Deck 15: Corporate Taxation

Question 1

Keisha is a shareholder in a corporation.She received a distribution of property from the earnings and profits of the corporation.Keisha will report dividend income equal to the FMV of the property received.

Answer 1

True

Question 2

All C corporations file their tax returns using a Form 1120.

Answer 2

True

Question 3

Corporate tax returns are due 3.5 months after the end of their tax year,the same as individual income tax returns.

Answer 3

False

Question 4

The maximum marginal corporate tax rate is 35%.

Question 5

C Corporations are not permitted to report a net capital loss.

Question 6

Corporate distributions to shareholders from earnings and profits are called dividends.

Question 7

A corporation makes a pro rata distribution of property to its shareholders as part of its normal operations.The FMV of the property is less than its basis.The corporation will record a loss on the distribution.

Question 8

A corporation with a net capital gain will be taxed on that gain at preferential tax rates,similar to an individual.

Question 9

A domestic corporation can receive a deduction for dividend income it receives from another domestic corporation.

Question 10

Corporate distributions in excess of earnings and profits are a capital gain to a stockholder.

Question 11

When the 80% test is met,a stockholder may recognize a gain but will not recognize a loss.

Question 12

If a domestic corporation receives a dividend from another domestic corporation,it is entitled to a dividends received deduction of 70%,80%,or 100%.

Question 13

The basis of property received by a corporation is equal to the basis in the hands of the shareholder plus any gain recognized by the shareholder.

Question 14

When a corporation is formed,if the sole shareholder receives stock in exchange for property subject to a liability,the shareholder will recognize a gain.

Question 15

If a corporation has a net capital loss,it can carry that loss back three years and then forward six.

Question 16

To legally operate as a corporation in most states,the incorporators must simply file a corporate federal income tax return.

Question 17

When a corporation is formed,if the transferors own 80% or more of the corporation immediately after the exchange,then the transaction is,generally,tax-free.

Question 18

When a corporation is formed,if the sole shareholder contributes property and receives,in return,stock plus property,the individual will report a taxable gain equal to the FMV of the property received.

Question 19

Large C corporations must use the accrual basis of accounting.

Question 20

When a corporation distributes property to shareholders that has a FMV in excess of basis,the corporation will recognize a gain.

Question 21

If a corporation has a net capital loss,the loss is carried forward indefinitely.

Question 22

A Subchapter S corporation must be a domestic corporation.

Question 23

Corporations with total receipts and total assets less than $250,000 are not required to complete Schedule L or Schedule M-1.

Question 24

The basis of a shareholder in his or her Subchapter S stock is increased by his or her share of corporate charitable contributions.

Question 25

When a corporation is formed,the transaction is tax-free.

Question 26

As part of a corporate formation meeting the 80% test,an individual who contributes property and receives,in return,stock plus property,will report a taxable gain equal to the lower of the FMV of the property received or the gain on the transfer.

Question 27

Once a corporation properly elects to be a Subchapter S corporation,it cannot terminate its election for five years.

Question 28

Shauntae receives a distribution from a corporation in complete liquidation of his ownership interest.Shauntae could report a capital gain,but not a capital loss,from the distribution.

Question 29

Schedule M-1 reconciles from taxable income to book income.

Question 30

A Subchapter S corporation is a corporation that is taxed in a manner similar to a partnership.

Question 31

Schedule L is prepared using the accounting method the corporation uses to keep its financial accounting records.

Question 32

Corporations are not subject to alternative minimum tax.

Question 33

C corporations with average annual gross receipts over $5 million must use the accrual basis of accounting.

Question 34

On Schedule M-1,federal income tax must be added back to taxable income.

Question 35

The corporate alternative minimum tax exemption amount is $150,000.

Question 36

Adjusted Gross Income for a corporation is equal to sales minus cost of goods sold.

Question 37

A parent-subsidiary group is one in which a common parent corporation owns,directly or indirectly,at least 80% of one or more other corporations.

