Deck 16: Corporations

Question 1

All of the following are accurate statements about corporations,except

A)a corporation does not compute adjusted gross income.
B)a corporation is not allowed a standard deduction.
C)dividends received from a domestic corporation do not receive any preferential treatment.
D)the limit on the charitable contribution deduction is 10% of taxable income (with certain adjustments).

Answer 1

C

Question 2

A corporation which makes a charitable contribution of property for the care of the needy gets a deduction equal to the adjusted basis of the property.

Answer 2

False

Question 3

All of the following business forms offer limited liability except the

A)partnership.
B)corporation.
C)S corporation.
D)limited liability company.

Answer 3

A

Question 4

Partnerships,limited liability partnerships,limited liability companies,and C corporations are considered flow-through entities for tax purposes.

Question 5

Corporations may be taxed on less than 100% of dividends received due to the dividends-received deduction,while individuals are taxed on all of their dividend income.

Question 6

Corporations may deduct 80% of dividends received from a domestic corporation if the recipient corporation owns 20% or more and less than 80% of the voting power and value of the stock of the issuing corporation.

Question 7

Income of a C corporation is subject to an initial tax at the corporate level and the shareholders are subject to a second tax if the corporation pays dividends from its earnings and profits.

Question 8

C corporations can choose between the cash basis and accrual basis method of accounting.

Question 9

If a corporation reports both a NLTCG and a NSTCG after netting all capital gains and losses,both the NLTCG and the NSTCG are subject to tax at rates applicable to ordinary income.

Question 10

The corporate capital loss carryback and carryforward rules are the same as for individual taxpayers.

Question 11

For corporations,both NLTCLs and NSTCLs are eligible for a 3-year carryback and a 5-year carryforward as an offset against capital gains for those years.

Question 12

If a corporation owns less than 20% of the stock of the distributing corporation,the dividends-received deduction is not allowed for the recipient corporation.

Question 13

If a corporation receives dividends from an 80% or more owned affiliated corporation,the dividends-received deduction is 100%.

Question 14

Corporations must divide their deductions between deductions for and deductions from AGI.

Question 15

A corporation may make an election to forego the NOL carryback in order to carry the NOL forward only.

Question 16

For corporations,NSTCLs and NLTCLs are treated as STCLs for purposes of the carryback and carryforward rules.

Question 17

In computing a corporation's NOL,the dividends-received deduction is allowed in full.

Question 18

Accrual-basis corporations may accrue a charitable contribution deduction in the year preceding payment if the payment is authorized by the board of directors prior to year end and the contribution is made within 2 1/2 months following year end.

Question 19

Corporate charitable contributions are limited in any given year to 50% of taxable income.

Question 20

In general,net operating losses of a corporation are carried back 3 years and forward for 20 years.

Question 21

Unused charitable contributions of a corporation are carried forward ten years.

Question 22

A U.S.-based corporation produces cereal in Niagara Falls,NY and in Niagara Falls,Ontario.The corporation will be allowed the qualified production activities deduction based on all of its production.

Question 23

If a corporation's charitable contributions exceed the deduction limitation in a particular year,the excess

A)is not deductible in any future year.
B)becomes a carryforward to a maximum of five succeeding years.
C)may be carried back to the third preceding year.
D)is carried over indefinitely.

Question 24

June Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$ 80,000.
B)$168,000.
C)$192,000.
D)$240,000.

Question 25

A corporation has the following capital gains and losses during the current year: The tax result to the corporation is

A)deduct $3,000 of the STCL currently;carryforward the remaining $2,000 STCL and $6,000 LTCL.
B)deduct $5,000 STCL and $6,000 LTCL.
C)deduct nothing currently;carryback the $5,000 STCL and $6,000 LTCL for three years and carryforward for 5 years,if necessary.
D)deduct nothing currently;carryback the $11,000 STCL for three years and carryforward for 5 years,if necessary.

Question 26

Montage Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$120,000.
B)$168,000.
C)$192,000.
D)$240,000.

Question 27

For this tax year,Madison Corporation had taxable income of $80,000 before using any of the net operating loss from the previous year.Madison has never elected to forgo the carryback of its losses since incorporation five years ago.Madison's books and records reflect the following income (loss)since its incorporation. What amount of taxable income (loss)should Madison report on its current tax return?

A)$45,000
B)$65,000
C)$70,000
D)$80,000

Question 28

Identify which of the following statements is true.

