Deck 5: The Corporate Income Tax

Question 1

Corporations may deduct the adjusted basis of inventory plus one-half of the excess of the property's FMV over its adjusted basis if the inventory is used for the care of the ill,needy,or infants.

Answer 1

True

Question 2

Which of the following types of evidence indicate that a valuation allowance is needed to reduce the deferred tax asset?

A)history of profits
B)excess of appreciated asset values over basis
C)existing contracts or sales backlogs,which will generate significant future income
D)short carryback or carryover periods

Answer 2

D

Question 3

Identify which of the following statements is false.

A)A corporation's fiscal year generally must end on the last day of the month.
B)A fiscal year may not end on December 31.
C)A new corporation can elect a fiscal year that runs from February 16 to February 15 of the following year.
D)A corporation's first tax year may not cover a full 12-month period.

Answer 3

C

Question 4

Organizational expenses incurred after 2004 are amortized over five years.

Question 5

A C corporation must use a calendar year as its tax year unless it has a substantial business purpose to use a fiscal year.

Question 6

If a controlling shareholder sells depreciable property to a controlled corporation and the property is depreciable by the purchaser,any gain on the sale is a 1231 gain.

Question 7

Corporate estimated tax payments are due April 15,June 15,September 15,and January 15.

Question 8

Identify which of the following statements is true.

A)A corporation is a separate taxpaying entity that must file a tax return annually.
B)A newly formed corporation must select its basic accounting method.
C)The terms "regular corporation" and "C corporation" are synonymous.
D)All of the above are true.

Question 9

Which of the following results in a deferred tax asset?

A)Revenue or gains are recognized earlier for book purposes than for tax purposes.
B)Operating loss or tax credit carryforwards exist.
C)Tax basis of an asset is less than its book.
D)Expenses are deductible earlier for tax purposes than for book purposes.

Question 10

All of the taxable income of a personal service corporation is taxed at a flat 35% rate.

Question 11

Corporations may carry charitable contributions in excess of the income limitation forward for five years.

Question 12

Which of the following items is a permanent difference between taxable and financial accounting income?

A)depreciation
B)dividends-received deduction
C)bad debts
D)net capital loss

Question 13

Sparks Corporation receives a dividend of $100,000 from Jill Corporation,a C Corporation.Sparks owns 70% of Jill Corporation stock.Sparks' dividends-received deduction is $80,000.

Question 14

Corporations are permitted to deduct $3,000 in net capital losses annually.

Question 15

Identify which of the following statements is true.

A)A corporation that is a member of an affiliated group filing a consolidated tax return may be allowed a tax year which is different from the group's parent.
B)An S corporation must generally use a calendar year.
C)A corporation's first year must cover a twelve-month period.
D)All of the above are false.

Question 16

Deferred tax liabilities occur when expenses are deductible for book purposes before tax purposes.

Question 17

Which of the following items will not create a deferred tax liability?

A)Revenues or gains are recognized earlier for book purposes than for tax purposes.
B)Expenses or losses are deductible earlier for tax purposes than for book purposes.
C)Tax basis of an asset is less than its book basis.
D)Operating loss or tax credit carryforwards exist.

Question 18

The dividends-received deduction is designed to reduce double taxation of corporate dividends payable to individual shareholders.

Question 19

A deferred tax asset indicates that a firm will realize the tax benefit of an event sometime in the future.

Question 20

An election to forgo an NOL carryback must be made on or before the return due date (including extensions)for the year in which the NOL is incurred.

Question 21

A new corporation may generally select one of the following accounting methods with the exception of

A)cash method.
B)accrual method.
C)retail method.
D)hybrid method.

Question 22

Super Corporation gives a painting to a museum for public display on August 6.The painting was purchased on April 3 of the same year for $20,000 and is worth $30,000 at the date of gift.Also,Super accrues a charitable contribution on December 30 and pays the $12,000 contribution on February 1 of the next year.Super Corporation is a calendar-year corporation that uses the accrual method of accounting.Before considering the 10% limitation rule,the maximum deduction for the current year is

A)$12,000.
B)$20,000.
C)$30,000.
D)$32,000.

