Deck 2: Corporations: Introduction and Operating Rules

Question 1

Purple Corporation (a calendar year taxpayer) is engaged in the business of retailing CD players and makes the following donations during the year: $\begin{array}{ll}&\text { Fair Market }\\\text { Adjusted Basis }&\text { Value }\\\hline\text { CD players (held as inventory) }\\\text { to the local Women's Shelter }&\$8,000&\$12,000\\\text { Stock in Music acquired two years ago and held as }\\\text { an investment to a Catholic Church seminary }&6,000&10,000\\\text { Delivery van to local SPCA (animal shelter) }&8,000&4,000\end{array}$
How much qualifies for the charitable contribution deduction?

A)$18,000.
B)$22,000.
C)$24,000.
D)$26,000.
E)None of the above.

Answer 1

$24,000.

Question 2

In working with Schedule M-1 (reconciliation of income per books with income per return) of Form 1120, which of the following must be subtracted from net income per books?

A)Federal income tax.
B)Excess of capital losses over capital gains.
C)Tax-exempt interest.
D)Premiums on key employee insurance.
E)All of the above.Solutions to Examination Questions

Answer 2

C

Question 3

Yellow Corporation had $300,000 operating income and $75,000 operating expenses during the year.In addition, Yellow had a $200,000 short-term capital gain and a $300,000 short-term capital loss.Compute Yellow's taxable income for the year.

A)$425,000.
B)$225,000.
C)$222,000.
D)$125,000.
E)None of the above.

Answer 3

B

Question 4

Pink Corporation, which owns stock in Sienna Corporation, had net operating income of $125,000 for the year.Sienna pays Pink a dividend of $60,000.Pink takes a dividends received deduction of $48,000.Which of the following statements is correct?

A)Pink owns less than 20% of Sienna Corporation.
B)Pink owns 20% or more, but less than 80% of Sienna Corporation.
C)Pink owns 80% of Sienna Corporation.
D)Pink owns more than 80% of Sienna Corporation.
E)None of the above.

Question 5

White Corporation, a personal service corporation, had $75,000 of active income, $15,000 of portfolio income, and a $90,000 passive loss during the year.How much of the passive loss is deductible?

A)$0.
B)$15,000.
C)$75,000.
D)$90,000.
E)None of the above.

Question 6

Plum Corporation owns 10% of the stock of Pearl Corporation, which pays it a dividend of $50,000.Plum Corporation also owns 80% of the stock of Sienna Corporation, which pays it a $25,000 dividend.Assuming the taxable income limitation does not apply, how much is Plum Corporation's dividend received deduction for the year?

A)$52,500.
B)$55,000.
C)$60,000.
D)$75,000.
E)None of the above.

Question 7

Coral Corporation, an accrual basis taxpayer, was formed and began operations on October 1, 2009.The following expenses were incurred during the first tax year (October 1 to December 31, 2009) of operations: $\begin{array}{lr}\text { Expenses of temporary directors and of organizational meetings } & \$ 20,000 \\\text { Fee paid to the state of incorporation } & 1,600 \\\text { Accounting services incident to organization } & 6,800 \\\text { Legal services for drafting the corporate charter and bylaws } & 2,000 \\\text { Expenses incident to the printing and sale of stock certificates } & 4,000\\&\$34,400\end{array}$ Assume Coral Corporation makes an appropriate and timely election under § 248(c) and the related Regulations.What is the maximum organizational expense Coral may write off for tax year 2009?

A)$507.
B)$5,000.
C)$5,423.
D)$5,490.
E)None of the above.

Question 8

Orange Corporation, a closely held corporation (not a PSC), had $60,000 of active income, $90,000 of portfolio income, and a $150,000 passive loss during the year.How much of the passive loss is deductible?

A)$0.
B)$60,000.
C)$90,000.
D)$150,000.
E)None of the above.

Question 9

During the current year, Sage Corporation (a calendar year taxpayer) had the following income and expenses: $\begin{array}{lr}\text { Income from operations } & \$ 200,000 \\\text { Expenses from operations } & 125,000 \\\text { Qualifying dividends from domestic corporation } &\\\text { in which Sage owns a } 40 \% \text { interest }&17,000\\\text { NOL carryover from prior year }&2,000\end{array}$ On October 1, Sage Corporation made a contribution to a qualified charitable organization of $25,000 in cash (not included in any of the above items).Determine Sage Corporation's charitable contribution deduction for the current year.

A)$7,300.
B)$9,000.
C)$9,200.
D)$25,000.
E)None of the above.

Question 10

Which of the following statements is incorrect regarding the tax treatment of capital gains and losses for corporate taxpayers:

A)Net long-term capital gains are taxed at ordinary income tax rates.
B)Net capital losses can only be taken to the extent of capital gains.
C)$3,000 of net capital losses can be taken in excess of capital gains each year.
D)Net capital losses can be carried back three years and forward five years.
E)All of the above.