Question 1

Airfreight Corporation has book income of $370,000.Book income includes a $25,000 gain realized on a like-kind nontaxable exchange of realty.Based only on these items,compute Airfreight's taxable income.

Accepted Answer

The $25,000 gain realized on the like-kind nontaxable exchange of realty is not included in taxable income, therefore taxable income is $370,000 - $25,000 = $345,000.

Question 2

John's,Inc.manufactures and sells fine furniture.What is John's regular tax liability if it had taxable income of $40,000,000 for its fiscal year ended September 30,2018?

Accepted Answer

The answer of John's,Inc.manufactures and sells fine furniture.What is John's...

Question 3

Slipper Corporation has book income of $500,000.Book income includes a $50,000 gain on the sale of equipment.The equipment originally cost $110,000 and was sold for $75,000.Accumulated book depreciation was $85,000; accumulated MACRS depreciation was $90,000.Based only on these items,compute Slipper's taxable income.

Accepted Answer

Taxable income is calculated by adjusting book income for differences between book and tax treatments. The gain on sale for tax purposes is $75,000 (sale price) - $110,000 (cost) + $90,000 (MACRS depreciation) = $55,000. Since the book gain was $50,000, we add back the $5,000 difference to the book income of $500,000 to get $505,000.

Question 4

Honu,Inc.has book income of $1,200,000.Book income includes $380,000 income tax expense,$10,000 of municipal bond interest income,and $150,000 of business meals expense.Based only on these items,compute Honu's taxable income.

Accepted Answer

Starting with book income of $1,200,000, we need to add back the municipal bond interest income of $10,000 (as this income is tax-exempt at the federal level) and subtract the business meals expense of $150,000 (as this is only partially deductible). 
$1,200,000 + $10,000 - $150,000 = $1,060,000.
Next, we need to deduct the income tax expense of $380,000 from this amount.
$1,060,000 - $380,000 = $680,000.
Therefore, Honu's taxable income is $680,000. 
The closest answer choice is D, $1,645,000, which is the result of adding the income tax expense back to book income, but does not take into account the adjustments for the municipal bond interest income and business meals expense.

Question 5

Which of the following statements regarding the current year tax treatment of corporate dividends is true?

Accepted Answer

Dividend payments between members of an affiliated group of corporations filing a consolidated return are generally tax exempt to avoid double taxation within the group. This facilitates the movement of funds within the group without incurring additional tax liabilities.

Question 6

Palm Corporation has book income of $424,000.Book income reflects $130,000 federal income tax expense and $55,000 depreciation expense.Tax depreciation expense computed under MACRS is $65,000.Palm received $25,000 of prepaid rent not included in book income.Based only on these items,compute Palm's taxable income.

Accepted Answer

The answer of Palm Corporation has book income of $424,000.Book...

Question 7

Which of the following statements regarding Schedule M-1 is true?

Accepted Answer

Schedule M-1 is used by corporations to reconcile the book income (reported on the financial statements) with the taxable income (reported on the tax return). Nondeductible fines and penalties are added back on line 5 since they are not deductible for tax purposes. The other statements are incorrect. The dividends-received deduction is reported on Line 12, Line 2 reflects the accounting income, not the federal tax liability, and a deferred gain on a like-kind exchange would be reported on Schedule M-1 (Line 7).

Question 8

Forward Inc.'s book income of $739,000 includes a net long-term capital loss of $42,000 and charitable contribution of $170,000.Taxable income shown on the Schedule M-1 would be:

Accepted Answer

To calculate the taxable income shown on Schedule M-1 for Forward Inc., we start with the book income of $739,000. We then need to adjust for the net long-term capital loss and the charitable contribution, as these are treated differently for tax purposes compared to book purposes. The net long-term capital loss of $42,000 is not deductible for tax purposes, so we add it back to the book income. The charitable contribution deduction is limited to 10% of taxable income before the deduction. However, without knowing the taxable income before the deduction, we cannot precisely adjust for it here. Assuming the question intends for us to ignore the limitation or has provided all necessary adjustments, we would simply adjust for the net long-term capital loss. Therefore, the taxable income shown on Schedule M-1 would be $739,000 + $42,000 = $781,000. However, given the options provided and the typical adjustments for Schedule M-1, it seems there might be a misunderstanding in the calculation or the question's intent. Based on the options given and common adjustments, adding back the net long-term capital loss to the book income does not match any of the provided answers directly without considering the charitable contributions adjustment. Since none of the calculations directly lead to the answers given without further information, and based on the standard approach to adjusting book income for tax purposes, there seems to be a discrepancy in the explanation or the question's details.

Question 9

Cranston Corporation has accumulated minimum tax credits of $924,000 from tax years prior to 2018.If 2018 regular tax before credits is $152,000,Cranston's allowable minimum tax credit for 2018 is:

Accepted Answer

The allowable minimum tax credit for 2018 is the greater of 1) the regular tax minus the tentative minimum tax, or 2) the unused minimum tax credit from prior years. The tentative minimum tax is 20% of alternative minimum taxable income (AMTI) over $1 million. Since the problem does not provide information on AMTI, we cannot calculate the tentative minimum tax. However, we do know that the regular tax before credits is lower than the accumulated minimum tax credits from prior years ($152,000 vs $924,000), so Option 1 is not applicable. Therefore, the allowable minimum tax credit for 2018 is $924,000 (Option 2). Only answer choice D is correct.

