }\end{array}$

Robert owns 50% of RMD, Inc.stock.The rest of RMD, Inc.stock is owned by unrelated parties.Riccardo Corporation redeems 90 of Kyle's shares of stock for $9,000 in the only redemption transaction this year.Kyle's basis for his stock is $10 per share.Riccardo Corporation has $300,000 in E&P.How much capital gain or dividend income does Kyle recognize as a result of this redemption?

A)$9,000 dividend income
B)$8,100 capital gain
C)$8,000 capital gain
D)0

Question 42

A sole shareholder receives a piece of land from a corporation as a dividend distribution.The land has a basis of $40,000 and a fair market value of $80,000; the shareholder's basis in his stock is $20,000, and this distribution is the only corporate activity for the year except for paying any tax owed on the land distribution.At the beginning of the year, the corporation had only $5,000 in accumulated earnings and profits.How will this distribution be treated for tax purposes by the shareholder?

A)$80,000 dividend
B)$39,000 dividend; $41,000 capital gain
C)$36,600 dividend; $20,000 return of capital; $23,400 capital gain
D)$60,000 dividend; $20,000 return of capital

Question 43

The following shareholders own the outstanding stock of Garcia Corporation: $\begin{array} { l l } \text { Ryan } & \text { 100 shares } \\\text { Kayla (Ryan's wrife) } & 100 \text { shares } \\\text { Nick (Ryan's brother) } & 100 \text { shares } \\\text { XYZ Inc. } & 100 \text { shares } \\\text { RST. Inc. } & 100 \text { shares } \\\text { AG Partnership } &\underline{ \text { 100 shares }} \\\text { Total shares autstanding } & \text { 600 shares }\end{array}$ Ryan is a 25% partner in AG Partnership.Ryan also is a 55% shareholder in XYZ, Inc.and a 40% shareholder in RST, Inc.How many shares does Ryan constructively (directly and indirectly) own?

A)200
B)280
C)320
D)420

Question 44

The outstanding stock of Riccardo Corporation is owned as follows: $\begin{array} { l l } \text { Robert } & \text { 100 shares } \\\text {Megan (Robert's daughter) } & 100 \text { shares } \\\text { Kyle (Robert's cousin)} & 100 \text { shares } \\\text { RMD, Inc. } &\underline{ \text { 100 shares }} \\\text { Total shares autstanding } & \text { 400 shares }\end{array}$


Robert owns 50% of RMD, Inc.stock.The rest of RMD, Inc.stock is owned by unrelated parties.Riccardo Corporation redeems 90 of Robert's shares of stock for $9,000 in the only redemption transaction this year.Robert's basis for his stock is $10 per share (100 shares @ $10 = $1,000).Riccardo Corporation has $300,000 in E&P.What is Robert's total basis in his remaining 10 shares of stock after the redemption?

A)0
B)$100
C)$900
D)$1,000

Question 45

Christopher and Ashley, brother and sister, each own 50 percent (1,000 shares) of the stock of Walcott Corporation.This year, Walcott redeems 400 of Christopher's shares in a qualifying redemption in exchange for land valued at $300,000 (basis $175,000).The corporation's E&P prior to the redemption was $350,000.Walcott's tax rate is 21 percent.What is Walcott's E&P after the redemption?

A)$50,000
B)$175,000
C)$359,000
D)$432,500

Question 46

Ponoco Corporation, which has current earnings and profits (CE&P) of $10,000 and accumulated earnings and profits (AE&P) of $30,000, makes a $41,000 distribution to its sole shareholder, Greg, at the end of the current year.Greg has a basis in his Ponoco stock of $2,000.What is the amount of taxable income Greg must report from the Ponoco distribution?

A)$1,000
B)$10,000
C)$40,000
D)$41,000

Question 47

The outstanding stock of Riccardo Corporation is owned as follows: $\begin{array} { l l } \text { Robert } & \text { 100 shares } \\\text {Megan (Robert's daughter) } & 100 \text { shares } \\\text { Kyle (Robert's cousin)} & 100 \text { shares } \\\text { RMD, Inc. } &\underline{ \text { 100 shares }} \\\text { Total shares autstanding } & \text { 400 shares }\end{array}$

Robert owns 50% of RMD, Inc.stock.The rest of RMD, Inc.stock is owned by unrelated parties.Riccardo Corporation redeems 90 of Kyle's shares of stock for $9,000 in the only redemption transaction this year.Kyle's basis for his stock is $10 per share.Riccardo Corporation has $300,000 in E&P.What is Kyle's total basis in his remaining 10 shares of stock after the redemption?

