Question 1

Determine the corporate income tax for the following taxable incomes?
a. $72,000
b. $173,000
c. $699,000
d. $11,000,000
e. $17,000,000
f. $19,000,000

Accepted Answer

a. $72,000: ($50,000 x .15) + ($22,000 x .25) = $13,000
b. $173,000: ($50,000 x .15) + ($25,000 x .25) + ($25,000 x .34) + ($73,000 x .39) = $50,720
c. $699,000: $699,000 x .34 = $237,660
d. $11,000,000: ($10,000,000 x .34) + ($1,000,000 x .35) = $3,750,000
e. $17,000,000: ($10,000,000 x .34) + ($5,000,000 x .35) + ($2,000,000 x .38)= $5,910,000
f. $19,000,000: $19,000,000 x .35 = $6,650,000

Question 2

Ardbeg Corporation has $800,000 of taxable income on which it pays a tax of $272,000. In determining its earnings and profits for the year, the accountant used the following information:
a. Ardbeg received a dividend of $20,000 from a company in which it has a 60 percent interest.
b. It used a $30,000 capital loss carryover to offset its entire capital gain.
c. It was unable to deduct $12,000 of its charitable contribution due to the limitation.
d. It had a loss of $20,000 on the sale of some investments to its sole shareholder.
e. It received $10,000 in interest on City of Cleveland bonds
What is the corporations current earnings and profits?

Accepted Answer

$\$ 800,000$ Taxable income
- 272,000 Federal tax
$+ 16,000$ Dividend received deduction
+ 30,000 Capital loss carryover
- 12,000 Excess charitable contribution
- 20,000 Loss on sale to related party
$+ 10,000$ Tax-exempt interest
$\$ 552,000$ Current earnings and profits

Question 3

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Insurance premium on key-person life insurance.

Accepted Answer

Insurance premiums on key-person life insurance are not deductible for tax purposes. Therefore, if they are expensed in the financial statements, they must be added back to book income to determine taxable income.

Question 4

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Tax-exempt bond interest income

Accepted Answer

Tax-exempt bond interest income is already included in book income but is not taxable. Therefore, it needs to be subtracted from book income to determine taxable income.

Question 5

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Tax depreciation in excess of book depreciation

Accepted Answer

Tax depreciation in excess of book depreciation would be a subtraction from book income when determining taxable income because it represents a higher expense recognized for tax purposes than for financial accounting purposes, thereby reducing taxable income compared to book income.

Question 6

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Fines and bribes

Accepted Answer

Fines and bribes are not deductible for tax purposes, so if they were deducted in determining book income, they would need to be added back to determine taxable income.

Question 7

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Nondeductible portion of meals and entertainment

Accepted Answer

The nondeductible portion of meals and entertainment expenses is added back to book income when determining taxable income because these expenses reduce book income but are not deductible for tax purposes.

Question 8

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Federal income tax

Accepted Answer

Federal income tax is an expense that is deducted from book income to arrive at taxable income, so it is an addition to book income when reconciling to taxable income.

Question 9

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Carryover of a charitable contribution from a prior year

Accepted Answer

Carryover of a charitable contribution from a prior year would be a subtraction from book income in determining taxable income because it represents an expense that was not deducted for tax purposes in the prior year and is now being used to reduce taxable income.

Question 10

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Increase in cash value of key-person life insurance

Accepted Answer

The increase in cash value of key-person life insurance is typically not recognized as income for financial accounting purposes but is taxable for tax purposes. Therefore, it would be a subtraction from book income when reconciling to taxable income.

Question 11

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Bad debt expense in excess of the addition to bad debt reserves

Accepted Answer

Bad debt expense in excess of the addition to bad debt reserves is a subtraction from book income in determining taxable income because it is a non-deductible expense for tax purposes.

Question 12

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Excess of book depreciation over tax depreciation

Accepted Answer

The answer of Designate by an A if the item...

Question 13

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Expenses related to tax-exempt income

Accepted Answer

Expenses related to tax-exempt income are not deductible for tax purposes, so they are added back to book income to determine taxable income.

Question 14

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income.
-Excess capital losses over capital gains

Accepted Answer

Excess capital losses over capital gains are added back to book income when determining taxable income because they are not deductible for tax purposes beyond the capital gains they offset.

Question 15

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits.
-Corporate charitable contributions in excess of 10 percent limit.

Accepted Answer

Corporate charitable contributions in excess of the 10 percent limit are not deductible for tax purposes, thus they decrease taxable income when determining current earnings and profits.

Question 16

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits.
-A fine for monopolistic practices

Accepted Answer

A fine for monopolistic practices is a non-deductible expense, which decreases taxable income when determining current earnings and profits.

Question 17

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits.
-Net operating loss carryovers

Accepted Answer

The answer of Indicate by I if the following is...

Question 18

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits.
-Life insurance proceeds

Accepted Answer

Life insurance proceeds are generally not taxable and therefore do not increase taxable income when determining current earnings and profits.

Question 19

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits.
-Expenses related to tax-exempt income

Accepted Answer

Expenses related to tax-exempt income are not deductible in determining taxable income, but are deductible in determining earnings and profits.

Question 20

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits.
-Capital loss carryovers

Accepted Answer

The answer of Indicate by I if the following is...

Quiz 9: Taxation of Corporations

Determine the corporate income tax for the following taxable incomes? a. $72,000 b. $173,000 c. $699,000 d. $11,000,000 e. $17,000,000 f. $19,000,000

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Insurance premium on key-person life insurance.

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Tax-exempt bond interest income

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Tax depreciation in excess of book depreciation

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Fines and bribes

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Nondeductible portion of meals and entertainment

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Federal income tax

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Carryover of a charitable contribution from a prior year

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Increase in cash value of key-person life insurance

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Bad debt expense in excess of the addition to bad debt reserves

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Excess of book depreciation over tax depreciation

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Expenses related to tax-exempt income

Designate by an A if the item would be an addition to book income in determining taxable income; designate by an S if the item would be a subtraction from book income in determining taxable income. -Excess capital losses over capital gains

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits. -Corporate charitable contributions in excess of 10 percent limit.

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits. -A fine for monopolistic practices

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits. -Net operating loss carryovers

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits. -Life insurance proceeds

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits. -Expenses related to tax-exempt income

Indicate by I if the following is an increase in taxable income to determine current earnings and profits or D if it is a decrease in taxable income in determining current earnings and profits. -Capital loss carryovers