Question 38

Parent-subsidiary corporations must file a consolidated tax return.

Question 39

A capital loss carryforward will create a reconciling item on Schedule M-1,but a capital loss carryback will not.

Question 40

A C corporation can become a Subchapter S corporation by filing a statement with its corporate income tax return.

Question 41

A corporation can elect to be taxed as a Subchapter S corporation if it meets certain requirements including that it has 100 or fewer shareholders,all of whom are individuals,estates,and certain trusts.

Question 42

Corporate distributions to shareholders are called dividends.

Question 43

A corporation may elect to become a Subchapter S corporation only at the time it is initially formed.

Question 44

If a shareholder receives cash from a corporation in complete liquidation of his or her ownership interest and the cash received is less than the shareholder's basis in the stock,the shareholder will report a loss.

Question 45

A C corporation has a fiscal year-end of November 30.It does not request an extension of time to file its income tax return.It must file its return no later than the 15^th day of:

A) January.
B) February.
C) March.
D) April.

Question 46

A shareholder of a Subchapter S corporation is required to personally report his or her proportionate share of corporate net income.

Question 47

Which of the following statements is incorrect?

A) A corporation can choose the fiscal year-end of its choice when it files its first tax return without approval of the IRS.
B) A corporation with average annual gross receipts of $10 million must use the accrual basis of accounting.
C) A calendar year corporation must file its tax return no later than April 15 of the following year.
D) C corporations must annually file a Form 1120 tax return.

Question 48

Initially,corporations with average annual gross receipts for the last three years of $5 million or less are not subject to the corporate AMT rules.

Question 49

A corporation can deduct a charitable contribution of up to 50% of its adjusted gross income.

Question 50

Basira transfers land with a FMV of $900,000 to a newly formed corporation in exchange for all of the stock.The land has a basis of $500,000 and debt of $300,000.Basira's taxable gain from this transaction is:

A) $0.
B) $300,000.
C) $400,000.
D) $500,000.

Question 51

A corporation must file Form 1120 2½ months after the end of its fiscal year.

Question 52

Andre formed a corporation and owns all of the stock.He contributed property with a FMV of $10,000 and a basis of $7,000 and he received $1,000 cash from the corporation.Andre's taxable gain is:

A) $0.
B) $1,000.
C) $3,000.
D) $10,000.

Question 53

Andre formed a corporation and owns all of the stock.He contributed property with a FMV of $10,000 and a basis of $7,000 and he received $1,000 cash from the corporation.Andre's basis in his stock is:

A) $7,000.
B) $8,000.
C) $10,000.
D) Some other number.

Question 54

In 2011,the first year of its existence,Chartreuse Corporation had a net capital loss of $3,000.In 2012 and 2013,it had net capital gains of $5,000 and $8,000,respectively.In 2014,the company reported a net capital loss of $12,000.What is the amount of capital loss carryforward to 2015?

A) $0.
B) ($1,000).
C) ($2,000).
D) ($4,000).

Question 55

A C corporation has a fiscal year-end of August 30.It requests an automatic extension of time to file its income tax return.It must file its return no later than the 15^th day of:

A) March.
B) April.
C) May.
D) June.

Question 56

Felix transfers land with a FMV of $900,000 to a newly formed corporation in exchange for all of the stock.The land has a basis of $300,000 and debt of $500,000.The basis of the land,in the hands of the corporation is:

A) $300,000.
B) $500,000.
C) $600,000.
D) $900,000.

Question 57

Schedule L is a reconciliation of net income per books to net income per the tax law.

Question 58

Which of the following statements is correct?

A) If a corporation has a net operating loss,it can carry the loss back three years and then forward twenty years.
B) A net capital loss can be carried back three years and then forward five years.
C) The first estimated payment of a corporation is due on the 15^th day of the third month of the fiscal year.
D) A corporation is entitled to a charitable deduction of 10% of its gross income before certain items.