A)A corporate capital loss can be carried back three years,and then can be carried forward five years.
B)Corporate capital loss carrybacks can offset corporate ordinary income earned in previous years.
C)At the election of a corporation,a net capital loss carryback can be forgone and carried forward only.
D)All are false.

Question 29

Louisiana Land Corporation reported the following results for the current year: What is the amount of the taxable income for the current year?

A)$240,000
B)$268,000
C)$294,000
D)$300,000

Question 30

Musketeer Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$120,000.
B)$168,000.
C)$192,000.
D)$240,000.

Question 31

Chocolat Inc.is a U.S.chocolate manufacturer.Its domestic production income is $2,000,000.Taxable income before the domestic production deduction is $3,000,000.What is the amount of the production activities deduction?

A)$270,000
B)$180,000
C)$90,000
D)$60,000

Question 32

Witte Corporation reported the following results for the current year: What is the amount of the charitable contribution carryover to next year?

A)$0
B)$14,000
C)$16,000
D)$30,000

Question 33

Various members of Congress favor a reduction in the corporate tax rate to improve competitiveness and have proposed legislation to lower corporate income tax rates.Assume the legislation is enacted,and corporate tax rates are reduced.If a C corporation,which normally generates taxable income of $300,000 or higher and has expectations of higher profits in the future,generates an NOL in the current year,how would you recommend the corporation apply the loss?

A)The corporation should carry back the loss two years and claim a refund.
B)The corporation should elect to carryforward the loss to the next year.
C)The corporation is required to carryforward the loss to the next year.
D)The corporation cannot apply a loss to another year.

Question 34

Charades Corporation is a publicly held company listed on the New York Stock Exchange.During the current year,its chief executive officer,Samantha Chen,receives the following compensation from the corporation: salary,$1,500,000;commissions based on sales generated by Samantha,$200,000;payments to a qualified pension plan,$30,000;and tax-free fringe benefits,$20,000.What is the total amount that Charades may deduct?

A)$1,000,000
B)$1,250,000
C)$1,500,000
D)$1,750,000

Question 35

A corporation has the following capital gains and losses during the current year: The tax result to the corporation is

A)$10,000 NLTCG included in gross income and taxed at ordinary rates;$4,000 NSTCG included in gross income and taxed at reduced rates.
B)$14,000 included in gross income and taxed at reduced rates.
C)$14,000 included in gross income and taxed at ordinary rates.
D)$10,000 NLTCG is included in gross income and taxed at reduced rates;and $4,000 NSTCG included in gross income and taxed at ordinary rates.

Question 36

A publicly-held corporation is denied a deduction for compensation paid to its chief executive officer and its four highest-compensated officers if the compensation amount for any individual exceeds $1,000,000 per year.

Question 37

Charades Corporation is a publicly held company listed on the New York Stock Exchange.During the current year,its chief executive officer,Samantha Chen,receives the following compensation from the corporation: salary,$1,500,000;commissions based on sales generated by Samantha,$200,000;payments to a qualified pension plan,$30,000;and tax-free fringe benefits,$20,000.What is the total amount taxable to Samantha?

A)$1,000,000
B)$1,200,000
C)$1,500,000
D)$1,700,000

Question 38

Summer Corporation has the following capital gains and losses during the current year: The tax result to the corporation is

A)$6,000 NSTCG included in gross income.
B)$6,000 NLTCG included in gross income.
C)$10,000 NLTCG is included in gross income and $4,000 NSTCL is carried forward to the next year.
D)$10,000 NLTCG receives long-term capital gain treatment and $4,000 NSTCL included as ordinary loss.

Question 39

With respect to charitable contributions by corporations,all of the following rules apply with the exception of

A)unused contributions are carried forward 5 years.
B)the amount of the contribution deduction is always the adjusted basis of the property contributed.
C)contributions are limited to 10% of taxable income,computed without regard to the charitable contribution deduction,NOL and capital loss carrybacks,or the dividend-received deduction.
D)accrual-basis corporations may accrue a contribution deduction in the year preceding payment if the board of directors authorizes such payment prior to the end of the tax year,and the payment is actually made within two and one-half months following the end of the tax year.

Question 40

Jenkins Corporation has the following income and expense items during the current year: The allowed dividends-received deduction is

A)$100,000.
B)$120,000.
C)$125,000.
D)$150,000.

Question 41

A family-owned corporation with substantial investment income could be subject to both the accumulated earnings tax and the personal holding company tax.