Question 23

Identify which of the following statements is true.

A)"Ordinary income property" with regard to the charitable contribution deduction does not include property whose sale would have produced a short-term capital gain.
B)The Twilight Corporation purchases inventory for $5,000.Its FMV on the date it is donated to the Blue-Gray Hospital for the care of the needy is $14,000.The maximum charitable contribution deduction available for the donation is $9,000.
C)Corporations' charitable deductions are limited to 20% of their adjusted taxable income.
D)All of the above are false.

Question 24

Evans Corporation has a $15,000 net capital loss in 2011.The corporation reported the following capital gain net income during the past three years.Identify which of the following statements is true.

A)The loss is used to offset the gains from 2010 and then carried back to offset $10,000 of the gains in 2008.
B)The loss is used to offset the $11,000 of the 2009 gains and then carried back to offset $4,000 of the year 2008 net gain.
C)The loss is used to offset $3,000 of the current year ordinary income,all of the year 2008 capital gains,and $7,000 of the year 2009 net gain.
D)The loss is used to offset the year 2008 net gains,then $5,000 of the year 2009 net gains.

Question 25

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 of the above are false.

Question 26

Which of the following items indicate that a company does not need a valuation allowance?

A)existing sales contracts that will produce sufficient income to realize the deferred tax asset
B)excess of appreciated asset value over tax basis sufficient to realize the deferred tax asset
C)a strong history of earnings without considering the deferred tax asset
D)All of the above are correct.

Question 27

Which of the following statements is correct?

A)Deferred tax assets/liabilities are always classified as current on the balance sheet.
B)The classification of deferred tax assets/liabilities depends on whether the related asset is current or noncurrent.
C)Deferred tax assets are classified based on their expected reversal dates.
D)Deferred tax assets/liabilities are classified as noncurrent on the balance sheet.

Question 28

Identify which of the following statements is true.

A)Organizational expenditures incurred by a corporation do not include the cost of accounting services necessary to create the corporation.
B)Organizational expenditures incurred by a corporation do not include the cost of printing stock.
C)Unamortized organizational expenses cannot be deducted when the corporation is liquidated.
D)All of the above are false.

Question 29

Trail Corporation has gross profits on sales of $140,000 and deductible expenses of $180,000.In addition,Trail has a net capital gain of $60,000.Trail's taxable income is

A)a $20,000 loss.
B)a $40,000 loss.
C)$60,000.
D)$20,000.

Question 30

Dallas Corporation,not a dealer in securities,realizes taxable income of $60,000 from the operation of its business.Additionally,in the same year,Dallas realizes a long-term capital loss of $10,000 from the sale of marketable securities.If the corporation realizes no other capital gains or losses,what is the proper treatment for the $10,000 long-term capital loss on the tax return?

A)Use $3,000 of the loss to reduce taxable income and carry $7,000 of the long-term capital loss forward for five years.
B)Use $6,000 of the loss to reduce taxable income and carry $4,000 of the long-term capital loss forward for five years.
C)Use $10,000 of the long-term capital loss to reduce taxable income.
D)Carry the $10,000 long-term capital loss back three years as a short-term capital loss,then forward five years.

Question 31

Once a corporation has elected a taxable year,it can change the taxable year without IRS permission if

A)the resulting short period does not have a net operating loss.
B)the corporation has not changed its accounting period within the last ten years.
C)the annualized income for the short period is at least 80% of the corporation's income for the preceding taxable year.
D)All of the above conditions must be met.

Question 32

Identify which of the following is false.

A)Corporations that sell real property at a gain must report an additional 20% of the entire gain as ordinary income.
B)Corporations selling real property that previously had been depreciated using an accelerated method are subject to Sec.291.
C)Section 291 reduces the amount of net Sec.1231 gains that can be offset by corporate capital losses.
D)Section 291 recapture applies to Sec.1250 property.