Question 10

Which of the following statements regarding the rehabilitation credit is false?

Accepted Answer

The rehabilitation credit is claimed over a 5-year period starting with the year the property is placed in service, not only in the year it is placed in service.

Question 11

TasteCo,Inc.reported $210,500 of taxable income this year.What is its regular tax liability?

Accepted Answer

To calculate the regular tax liability, we need to use the tax brackets for corporations. For taxable income between $0 and $50,000, the tax rate is 15%. For taxable income between $50,001 and $75,000, the tax rate is 25%. For taxable income between $75,001 and $10,000,000, the tax rate is 34%. Therefore, for a taxable income of $210,500, the regular tax liability can be calculated as: 
$50,000 * 0.15 + ($75,000 - $50,000) * 0.25 + ($210,500 - $75,000) * 0.34 = $44,205

Question 12

Mandrake,Inc.has book income of $569,300.Its income includes a $50,700 bad debt expense,determined by the allowance method.Actual write offs this year were $48,000.Based only on this information,compute Mandrake's taxable income.

Accepted Answer

For tax purposes, the IRS does not allow companies to deduct bad debt expenses determined by the allowance method. Instead, actual write-offs are deductible. Therefore, to compute taxable income, we start with the book income of $569,300 and adjust for the difference between the bad debt expense reported ($50,700) and the actual write-offs ($48,000). This difference is $2,700 ($50,700 - $48,000), which was deducted in arriving at book income but is not deductible for tax purposes. Adding this back to the book income gives us $569,300 + $2,700 = $572,000.

Question 13

Which of the following statements regarding Schedule M-3 is false?

Accepted Answer

Schedule M-3 does not replace Schedule M-1 for all taxpayers; it is required for certain large corporations, while smaller corporations may still use Schedule M-1.

Question 14

A corporation that owns more than $10 million of total assets uses which schedule to reconcile book income to taxable income?

Accepted Answer

A corporation that owns more than $10 million of total assets uses Schedule M-3 to reconcile book income to taxable income.

Question 15

Maxwell,Inc.had taxable income of $2,500,000 for its fiscal year ended June 30,2018.Compute Maxwell's regular tax liability.

Accepted Answer

The corporate tax rate for taxable income between $0 to $9,999,999 is 21%. Therefore, Maxwell's regular tax liability would be 21% of $2,500,000 which is $525,000. Option A is incorrect as it is the result of using the previous year's tax rate. Option B is incorrect as it is the tax rate for taxable income above $15,000,000. Option D is also incorrect as it assumes a 40% tax rate, which was in effect prior to the Tax Cuts and Jobs Act of 2017.

Question 16

Weston Corporation has accumulated minimum tax credits of $134,000 from tax years prior to 2018.If 2018 regular tax before credits is $47,000 and Jackson qualifies for general business credits of $14,000,its allowable minimum tax credit for 2018 is:

Accepted Answer

The allowable minimum tax credit for 2018 is the greater of 1) the minimum tax credit from prior years ($134,000) or 2) 100% of the 2018 regular tax before credits ($47,000).

Since the minimum tax credit from prior years is greater than 100% of the regular tax before credits, we can eliminate choices B and D.

The allowable general business credit of $14,000 is not relevant to calculating the minimum tax credit.

Therefore, the correct answer is C, $83,500, which is equal to the minimum tax credit from prior years.

Question 17

Sonic Corporation has a 21% marginal tax rate and received $10,000 of dividends from Roller,Inc.,a U.S.corporation in which Sonic owns less than 2% of the outstanding stock.Sonic's effective tax rate on the Roller dividend is:

Accepted Answer

Sonic Corporation can claim a 50% dividends received deduction (DRD) because it owns less than 20% of Roller, Inc. Therefore, the taxable portion of the dividend is $5,000 ($10,000 * 50%). The tax on this amount at a 21% rate is $1,050, resulting in an effective tax rate of 10.5% ($1,050 / $10,000).

Question 18

Borough,Inc.is entitled to a rehabilitation credit of $500,000 for its current tax year.The corporation's regular tax liability is $450,000.No estimated tax payments have been made.Which of the following statements is true?

Accepted Answer

The answer of Borough,Inc.is entitled to a rehabilitation credit of...

Question 19

Poppy's book income of $739,300 includes a net long-term capital loss of $42,000 and federal income tax expense of $170,000.Based only on these items,Poppy's taxable income is:

Accepted Answer

The answer of Poppy's book income of $739,300 includes a...

Question 20

Liston,Inc.had taxable income of $1 million for calendar year 2019.Compute Liston's regular tax liability.

Accepted Answer

The answer of Liston,Inc.had taxable income of $1 million for...

Quiz 11: The Corporate Taxpayer