A)0
B)$100
C)$900
D)$1,000

Question 48

Moranza Corporation, which has current earnings and profits (CE&P) of $10,000 and accumulated earnings and profits (AE&P) of $30,000, makes a $15,000 distribution to its sole shareholder, Justin, at the end of the current year.Justin has a basis in his Moranza stock of $2,000.What is the amount of taxable income Justin must report from the Moranza distribution?

A)0
B)$10,000
C)$12,000
D)$15,000

Question 49

The outstanding stock of Riccardo Corporation is owned as follows: $\begin{array} { l l } \text { Robert } & \text { 100 shares } \\\text {Megan (Robert's daughter) } & 100 \text { shares } \\\text { Kyle (Robert's cousin)} & 100 \text { shares } \\\text { RMD, Inc. } &\underline{ \text { 100 shares }} \\\text { Total shares autstanding } & \text { 400 shares }\end{array}$
Robert owns 50% of RMD, Inc.stock.The rest of RMD, Inc.stock is owned by unrelated parties.Riccardo Corporation redeems 90 of Robert's shares of stock for $9,000 in the only redemption transaction this year.Robert's basis for his stock is $10 per share (100 shares @ $10 = $1,000).Riccardo Corporation has $300,000 in E&P.How much capital gain or dividend income does Robert recognize as a result of this redemption?

A)$9,000 dividend income
B)$8,100 capital gain
C)$8,000 capital gain
D)0

Question 50

Fernando was a one-third shareholder in Rodriguez, Inc.prior to its liquidation in March.Fernando's basis in his Rodriguez stock was $50,000.In March, Rodriguez distributed property worth $125,000 (basis $80,000) in complete liquidation of Fernando's Rodriguez shares.Fernando took the property subject to a $30,000 liability.How much taxable gain must Fernando recognize upon receipt of the property from Rodriguez?

A)Zero
B)$45,000
C)$75,000
D)$30,000

Question 51

Maui Corporation makes two distributions during the current tax year: the first for $20,000 on February 1 and the second for $30,000 on August 1.Before consideration of the distributions, the corporation has $18,000 in current earnings and profits and $21,000 of accumulated earnings and profits.How much of the first distribution is taxable to the shareholders as a dividend?

A)$20,000
B)$18,000
C)$10,800
D)$7,200

Question 52

Vista Corporation, which has current earnings and profits (CE&P) of $10,000 and accumulated earnings and profits (AE&P) of $30,000, makes a $43,000 distribution to its sole shareholder, Julie, at the end of the current year.Julie has a basis in her Vista stock of $2,000.What is the amount of taxable income Julie must report from the Vista distribution?

A)$43,000
B)$41,000
C)$40,000
D)$10,000

Question 53

Walker Corporation issues one right to purchase one share of preferred stock at $90 for each ten shares of common stock owned by a shareholder.Seth owns 200 shares of common stock and receives 20 rights.The rights can be exercised anytime during the next 6 months.On the date of issuance of the stock rights, the common stock is selling for $14 per share and the rights are selling for $10 each.Seth has a total basis in the 200 common shares of $600 and elects to allocate basis to the rights.If Seth sells the 20 rights for $600 five months after they are received, what is his realized gain?

A)$600
B)$560
C)$400
D)$0

Question 54

What is JJ Corporation's balance in accumulated earnings and profits at the beginning of year 2 if in year 1 it made a $40,000 distribution to its shareholders, its current earnings and profits was $35,000, and its accumulated earnings and profits was $25,000 at the beginning of year 1?

A)$65,000
B)$30,000
C)$25,000
D)$20,000

Question 55

Joe owns 40 percent of the stock of AD Corporation's 2,000 outstanding shares.If Joe sells some stock back to the corporation, what is the maximum percentage of ownership that Joe can have of the outstanding stock after the sale to qualify for capital gain treatment rather than having dividend income?

A)79.9%
B)39.9%
C)31.9%
D)29.9%

Question 56

Which of the following is not a positive adjustment to taxable income to determine current earnings and profits?