Question 42

A corporation's regular taxable income for the preceding three years averages $7.499 million.The AMT does not apply because of the exception for small corporations.

Question 43

Amherst Medical P.C. ,an incorporated group of physicians,reports taxable income of $100,000.Its corporate income tax will be $35,000.

Question 44

Crowley Corporation has the following income during the current year:
What is the amount of the corporation's taxable income?

Question 45

A corporation pays AMT in the current year.It will be able to get the AMT back in a future year when its regular tax exceeds is tentative minimum tax.

Question 46

In a parent-subsidiary controlled group,the common parent corporation must own at least 80% of the stock of each subsidiary corporation.

Question 47

Chocolat Inc.is a U.S.chocolate manufacturer.Its domestic production income is $4,000,000.Taxable income before the domestic production deduction is $3,000,000.What is the amount of the production activities deduction?

A)$270,000
B)$360,000
C)$240,000
D)$180,000

Question 48

By calculating its depreciation using the most accelerated method available,a corporation increases the likelihood that it will be subject to the alternative minimum tax.

Question 49

Trestle Corp.received $100,000 of dividend income from minor holdings (less than 20%)in U.S.publicly-traded corporations.Determine the allowable dividend-received deduction under the following assumptions of net income from operations:
a.Net income from operations is $600,000.
b.Net income from operations is ($10,000).
c.Net income from operations is ($150,000).

Question 50

Hazel Corporation reported the following results for the current year:
Taxable income before the dividends-received deduction
What is the amount of the taxable income for the current year and what is the amount of the charitable contributions carryforward to next year?

Question 51

Oak Corporation manufactures widgets in its factory in Houma,Louisiana.Its taxable income (before the production deduction)is $200,000 and its net income from qualified production activities is $180,000.What is the amount of Oak Corporation's qualified production activities deduction?

Question 52

The purpose of the accumulated earnings tax is to discourage corporations from retaining excessive amounts of earnings if the funds are invested in assets unrelated to the business needs.

Question 53

One requirement of a personal holding company is that more than 50% of the value of the outstanding stock must be owned by five or fewer individuals at some time during the last 6 months of the tax year.

Question 54

DEF Corporation and MNO Corporation are both C corporations.To date,DEF has earned $100,000 of taxable income,and MNO has earned $1,000,000.Each corporation expects to earn another $100,000 of taxable income before year-end.DEF will pay more tax on its incremental $100,000 of taxable income than will MNO.

Question 55

A controlled group of corporations must apportion the lower tax rates among the group members as if only one corporation existed.

Question 56

Concepts Corporation reported the following results for the current year:
Taxable income from operations does not include the dividend income or the contributions.The dividend income is from minor investments in U.S.publicly-traded stocks.Calculate Concept Corporation's taxable income and any carryovers that may be generated.

Question 57

For purposes of the accumulated earnings tax,reasonable needs of the business include providing working capital for the business.

Question 58

Small Corporation had the following capital gains and losses during the current year:
Taxable income,exclusive of the capital gains and losses above,is $68,000.
a.How should the capital gains and losses be treated for the current year?
b.What is the taxable income for the current year taking into consideration the capital gains and losses?

Question 59

The accumulated earnings tax is imposed on all publicly held corporations.

Question 60

The corporate AMT rate is 26% on the first $186,300 of tax base and 28% on the balance.

Question 61

For purposes of the accumulated earnings tax,reasonable needs of the business include all of the following with the exception of

A)making loans to stockholders.
B)providing working capital for the business.
C)acquiring the assets or stock of another business.
D)reasonably anticipated expansion of the business and plant replacement.

Question 62

Indicators of possible exposure of accumulated earning tax risk would include all of the following except

A)substantial marketable securities held by the corporation.
B)loans to shareholders.
C)limited dividend paying history.
D)All of the above factors could indicate retention of earnings beyond business needs.

Question 63

Montrose Corporation is classified as a personal holding company.It is almost year-end.The company's taxable income and regular federal income tax liability are expected to be $100,000 and $22,250,respectively.The company will claim a $20,000 dividends-received deduction and earlier in the year paid $25,000 of dividends to its shareholders.How much in additional dividends must be paid to shareholders in order to avoid the personal holding company tax?

A)$92,750
B)$52,750
C)$72,750
D)$97,750

Question 64

Bartlett Corporation,a U.S.manufacturer,reports the following results in its financial accounting records:
The dividend income is from very minor holdings in U.S.stocks.Calculate Bartlett's taxable income,income tax liability and any carryovers generated.