Question 59

Heather and Howie form HH Company.In exchange for 50% of the stock,Heather contributes cash of $7,000.For the remaining 50%,Howie contributes a truck with a FMV of $7,000 (basis of $10,000).Which of the following statements is correct?

A) Howie will report a loss of $3,000.
B) The basis of the truck to HH Company is $7,000.
C) Howie will have a basis in his stock of $10,000.
D) All of the statements are correct.

Question 60

Schedule M-1 reconciles from net income per books to net income per the tax law.

Question 61

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?

A) $215,000.
B) $305,000.
C) $340,000.
D) None of these.

Question 62

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

A) $30,000.
B) $32,000.
C) $37,500.
D) $38,000.

Question 63

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.

A) $40,000; $150,000
B) $40,000; $310,000
C) $150,000; $300,000
D) $150,000; $310,000

Question 64

Which of the following statements is incorrect?

A) A distribution from earnings and profits in excess of stockholder basis is a nontaxable return of capital.
B) Distributions paid in excess of earnings and profits are nontaxable to the extent of stockholder basis.
C) A distribution of appreciated property creates a gain to the corporation.
D) Earnings and profits are conceptually similar to retained earnings.

Question 65

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

A) Federal income tax expense on the income statement.
B) Book depreciation that is in excess of tax depreciation.
C) Life insurance proceeds.
D) Final month rent collected at lease signing.

Question 66

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

A) The shareholders will report a gain.
B) The corporation will report a gain.
C) The shareholders will report dividend income equal to the basis of the property distributed.
D) The corporation will report dividend expense equal to the fair value of the property distributed.

Question 67

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

A) If a consolidated tax return is filed,losses on intercompany sales cannot be immediately recognized.
B) A parent-subsidiary group must file a consolidated tax return.
C) A parent-subsidiary group is one where a common parent corporation owns,directly or indirectly,at least 80% of one or more other corporations.
D) With a consolidated return,net losses of one company can offset net income from another company.

Question 68

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) Taxable income of $31,000,carryforward of zero.
B) Taxable income of $31,500,carryforward of $500.
C) Taxable income of $32,000,carryforward of zero.
D) Taxable income of $35,000,carryforward of $4,000.

Question 69

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?

A) $135,000.
B) $140,600.
C) $142,600.
D) $144,000.

Question 70

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

A) Capital contributions.
B) The shareholder's proportionate share of corporate debt.
C) Interest income.
D) Loans from the shareholder to the corporation.

Question 71

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:

A) $210,000.
B) $230,000.
C) $240,000.
D) $250,000.

Question 72

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

A) $0.
B) $12,500.
C) $27,500.
D) $40,000.

Question 73

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?

A) Caesar reports dividend income of $40,000.
B) Caesar has a nontaxable return of capital of $35,000.
C) Roman Company records a loss of $20,000.
D) Caesar reports a capital gain of $5,000.

Question 74

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?

A) $15,450.
B) $15,790.
C) $18,850.
D) $22,250.

Question 75

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

A) The excess of capital losses over capital gains.
B) Charitable contributions in excess of the 10% limit.
C) 50% of travel and entertainment expenses.
D) Interest received on tax-exempt bonds.

Question 76

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:

A) Capital gain of $2,000.
B) Dividend of $12,000.
C) Nontaxable distribution of $1,000.
D) Nontaxable distribution of $3,000.

Question 77

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?

A) $90,000.
B) $93,000.
C) $95,000.
D) $100,000.

Question 78

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?

A) $210,000.
B) $230,000.
C) $270,000.
D) $290,000.

Question 79

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?

A) $181,000.
B) $179,000.
C) $169,000.
D) $168,000.

Question 80

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

A) The corporation has 80 shareholders.
B) The corporation has one class of stock.
C) The election form is signed by 80% of the shareholders.
D) All shareholders are U.S.citizens except for 10% who are resident aliens.