A)Federal income taxes paid
B)Proceeds of life insurance
C)Capital loss carryovers
D)Dividend received deduction

Question 57

Maui Corporation makes two distributions during the current tax year-the first for $20,000 on February 1 and the second for $30,000 on August 1.Before consideration of the distributions, the corporation has $18,000 in current earnings and profits and $21,000 of accumulated earnings and profits.How much of the second distribution is taxable as a dividend?

A)$10,200
B)$10,800
C)$19,000
D)$21,000

Question 58

Soledad received one stock right for every two shares of stock she owned.She owned 100 shares that she purchased two years ago for $1,000.Each of the 50 rights that she received allows her to purchase one share of stock for $15.The stock is currently selling for $22 per share.What is her basis in the 50 stock rights?

A)$0
B)$137.25
C)$159.09
D)$274.51

Question 59

Casey Corporation has three assets when it decides to liquidate: $\begin{array}{lccc}\underline{\text {Asset}}&\underline{\text {Orig. Cost}}&\underline{\text {Basis}}&\underline{\text {Fair Market Value}}\\\text { Machine (Sec. 1231) } & \$ 140,000 & \$ 60,000 & \$ 110,000 \\\text { Building (Sec. 1231) } & \$ 900,000 & \$ 450,000 & \$ 380,000 \\\text { Stocks (Capital) } & \$ 50,000 & \$ 50,000 & \$ 30,000\end{array}$
The corporation sells the stock for its fair market value and distributes the other two assets to its sole shareholder.What is its tax liability on its final tax return in 2018 if it had $45,000 of income from operations prior to liquidating?

A)$6,750
B)$5,250
C)$3,750
D)$750

Question 60

Molokai Corporation distributed a building valued at $45,000 (basis of $20,000) to its sole shareholder.What is the effect of this distribution on the corporation's taxable income?

A)0
B)$15,000 taxable gain
C)$25,000 taxable gain
D)$40,000 taxable gain

Question 61

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

A)A $200,000 earnings and profits balance
B)$200,000 accumulated to retire debt
C)$600,000 accumulated for shareholder loans
D)$12,000,000 accumulated to expand operating facilities

Question 62

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

A)0
B)$100
C)$1,000
D)$10,000

Question 63

An exempt organization normally operates as a:

A)Church
B)Private foundation
C)Corporation
D)Limited liability company

Question 64

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

A)Volunteers perform substantially all the work.
B)The business sells primarily donated merchandise
C)It is a religious or educational institution and the business benefits members
D)All of the above

Question 65

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

A)One
B)Five
C)Nine
D)Ten

Question 66

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

A)$365,000
B)$295,000
C)$280,000
D)$315,000

Question 67

What type of organization is always a private foundation?

A)A church that receives all of its support from members
B)A scholarship fund for policemen that receives half of its income from interest and dividends
C)A school that receives government grant funds
D)A church that derives 5 percent of its income from rental of its sanctuary for concerts by aspiring concert musicians.

Question 68

A 21 percent excise tax is imposed on compensation in excess of a certain dollar amount paid to a covered employee by an exempt organization.A 1.4 percent excise tax applies to the net investment income of private colleges and university with at least 500 students and assets of at least a certain dollar amount per student.What are these dollar amounts, respectively?

A)$1,000,000; $500,000
B)$500,000; $1,000,000
C)$5,000,000; $250,000
D)$500,000; $2,000,000

Question 69

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?

A)10%
B)15%
C)10% and 25%
D)25% and 200%

Question 70

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?

A)$73,250
B)$55,000
C)$120,250
D)$141,250

Question 71

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.

A)P-S1-S2-S3-S4-S5
B)P-S1 only
C)P-S1and S2-S3-S4-S5
D)P-S1; S2-S3; and S4-S5

Question 72

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

A)May not file a consolidate tax return
B)May file a consolidated tax return
C)Is allowed a 100 percent dividend received deduction
D)Is allowed a 70 percent dividend received deduction

Question 73

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?

A)$54,000 rental income
B)$54,000 rental income; $150,000 dividend income
C)$36,000 rental income; $18,000 dividend income
D)$36,000 rental income; $168,000 dividend income

Question 74

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?

A)$230,000
B)$205,000
C)$195,000
D)$140,000

Question 75

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:

A)Affiliated
B)A controlled group
C)Brother-sister corporations
D)Consolidated group