Question 33

Identify which of the following statements is false.

A)A corporation with annual gross receipts of $5,000,000 or less can use the accrual method to account for sales,cost of goods sold,inventories,accounts receivable and payable,and the cash method for other income and expenses.
B)Casualty losses incurred by a corporation are deductible subject to a nondeductible floor similar to those applicable to individuals.
C)The passive loss rules do not apply to widely held C corporations.
D)Corporations may receive a deduction for dividends received from other corporations.

Question 34

Organizational expenditures include all of the following except for

A)costs incurred when issuing stock.
B)legal costs incident to the creation of the corporation.
C)expenses of organizational meetings.
D)fees paid to the state of incorporation.

Question 35

Green Corporation is incorporated on March 1 and begins business on June 1.Green's first tax year ends on October 31,i.e.,a short year.Green incurs the following expenses during the year: What is the deduction for organizational expenses if Green chooses to deduct its costs as soon as possible?

A)$36,000
B)$5,028
C)$667
D)$500

Question 36

In February of the current year,Brent Corporation donates computer equipment that it purchased six months ago to Eastside High School for use in its educational program.The donated property had a $20,000 adjusted basis to Brent and a $40,000 FMV.What is the amount of the gift?

A)$20,000
B)$30,000
C)$35,000
D)$50,000

Question 37

Which of the following items is a temporary difference between tax income and financial accounting income?

A)production activities deduction
B)proceeds on life insurance on a key executive
C)dividends-received deduction
D)depreciation

Question 38

Edison Corporation is organized on July 31.The corporation starts business on August 10.The corporation adopts a November 30 fiscal year end.The following expenses are incurred during the year: What is the maximum amount of organizational expenditures that can be deducted by the corporation for its first tax year ending November 30?

A)$16,000
B)$12,000
C)$5,156
D)$800

Question 39

Booth Corporation sells a building classified as a residential rental property for $200,000.The MACRS straight-line depreciation taken is $20,000 and the adjusted basis of the building is $170,000.Booth Corporation must recognize ordinary income of

A)$30,000.
B)$20,000.
C)$4,000.
D)$0.

Question 40

Identify which of the following statements is true.

A)A corporation that accrues compensation payable to an employee must pay the amount within two and one-half months after the close of the taxable year to deduct the amount in the year of the accrual.
B)Accrued compensation that is deductible in the year of accrual is considered to be part of an IRS deferred compensation plan.
C)Accrued compensation not paid within three and one-half months after the close of the corporation tax year is deducted in the year following the accrual.
D)All of the above are false.

Question 41

Island Corporation has the following income and expense items for the year: The taxable income of Island Corporation is

A)$100,000.
B)$70,000.
C)$47,000.
D)$42,000.

Question 42

West Corporation purchases 50 shares (less than 1%)of Perch Corporation common stock on April 3.The ex-dividend date is April 4.West Corporation pays $50,000 for the stock and receives a dividend of $5,000 on the Perch stock.On May 1,West Corporation sells the Perch stock for $45,000.West's taxable income before the dividends-received deduction is $4,000.West's dividends-received deduction is

A)$3,500.
B)$3,200.
C)$2,800.
D)$0.

Question 43

In 2011,Summer Corporation earns domestic gross receipts of $2 million and incurs allocable expenses of $800,000.It has $400,000 of income from other sources,resulting in taxable income of $1.6 million before the U.S.production activities deduction.What is its U.S.production activities deduction?

A)$120,000
B)$108,000
C)$60,000
D)$36,000

Question 44

Identify which of the following statements is true.

A)The dividends-received deduction is designed to reduce double taxation of corporate dividends.
B)The full 80% dividends-received deduction is available without restriction.
C)If a corporation receives dividends eligible for the 80% dividends-received deduction and the 70% dividends-received deduction,the 70% dividends-received deduction reduces taxable income prior to the 80% deduction.
D)All of the above are false.

