Question 1

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Accepted Answer

The answer of Jazz Corporation owns 10% of the Williams...

Question 2

Which of the following is unnecessary to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity?

Accepted Answer

Approval from the IRS is not necessary to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity. However, approval from the board of directors and timely payment are necessary.

Question 3

Which of the following is deductible in calculating the charitable contribution limit modified taxable income?

Accepted Answer

The answer of Which of the following is deductible in...

Question 4

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

Accepted Answer

The answer of Which of the following is allowable as...

Question 5

If a corporation's cash charitable contributions exceed the charitable contribution deduction limit, what kind of book-tax difference is created?

Accepted Answer

If a corporation's cash charitable contributions exceed the charitable contribution deduction limit, a temporary book-tax difference is created that is unfavorable. This is because the excess amount is not deductible currently for tax purposes, but will be deductible in future years as carryforward charitable contributions. This creates a timing difference between book and tax income, resulting in a temporary and unfavorable book-tax difference.

Question 6

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

Accepted Answer

Corporations can carry forward excess charitable contributions for up to five years, but they cannot carry them back to prior tax years.

Question 7

Tatoo Inc. reported a net capital loss of $13,000 in 2014. It had a net capital gain of $4,300 in 2012 and $3,000 in 2011. In 2013, although the company suffered a net operating loss, it had net capital gains of $1,000. What is the amount of the Tatoo's capital loss carryover remaining after it applies the carryback?

Accepted Answer

First, the net capital gain in 2011 and 2012 can be used to offset the net capital loss in 2014. This leaves a remaining net capital loss of $5,700 ($13,000 loss - $4,300 gain - $3,000 gain). Then, this remaining loss can be offset against the net capital gain in 2013, leaving a final capital loss carryover of $0. Therefore, the answer is B, $5,700.

Question 8

Which of the following statements regarding the dividends and/or the dividends received deduction (DRD) is true?

Accepted Answer

The answer of Which of the following statements regarding the...

Question 9

Which of the following is not a type of controlled group as defined in the Internal Revenue Code?

Accepted Answer

All of these are types of controlled groups as defined in the Internal Revenue Code.

Question 10

Which of the following is deductible in calculating DRD modified taxable income?

Accepted Answer

The answer of Which of the following is deductible in...

Question 11

BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year. What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?

Accepted Answer

The book-tax difference created by the net operating loss carryover deduction in the current year is temporary because the NOL carryover will reduce taxable income for the current year, but the NOL carryover does not affect book income. This difference is also favorable because it reduces the company's tax liability for the current year.

Question 12

TireShop, Inc. owns 85% of Rubber Supply Co.'s voting stock throughout the tax year. TireShop and Rubber Supply would be considered as what kind of controlled group?

Accepted Answer

TireShop, Inc. owns 85% of Rubber Supply Co.'s voting stock, which qualifies as a parent-subsidiary relationship, where one corporation (TireShop) directly owns a controlling interest in another corporation (Rubber Supply). Therefore, TireShop and Rubber Supply are considered a parent-subsidiary controlled group.

Question 13

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Accepted Answer

The dividends received deduction is equal to the lesser of 50% of the dividend received or the percentage ownership times the dividend received. In this case, Jazz Corp. owns 10% of Williams Corp., so its ownership percentage times the dividend received of $10,000 is $1,000. Since 50% of $10,000 is $5,000, the lesser of the two is $1,000. Therefore, Jazz Corp. can take a $1,000 dividends received deduction, which reduces its taxable income (loss) from ($2,000) to ($1,000).

Question 14

Together, Kurt and Esmeralda own 60% of three corporations: RAZ, DVA, and TRE. The three corporations would be considered as what kind of controlled group for tax purposes?

Accepted Answer

The three corporations would be considered a brother-sister controlled group for tax purposes because they are not under common ownership, but have a commonality of ownership between the two individuals owning at least 80% (in this case, Kurt and Esmeralda owning 60%).

Question 15

Which of the following statements regarding charitable contributions is false?

Accepted Answer

The amount deductible for non-cash contributions is not always the adjusted basis of the property donated. The amount is generally the fair market value of the property at the time of the donation, but there are special rules for certain types of property.

Question 16

Which of the following statements regarding net operating losses generated in 2013 is true?

Accepted Answer

Option A is incorrect because corporations can carry net operating losses back up to five years, not two. Option C is incorrect because there is no favorable book-tax difference when a corporation applies a net operating loss carryover. Option D is incorrect because marginal tax rates are relevant in determining the tax benefit of applying a net operating loss carryback or carryover. Option B is correct because a corporation may choose to forgo carrying a net operating loss back and instead carry it over to future years.

Question 17

Canny Foods Co. is considering three ways it could contribute to a local, qualified charity. First, it could give $5,000 in cash. Second, it could give stock it initially purchased two years ago for $4,000 but is now worth $6,000. Third, it could give items of inventory with a fair market value of $7,000 but with an adjusted basis of $3,000. Which of the following correctly describes the relation among possible charitable contributions in terms of amount deductible for tax purposes?

Accepted Answer

The answer of Canny Foods Co. is considering three ways...

Question 18

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000. Its charitable contributions for the year were $7,500. What is Remsco's current-year charitable contribution deduction and contribution carryover?

Accepted Answer

The answer of Remsco has taxable income of $60,000 and...

Question 19

Jazz Corporation owns 50% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income before the dividend was $100,000. What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Accepted Answer

The dividends received deduction for a corporation that owns between 20% and 80% of another corporation's stock is 80% of the dividend received. Therefore, Jazz Corporation's dividends received deduction on the $10,000 dividend it received from Williams Corp. would be $8,000 (80% of $10,000).

Question 20

Which of the following statements regarding controlled groups is false?

Accepted Answer

While the controlled group rules do provide certain tax benefits, including the ability to file a consolidated tax return and to allocate losses and credits among the group, there is no provision that allows each corporation in the group to use the 15% tax bracket individually. The group as a whole is limited to one 15% tax rate bracket. Thus, statement B is false. Statements A, C, and D are all true.

Quiz 16: Corporate Operations

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($6,000) . What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?