Question 65

Ohio Corporation's taxable income for the current year is $300,000.Its tax liability is

A)$78,000.
B)$100,250.
C)$102,000.
D)$117,000.

Question 66

Manatee Corporation,a retailer,is owned equally by twelve unrelated individuals.Its taxable income this year is $100,000 and its regular federal income tax liability is $22,250.The company claims a $20,000 dividends-received deduction and pays $25,000 dividends to its shareholders.The corporation had accumulated earnings and profits of $200,000 at the end of the preceding year.The company has reasonable needs of the business at year-end of $210,000.The accumulated earnings tax is

A)$413.
B)$3,413.
C)$4,550.
D)$7,735.

Question 67

Identify which of the following statements is true.

A)The corporate alternative minimum tax rate is 35%.
B)AMT is a permanent increase to the corporate tax liability.
C)Small corporations whose average gross receipts for each of the three preceding years are $7.5 million or less are exempted from the AMT.
D)The excess of tax depreciation over book depreciation increases AMTI.

Question 68

Corporations that are members of a brother-sister affiliated group may file a consolidated return if the proper election is made.

Question 69

The corporate tax return has been prepared for Go Corporation,which showed taxable income of $60,000.Prior to mailing the return,you learn that Go Corporation and Fish Corporation are owned by the same stockholders.Since Go Corp.and Fish Corp.are brother-sister corporations,it will be necessary for you to recompute the tax liability for Go Corporation,based on an equal apportionment of the lower tax rates.What will be the corrected tax liability for Go Corporation?

A)$9,000
B)$14,525
C)$15,025
D)$21,000

Question 70

Mason Corporation is a personal service corporation in the legal field.Mason Corporation has taxable income of $100,000.Mason Corporation's tax is

A)$15,000.
B)$34,000.
C)$35,000.
D)$22,250.

Question 71

Corporations that are members of a parent-subsidiary affiliated group may file a consolidated return if the proper election is made.

Question 72

When computing a corporation's alternative minimum taxable income,its taxable income is

A)increased by tax preference items.No decreases are allowed for preferences.
B)increased by adjustments.No decreases are allowed for adjustments.
C)increased by the statutory exemption of $40,000.
D)increased by 75% of the excess of adjusted current earnings over taxable income.

Question 73

The most common AMT adjustments for corporations include all of the following except:

A)the difference between MACRS income tax depreciation for personal property and the straight-line depreciation amount.
B)75% of the excess of adjusted current earnings over AMTI.
C)the difference between the U.S.production activities deduction calculated for regular tax purposes and the deduction re-calculated using AMTI as a ceiling limitation.
D)All of the above are common corporate AMT adjustments.

Question 74

Sycamore Corporation's financial statements show the following items for the current year in its financial accounting records:

Question 75

In the current year,Bosc Corporation has taxable income of $100,000,and its regular tax liability is $22,250.Bartlett's AMT adjustments other than ACE are $70,000,and it has $320,000 of adjusted current earnings.What is the amount of Bosc Corporation's AMT liability?

Question 76

Johnson Corporation has $300,000 of AMTI before the exemption.What is the tax base for AMT?

Question 77

A corporation has regular taxable income of $90,000 and its gross receipts have never exceeded $5,000,000.Tax preference items and positive adjustments total $70,000.Its regular tax liability is $15,450.The alternative minimum tax is

A)$0.
B)$9,050.
C)$24,000.
D)$24,500.

Question 78

A corporation is classified as a personal holding company.Its taxable income is $300,000 and its regular federal income tax liability is $100,250.The company claims a $40,000 dividends-received deduction and pays $30,000 dividends to its shareholders.The personal holding company tax is

A)$41,950.
B)$29,963.
C)$31,463.
D)$65,053.

Question 79

Major Corporation's taxable income for the current year is $335,000.Its tax liability is

A)$84,250.
B)$102,150.
C)$113,900.
D)$117,250.

Question 80

Dozen Corporation is owned equally by twelve unrelated individuals.Its taxable income this year is $100,000 and its regular federal income tax liability is $22,250.The company claims a $20,000 dividends-received deduction and pays $25,000 dividends to its shareholders.The corporation had accumulated earnings and profits of $900,000 at the end of the preceding year.The company has no reasonable needs of the business.The accumulated earnings tax is

A)$7,913.
B)$10,913.
C)$14,550.
D)$13,188.