Question 1

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.
-Dividends received deduction

Accepted Answer

The dividends received deduction is an increase in taxable income for purposes of determining current earnings and profits. This is because the deduction reduces the amount of taxable income, which in turn increases the amount of current earnings and profits.

Question 2

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.
-Federal income tax refunds

Accepted Answer

Federal income tax refunds are considered an increase in taxable income when determining current earnings and profits because they represent a recovery of an expense (taxes) that had previously reduced earnings and profits.

Question 3

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.
-Disallowed losses on sales to related parties

Accepted Answer

Disallowed losses on sales to related parties are added back to taxable income when computing current earnings and profits.

Question 4

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.
-Section 179 expense in excess of allowable depreciation

Accepted Answer

Section 179 expense allows businesses to deduct the full purchase price of qualifying equipment and/or software within a tax year rather than requiring the cost to be capitalized and depreciated. When the Section 179 expense taken is in excess of the allowable depreciation, it reduces taxable income more than standard depreciation would. Therefore, for purposes of calculating current earnings and profits, this excess must be added back, resulting in an increase in taxable income.

Question 5

Coho is a corporation that has $1,100,000 of gross revenue and $1,021,000 of deductible expenses? What is its income tax liability?

Accepted Answer

$1,100,000 - $1,021,000 = $79,000; ($4,000 x .34) + ($50,000 x .15) + ($25,000 x .25) = $15,110.

Question 6

Soho is a personal service corporation that has $1,100,000 of gross revenue and $1,021,000 of deductible expenses? What is its income tax liability?

Accepted Answer

$1,100,000 - $1,021,000 = $79,000 ; $79,000 x .35 = $27,650

Question 7

Cloud Corporation has a taxable income of $100,000 in 2011 along with a $30,000 general business credit. What is the amount of its credit carryover and the last year to which the carryover could be used?

Accepted Answer

$22,250 tax on $100,000 income; $30,000 - $22,250 = $7,750

Question 8

The Shepherd Corporation has $40,000 of taxable income, $200,000 of positive adjustments, and a $10,000 preference item. What is its alternative minimum taxable income?

Accepted Answer

$40,000 + $200,000 Pos. adj. + $10,000 Pref. = $250,000; Exemp. = ($250,000 - $150,000).25 = $25,000; $40,000 - $25,000 = $15,000; $250,000 - $15,000 = $235,000

Question 9

Corporation P files a consolidated return with Corporation S. In preparing a consolidated return, their accountant finds the following:
$\begin{array}{lcc}&P&S\
\text { Separate taxable income (loss) } & \$ 500,000 & (\$ 200,000) \
\text { Capital gain (loss) } & (\$ 25,000) & \$ 50,000 \
\text { Charitable contributions } & \$ 20,000 & \$ 10,000 \
\text { Dividend from S } & \$ 10,000 &
\end{array}$
What is the consolidated return taxable income?

Accepted Answer

The answer of Corporation P files a consolidated return with...

Question 10

Casey Corporation has three assets when it decides to liquidate:
$\$ 400,000$ Book income
- 50,000 Insurance payment
+ 4,000 Insurance premium
- 10,000 Tax-exempt income
- 5,000 Excess bad-debt deduction
$+ \quad 5,000$ Excess book depreciation
$\$ 344,000$ Taxable income
The corporation sells the stock for its fair market value and distributes the other two assets to its sole shareholder. What is its tax liability on its final tax return if it had $45,000 of income from operations prior to liquidating?

Accepted Answer

The answer of Casey Corporation has three assets when it...

Question 11

Whyley Corporation, a C corporation, has gross profits on sales of $50,000 and deductible expenses of $60,000. In addition, Whyley has a net capital gain of $30,000. Whyley's taxable income is:

Accepted Answer

$50,000 - $60,000 + $30,000

Question 12

BarBRanch has had taxable income of $450,000, $570,000, $760,000 and $680,000 in years 2008 through 2011, respectively. What were the equal minimum quarterly estimated tax payments for 2011 that BarBRanch should have made in 2011 to avoid any penalty?

Accepted Answer

Tax on $680,000 is $231,200. Minimum quarterly payment = 25% ($231,200 - $499) = $57,675.25 rounded up to 57,676 as the underpayment must be less than $500.

Question 13

Who is a disqualified person?

Accepted Answer

The answer of Who is a disqualified person?...

Question 14

An exempt organization has dividend income of $200,000. It receives contributions of $350,000 and grants totaling $175,000. Is this a private foundation?

Accepted Answer

The answer of An exempt organization has dividend income of...

Question 15

What is the difference between a corporate franchise tax and a corporate income tax for state tax purposes?

Accepted Answer

The answer of What is the difference between a corporate...

Question 16

What are the three factors normally used to determine a state's share of a corporation's taxable income?

Accepted Answer

The answer of What are the three factors normally used...

Question 17

What is meant by the term nexus?

Accepted Answer

The answer of What is meant by the term nexus?...

Question 18

Which of the following is normally not an adjustment to federal taxable income to determine state taxable income?

Accepted Answer

The answer of Which of the following is normally not...

Question 19

Which of the following will not establish nexus in a state for a corporation?

Accepted Answer

Nexus for a corporation in a state is typically established through physical presence or significant business activities within that state. Mailing catalogs to potential customers does not constitute a physical presence or significant business activity that would establish nexus, unlike operating a factory, having a sales office, or taking phone orders in a facility owned by the corporation, all of which involve a more substantial presence or business operation within the state.

Question 20

The purpose of the use tax is to:

Accepted Answer

The use tax is designed to ensure that out-of-state purchases are taxed at the same rate as in-state purchases when no sales tax has been collected, thereby equalizing the tax burden.

Quiz 9: Taxation of Corporations

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. -Dividends received deduction

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. -Federal income tax refunds

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. -Disallowed losses on sales to related parties

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. -Section 179 expense in excess of allowable depreciation