Question 1

Identify which of the following statements is true.

Accepted Answer

When a corporation donates appreciated capital gain property to a charity, the amount of the contribution deduction generally equals the property's FMV. Option B is false because the contribution deduction for private nonoperating foundations is limited to the property's cost basis, not FMV minus ordinary gain. Option C is also false because the adjusted basis is never an option for a charitable contribution deduction of appreciated capital gain property. Option D is false because option A is true.

Question 2

Super Corporation gives a painting to a museum for public display on August 6.The painting was purchased on April 3 of the same year for $20,000 and is worth $30,000 at the date of gift.Also,Super accrues a charitable contribution on December 30 and pays the $12,000 contribution on February 1 of the next year.Super Corporation is a calendar-year corporation that uses the accrual method of accounting.Before considering the 10% limitation rule,the maximum deduction for the current year is

Accepted Answer

D)The $20,000 basis for the painting is used to compute the deduction since it is held less than one year and the appreciation would be a short-term capital gain if sold.As long as the pledge is paid in the first 2 1/2 months of the next tax year,the corporation may deduct the entire $12,000 in the current year.The total deduction is $32,000 ($12,000 + $20,000).

Question 3

Green Corporation is incorporated on March 1 and begins business on June 1.Green's first tax year ends on October 31,i.e. ,a short year.Green incurs the following expenses during the year:  What is the deduction for organizational expenses if Green chooses to deduct its costs as soon as possible?

Accepted Answer

B)Amortization of organizational expenses does not include the stock commission,which reduces paid-in capital,and the charter modification,which is incurred after the initial year-end.
$2,000 + $2,000 + $2,000 = $6,000 - $5,000 = $1,000/180 mo.× 5 mo.= $28
$5,000 + 28 = $5,028

Question 4

Identify which of the following statements is true.

Accepted Answer

Organizational expenditures incurred by a corporation include the cost of accounting services necessary to create the corporation, and unamortized organizational expenses can be deducted when the corporation is liquidated. However, organizational expenditures do not include the cost of printing stock. Therefore, statement B is true.

Question 5

Booth Corporation sells a building classified as a residential rental property for $200,000.The MACRS straight-line depreciation taken is $20,000 and the adjusted basis of the building is $170,000.Booth Corporation must recognize ordinary income of

Accepted Answer

C)
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Question 6

Identify which of the following statements is true.

Accepted Answer

A corporation that accrues compensation payable to an employee must indeed pay the amount within two and one-half months after the close of the taxable year to deduct the amount in the year of the accrual. This rule allows businesses to deduct accrued expenses in the year they are incurred, provided they are paid by a certain deadline in the following year.

Question 7

Edison Corporation is organized on July 31.The corporation starts business on August 10.The corporation adopts a November 30 fiscal year end.The following expenses are incurred during the year:  What is the maximum amount of organizational expenditures that can be deducted by the corporation for its first tax year ending November 30?

Accepted Answer

C)The underwriter fees and asset transfer cost are not organizational costs.The legal fee to modify charter is incurred after the November 30 initial year end.
$10,000 + $2,000 = $12,000 - $5,000 = $7,000
($7,000/180)× 4 = $156; $5,000 + 156 = $5,156

Question 8

The U.S.production activities deduction is based on a percentage of which of the following?

Accepted Answer

The U.S. production activities deduction is calculated as a percentage of the lesser of taxable income before the deduction (A) or qualified production activities income (C).

Question 9

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

Accepted Answer

If a corporation's charitable contributions exceed the deduction limitation in a particular year, the excess can be carried forward to a maximum of five succeeding years as a carryover. It cannot be carried back to any preceding year, and there is no indefinite carryover.

Question 10

Organizational expenditures include all of the following except for

Accepted Answer

Organizational expenditures are costs specifically related to the formation of a corporation, including legal fees, state incorporation fees, and expenses related to organizational meetings. However, costs incurred when issuing stock are not considered organizational expenditures. Instead, these are considered issuance costs.

Question 11

Blueboy Inc.contributes inventory to a qualified charity for use in feeding the needy.The inventory has a $70,000 FMV and a $30,000 adjusted basis.Blueboy Inc.can take a charitable contribution deduction of

Accepted Answer

C)
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Question 12

Island Corporation has the following income and expense items for the year:  The taxable income of Island Corporation is

Accepted Answer

D)
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Question 13

In 2011,Summer Corporation earns domestic gross receipts of $2 million and incurs allocable expenses of $800,000.It has $400,000 of income from other sources,resulting in taxable income of $1.6 million before the U.S.production activities deduction.What is its U.S.production activities deduction?

Accepted Answer

The U.S.production activities deduction is equal to 9% of the lesser of:
1. Qualified production activities income (QPAI), which is equal to domestic gross receipts minus allocable expenses
or
2. Taxable income before the U.S.production activities deduction, which is $1.6 million.