Question 45

Blueboy Inc.contributes inventory to a qualified charity for use in feeding the needy.The inventory has a $70,000 FMV and a $30,000 adjusted basis.Blueboy Inc.can take a charitable contribution deduction of

A)$20,000.
B)$30,000.
C)$50,000.
D)$60,000.

Question 46

Identify which of the following statements is false.

A)The 70% dividends-received deduction is limited to 70% of the taxable income of the corporation without regard to any NOL deduction,any capital loss carryback,and the dividends-received deduction itself unless the dividends-received deduction produces an NOL.
B)Members of an affiliated group can claim a 90% dividends-received deduction for dividends received from other group members that is not subject to a taxable income limitation.
C)A corporate dividends-received deduction is not allowed for dividends received on stock held for 40 days.
D)All of the above are false.

Question 47

For purposes of the production activities deduction,domestic production gross receipts do not include which of the following?

A)construction performed in the United States
B)engineering or architectural services performed in the United States for construction projects in the United States
C)lease,rental,license,sale,or other disposition of qualified production property manufactured,produced,grown,or extracted in whole or in significant part within the United States
D)sale of food and beverages prepared at a retail establishment

Question 48

Identify which of the following statements is true.

A)When a corporation donates appreciated capital gain property to a charity,the amount of the contribution deduction generally equals the property's FMV.
B)When a corporation donates appreciated capital gain property to a private nonoperating foundation,the corporation's contribution is limited to the property's FMV minus the ordinary gain that would have resulted from the property's sale.
C)When a corporation contributes appreciated property to a charity,the charitable contribution deduction is the property's FMV or adjusted basis,depending on the election made by the taxpayer.
D)All of the above are false.

Question 49

Richards Corporation has taxable income of $280,000 calculated before the charitable contribution deduction and before its dividends-received deduction of $34,000.Richards makes cash contributions of $35,000 to charitable organizations.What is Richards Corporation's charitable contribution deduction for the current year?

A)$24,600
B)$28,000
C)$31,400
D)$35,000

Question 50

Identify which of the following statements is true.

A)The charitable contribution deduction is computed after the deduction for an NOL.
B)The charitable contribution deduction is computed after the dividends-received deduction.
C)The NOL deduction claimed by a corporation must be taken after the dividends-received deduction.
D)All of the above are false.

Question 51

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 carryover to a maximum of five succeeding years.
C)may be carried back to the third preceding year.
D)is carried over indefinitely.

Question 52

Webster,who owns all the Bear Corporation stock,purchases a dump truck from Bear Corporation in January.The truck cost $12,000 and has a $10,000 adjusted basis at the time of the sale.Webster pays Bear the truck's $8,000 FMV.Later in the same year,Webster sells the dump truck to an unrelated party for $6,000.Webster can recognize a loss of

A)$4,000.
B)$2,000.
C)$3,000.
D)$5,000.

Question 53

Two days before the ex-dividend date,Drexel Corporation buys 100 shares of Zebra Corporation stock (less than 1%)for $200,000.Drexel Corporation receives $10,000 of dividends from Zebra Corporation.Two weeks after the ex-dividend date,Drexel Corporation sells the Zebra Corporation stock for $190,000.Which of the following statements is correct?

A)Drexel Corporation cannot recognize a capital loss.
B)Drexel Corporation cannot take a dividends-received deduction on the Zebra Corporation dividend.
C)Drexel Corporation will be allowed a 70% dividends-received deduction when reporting the Zebra Corporation dividend.
D)Drexel Corporation will receive no dividends-received deduction because the stock was purchased ex-dividend.

Question 54

Garth Corporation donates inventory having an adjusted basis of $40,000 and an FMV of $150,000 to a qualified public charity.The inventory will be used by the charity to care for the ill.The maximum charitable contribution deduction before consideration of the 10% limitation is

A)$40,000.
B)$55,000.
C)$80,000.
D)$95,000.

