Question 1

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?

Accepted Answer

The answer of Charades Corporation is a publicly held company...

Question 2

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?

Accepted Answer

A)The deduction is 9% of the lesser of the qualified domestic production income or taxable income before the deduction.9% × $3,000,000 preliminary taxable income.

Question 3

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

Accepted Answer

Making loans to stockholders does not qualify as a reasonable need of the business for purposes of the accumulated earnings tax. This is because it is seen as an attempt to avoid regular corporate taxation by distributing profits to shareholders in the form of loans instead of dividends.

Question 4

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

Accepted Answer

C)Personal service corporations pay an income tax liability equal to 35% of taxable income.

Question 5

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

Accepted Answer

When computing a corporation's alternative minimum taxable income (AMTI), its taxable income is increased by tax preference items. No decreases are allowed for preferences. Therefore, choice A is the correct option. Choices B and C are incorrect as they do not reflect the calculation for AMTI. Choice D is incorrect as the excess of adjusted current earnings over taxable income is only applicable for computing the corporation's AMT credit.

Question 6

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

Accepted Answer

The charitable contribution carryover to the next year is the excess of the charitable contributions made during the year over the 10% of the taxable income limit. In this case, the total charitable contributions made during the year are $25,000 and 10% of taxable income is $11,000. Therefore, the excess contribution is $14,000 ($25,000 - $11,000). This excess contribution can be carried over to the next year as a charitable contribution carryover.

Question 7

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

Accepted Answer

Excess charitable contributions that exceed the deduction limitation can be carried over to a maximum of five succeeding years as a charitable contribution deduction.

Question 8

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?

Accepted Answer

Since Go Corp. and Fish Corp. are brother-sister corporations, their taxable incomes should be combined and apportioned equally to determine their tax liability. Fish Corp. has a taxable income of $20,000, bringing the combined taxable income to $80,000. Using the 2019 tax rates for corporations, the total tax liability would be $15,025 ($9,700 on the first $50,000 and $5,325 on the remaining $30,000). Dividing this equally between Go Corp. and Fish Corp. would result in a corrected tax liability for Go Corporation of $30,050 / 2 = $15,025. Therefore, the correct answer is option C.

Question 9

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

Accepted Answer

A)Corporations with average gross receipts of $7.5 million or less do not have any AMT.

Question 10

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

Accepted Answer

The taxable income can be calculated by subtracting total expenses from total revenues. From the given results, the total revenues are $2,500,000 and the total expenses are $2,232,000. Therefore, the taxable income is:

$2,500,000 - $2,232,000 = $268,000

Hence, the correct answer is B.

Question 11

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?

Accepted Answer

The production activities deduction is equal to 9% of the lesser of the taxpayer's taxable income from the production activities or its taxable income for the year. In this case, the taxable income from production activities is the same as the taxpayer's taxable income before the production activities deduction, which is $3,000,000. The lesser of the two is therefore $2,000,000 (the taxpayer's domestic production income). Nine percent of $2,000,000 is $180,000, which is the amount of the production activities deduction. Therefore, the correct answer is B.

Question 12

Identify which of the following statement is true.

Accepted Answer

The statement that is true is C, which states that small corporations whose average gross receipts for each of the three preceding years are $7.5 million or less are exempted from the AMT. The other statements are false. The corporate alternative minimum tax rate is 20%, not 35% (as of 2021). AMT is not a permanent increase to the corporate tax liability, as it is a separate calculation from regular tax liability. Finally, the excess of tax depreciation over book depreciation decreases AMTI, not increases it.

Question 13

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

Accepted Answer

Since the corporation had accumulated earnings and profits of $900,000 at the end of the preceding year, and it paid out $25,000 dividends to its shareholders, it still has accumulated earnings and profits of $875,000. Furthermore, since the company has no reasonable needs of the business and its taxable income is $100,000, the accumulated earnings tax is calculated as follows:

[(875,000 - 250,000) x 0.20] = $125,000 x 0.20 = $25,000 
The maximum penalty is the lower of the tax calculated above or the corporation's taxable income of $100,000, hence the accumulated earnings tax is $25,000.

The regular federal income tax liability of $22,250, plus the accumulated earnings tax of $25,000, less the dividends-received deduction of $20,000, results in a total tax liability of $27,250.

Therefore, the correct answer is option C.

Question 14

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

Accepted Answer

A personal holding company is subject to an additional tax if it fails to meet certain income diversification requirements or if more than 60% of its adjusted ordinary gross income is from passive sources such as dividends, interest, and rent. The tax is equal to 20% of undistributed personal holding company income. In this case, the undistributed personal holding company income is $230,000 ($300,000 - $40,000 - $30,000). The personal holding company tax is thus $46,000 ($230,000 x 20%). However, the personal holding company tax cannot exceed the lesser of (1) the corporation's regular tax liability or (2) the sum of the corporation's regular tax liability plus $11,750. Therefore, the personal holding company tax is limited to $41,950 [$100,250 (regular tax liability) + $11,750 (limit) - $70,000 (dividends received deduction) - $30,000 (dividend paid)].

Question 15

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

Accepted Answer

The answer of Indicators of possible exposure of accumulated earning...

Question 16

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

Accepted Answer

C)
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Question 17

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?

Accepted Answer

Charades Corporation may deduct the salary and commissions paid to Samantha Chen, as well as the contributions to the qualified pension plan, for a total of $1,730,000. Tax-free fringe benefits are not deductible. Therefore, the correct answer is $1,250,000.

Question 18

Which of the statements is inaccurate regarding requirements for nonrecognition of gain or loss upon the transfer of assets to a corporation in exchange for stock?

Accepted Answer

This statement is inaccurate because depreciation recapture only applies to transfers of property that have been subject to depreciation or amortization. It is not specific to transfers under section 351 of the tax code. The other statements are accurate requirements for nonrecognition of gain or loss upon the transfer of assets to a corporation in exchange for stock.

Question 19

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

Accepted Answer

B)$100,250 = [($300,000 - $100,000)× .39] + $22,250

Question 20

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

Accepted Answer

To calculate the tax liability of a corporation, we need to use the corporate tax rate schedule. For the year 2020, the tax rate for corporations on taxable income over $100,000 but not over $335,000 is 21%.

So, the tax liability for Major Corporation would be:

Tax Liability = Taxable Income * Tax Rate 
Tax Liability = $335,000 * 0.21 
Tax Liability = $70,350

Therefore, the correct answer is C) $113,900.

Quiz 16: Corporations