So, the U.S.production activities deduction is 9% of $1.6 million, which is $144,000. However, the deduction cannot exceed 50% of the W-2 wages paid by the taxpayer, which in this case is not given. Therefore, we can assume it is not limited by wages. Thus, the U.S.production activities deduction is $108,000 (9% x $1.6 million). Therefore, the correct answer is B) $108,000.

Question 14

JLA is a U.S.shoe manufacturer.Its domestic production income is $1,000,000 and U.S.W-2 wages are $600,000.Taxable income before the domestic production deduction is $500,000.What is the amount of the production activities deduction?

Accepted Answer

C)$500,000 × 9% = $45,000

Question 15

Richards Corporation has taxable income of $280,000 calculated before the charitable contribution deduction and before its dividends-received deduction of $34,000.Richards makes cash contributions of $35,000 to charitable organizations.What is Richards Corporation's charitable contribution deduction for the current year?

Accepted Answer

The charitable contribution deduction for corporations is limited to 10% of their taxable income before the charitable contribution deduction and before the dividends-received deduction. Richards Corporation's taxable income before these deductions is $280,000. Therefore, the maximum deductible charitable contribution is 10% of $280,000, which equals $28,000.

Question 16

Evans Corporation has a $15,000 net capital loss in 2011.The corporation reported the following capital gain net income during the past three years.Identify which of the following statements is true.

Accepted Answer

D)The net capital loss is carried back to the year 2008 and then used to offset capital gains in subsequent tax years.

Question 17

Garth Corporation donates inventory having an adjusted basis of $40,000 and an FMV of $150,000 to a qualified public charity.The inventory will be used by the charity to care for the ill.The maximum charitable contribution deduction before consideration of the 10% limitation is

Accepted Answer

C)
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Question 18

In February of the current year,Brent Corporation donates computer equipment that it purchased six months ago to Eastside High School for use in its educational program.The donated property had a $20,000 adjusted basis to Brent and a $40,000 FMV.What is the amount of the gift?

Accepted Answer

B)[$20,000 + .50 ($40,000 - $20,000)] = $30,000

Question 19

For purposes of the production activities deduction,domestic production gross receipts do not include which of the following?

Accepted Answer

The sale of food and beverages prepared at a retail establishment does not qualify as a domestic production gross receipt because it is not considered a manufacturing, producing, growing, or extracting activity.

Question 20

Identify which of the following statements is true.

Accepted Answer

The maximum charitable contribution deduction for inventory donated to charity is generally limited to the lesser of the fair market value or the cost basis plus half the difference between the fair market value and the cost basis. In this case, $5,000 + ($14,000 - $5,000)/2 = $9,000.

Quiz 3: the Corporate Income Tax

Identify which of the following statements is true.

Green Corporation is incorporated on March 1 and begins business on June 1.Green's first tax year ends on October 31,i.e. ,a short year.Green incurs the following expenses during the year: What is the deduction for organizational expenses if Green chooses to deduct its costs as soon as possible?

Identify which of the following statements is true.

Booth Corporation sells a building classified as a residential rental property for $200,000.The MACRS straight-line depreciation taken is $20,000 and the adjusted basis of the building is $170,000.Booth Corporation must recognize ordinary income of

Identify which of the following statements is true.

The U.S.production activities deduction is based on a percentage of which of the following?

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

Organizational expenditures include all of the following except for

Blueboy Inc.contributes inventory to a qualified charity for use in feeding the needy.The inventory has a $70,000 FMV and a $30,000 adjusted basis.Blueboy Inc.can take a charitable contribution deduction of

Island Corporation has the following income and expense items for the year: The taxable income of Island Corporation is

In 2011,Summer Corporation earns domestic gross receipts of $2 million and incurs allocable expenses of $800,000.It has $400,000 of income from other sources,resulting in taxable income of $1.6 million before the U.S.production activities deduction.What is its U.S.production activities deduction?

JLA is a U.S.shoe manufacturer.Its domestic production income is $1,000,000 and U.S.W-2 wages are $600,000.Taxable income before the domestic production deduction is $500,000.What is the amount of the production activities deduction?

Evans Corporation has a $15,000 net capital loss in 2011.The corporation reported the following capital gain net income during the past three years.Identify which of the following statements is true.

Garth Corporation donates inventory having an adjusted basis of $40,000 and an FMV of $150,000 to a qualified public charity.The inventory will be used by the charity to care for the ill.The maximum charitable contribution deduction before consideration of the 10% limitation is

In February of the current year,Brent Corporation donates computer equipment that it purchased six months ago to Eastside High School for use in its educational program.The donated property had a $20,000 adjusted basis to Brent and a $40,000 FMV.What is the amount of the gift?

For purposes of the production activities deduction,domestic production gross receipts do not include which of the following?

Identify which of the following statements is true.