Question 55

Money Corporation has the following income and expenses for the tax year: What is Money's net operating loss?

A)$494,000
B)$480,000
C)$520,000
D)$220,000

Question 56

The U.S.production activities deduction is based on a percentage of which of the following?

A)taxable income before the production activities deduction
B)50% of W-2 wages.
C)qualified production activities income
D)both A and C above

Question 57

Identify which of the following statements is true.

A)A corporate NOL can be carried back two years and forward 15 years.
B)An election to forgo an NOL carryback must be made on or before the return due date (including extensions)for the year in which the NOL is incurred.
C)In computing an NOL for the current year,a deduction is allowed for NOLs from previous years.
D)All of the above are false.

Question 58

JLA is a U.S.shoe manufacturer.Its domestic production income is $1,000,000 and U.S.W-2 wages are $600,000.Taxable income before the domestic production deduction is $500,000.What is the amount of the production activities deduction?

A)$15,000
B)$20,000
C)$45,000
D)$50,000

Question 59

Maxwell Corporation reports the following results: Maxwell's dividends-received deduction is

A)$42,000.
B)$49,000.
C)$56,000.
D)$70,000.

Question 60

Miller Corporation has gross income of $100,000,which includes $40,000 of dividends from a 10%-owned corporation.In addition,Miller has $80,000 of expenses.Miller's taxable income or loss is

A)$20,000.
B)$6,000.
C)$0.
D)($8,000).

Question 61

Dreyfuss Corporation reports the following items: The unappropriated retained earnings at year-end are

A)$1,000,000.
B)$1,050,000.
C)$1,500,000.
D)$2,050,030.

Question 62

Identify which of the following statements is true.

A)Form 1120 Schedule L contains the corporation's income statement.
B)Schedule M-1 (Form 1120)is an analysis of the corporation's retained earnings.
C)Organizational expense amortized over fifteen years for purposes of determining taxable income results in an upper adjustment in the initial years to book income on the Schedule M-1 when the expense is being amortized over ten years for book income purposes.
D)All of the above are false.

Question 63

Identify which of the following statements is true.

A)Personal service corporations may be subject to the passive activity limitations.
B)All C corporations may be subject to the passive activity limitations.
C)Personal service corporations may use passive losses and credits to offset net active income but not portfolio income.
D)Both A and B are true.

Question 64

Joker Corporation owns 80% of Klue Corporation.Joker Corporation also owns 45% of Lion Corporation and 45% of Mark Corporation.Klue Corporation owns 40% of Lion Corporation and 10% of Mark Corporation.Which corporations are members of a controlled group?

A)Klue,Lion,and Mark Corporations
B)Joker,Klue,Lion,and Mark Corporations
C)Joker,Klue,and Lion Corporations
D)Joker and Klue Corporations

Question 65

Walter,who owns all of the Ajax Corporation stock,purchases a truck from Ajax Corporation in January.The truck cost $12,000 and has a $10,000 adjusted basis.Walter pays the truck's $8,000 FMV.Later in the same year,Walter sells the truck to an unrelated party for $13,000.With respect to these transactions,

A)Ajax Corporation reports a loss of $2,000 and Walter reports a gain of $5,000.
B)Ajax Corporation reports no loss and Walter reports a gain of $3,000.
C)Ajax Corporation reports a loss of $4,000 and Walter reports a gain of $5,000.
D)Ajax Corporation reports no loss and Walter reports a gain of $5,000.

Question 66

Bishop Corporation reports taxable income of $700,000 on its tax return.Given the following information from the corporation's records,determine Bishop's net income per its financial accounting records.

A)$520,000
B)$620,000
C)$660,000
D)$560,000

Question 67

Identify which of the following statements is false.

A)Brown Corporation owns 60% of Clark Corporation and 65% of Davis Corporation.Davis Corporation owns 10% of Clark Corporation,and Clark Corporation owns 10% of Davis Corporation.The remaining stock is owned by an individual shareholder.Brown,Davis,and Clark Corporations are a parent-subsidiary controlled group.
B)There are three categories of control groups: parent-subsidiary,brother-sister,and combined.
C)The controlled group test is applied on December 31.
D)A controlled group must apportion certain tax benefits among its members.

Question 68

Sun and Moon Corporations each have only one class of stock outstanding.Their stock ownership is shown below. Which of the four stock ownership changes that are illustrated is the minimum change that is needed if Sun and Moon Corporations are to be brother-sister corporations? (Assume the two corporations are equally valued.)

A)No stock ownership change is required.
B)Charles must acquire an additional 10% of Sun Corporation.
C)Charles must acquire an additional 5% of Moon Corporation.
D)Arthur must acquire an additional 30% of Moon Corporation.

Question 69

Identify which of the following statements is false.

A)A corporation must file a tax return annually.
B)A corporation can obtain an automatic six-month extension of time to file its tax return.
C)The IRS will permit an extension of time to file a corporate return beyond the original due date only when the corporation's delay is reasonable.
D)The IRS can rescind the extension period.

Question 70

Identify which of the following statements is true.

A)A corporate tax return must be filed by the fifteenth day of the fourth month following the close of the corporation's tax year.
B)A corporation is required to file a tax return even if it has no taxable income.
C)A corporation with gross receipts,total income,and total assets of $1,000,000 or less is permitted to file Form 1120-A.
D)All of the above are false.

Question 71

Glacier Corporation,a large retail sales company,has a taxable income of $20,000,000.What is Glacier Corporation's tax?

A)$6,800,000
B)$7,000,000
C)$7,800,000
D)$7,200,000

Question 72

Which of the following is not subject to classification as a personal service corporation?

A)construction
B)law
C)accounting
D)performing arts

Question 73

Winter Corporation's taxable income is $500,000.In addition,Winter has the following items: What is Winter's financial accounting income?

A)$511,000
B)$513,000
C)$518,000
D)$520,000

Question 74

Lass Corporation reports a $25,000 net capital loss this year.The corporation reports the following net capital gains during the past three years.
Determine the amount of net capital loss carried back to each preceding tax year and the amount of capital loss,if any,available as a carryforward.

Question 75

Delux Corporation,a retail sales corporation,has a taxable income of $500,000.Delux Corporation's regular tax liability is

A)$158,250.
B)$162,200.
C)$170,000.
D)$175,000.

Question 76

Grant Corporation is not a large corporation for estimated tax purposes and reports on a calendar-year basis.Grant expects the following results: Grant's tax liability for last year was $240,000.Grant's minimum total estimated tax payment for this year to avoid a penalty is

A)$240,000.
B)$248,000.
C)$288,000.
D)$280,000.

Question 77

Baxter Corporation is a personal service corporation.Baxter Corporation has taxable income of $10,000.Baxter Corporation's tax is

A)$1,500.
B)$3,400.
C)$3,500.
D)$3,900.

Question 78

Access Corporation,a large manufacturer,has a taxable income of $16,000,000.Access Corporation's tax is

A)$5,440,000.
B)$5,530,000.
C)$5,600,000.
D)$5,680,000.

Question 79

Davis Corporation,a manufacturer,has taxable income of $150,000.Davis's regular tax liability is

A)$15,000.
B)$41,750.
C)$34,000.
D)$35,000.

Question 80

Andy owns 20% of North Corporation and 60% of Tent Corporation.North and Tent have only one class of stock outstanding.Barbara owns 50% of North Corporation and 20% of Tent Corporation.North and Tent Corporations will be brother-sister corporations if

A)no stock ownership change occurs.
B)Barbara acquires an additional 10% of North stock.
C)Andy acquires an additional 10% of North stock and Barbara acquires an additional 10% of Tent stock.
D)Barbara acquires an additional 10% of North stock and an additional 10% of Tent stock.