Question 1

Wow Corporation manufactures an exercise machine at a cost of $700 and sells the machine to Kite Corporation for $1,000 in 2012.Kite incurs TV advertising expenses of $300 and sells the machine by phone order for $1,600.If Wow and Kite corporations are members of an expanded affiliated group (EAG),their DPAD is:

Accepted Answer

To calculate the DPAD, we need to first calculate the QPAI (Qualified Production Activities Income). QPAI is calculated as follows:
QPAI = Domestic Production Gross Receipts (DPGR) - Cost of Goods Sold (COGS) - Other Expenses Related to Production (OERP)

DPGR = $1,000 (sales to Kite Corporation) + $300 (TV advertising expenses incurred by Kite Corporation) = $1,300
COGS = $700 (cost of production) = $700
OERP = 0 (there is no other expense related to production mentioned in the problem)

QPAI = $1,300 - $700 - $0 = $600

Now, we need to calculate the DPAD (Domestic Production Activities Deduction), which is a percentage of the QPAI. The percentage depends on the taxable income of the taxpayer. Since we do not have any information about the taxable income, we will assume it to be in the highest bracket, which gives a DPAD percentage of 9%.

DPAD = 9% x $600 = $54

Therefore, the answer is C.

Question 2

Which of the following is added in arriving at ACE?

Accepted Answer

Tax-exempt income (net of expenses) is added in arriving at ACE as it is not subject to the federal income tax and therefore needs to be included in the calculation. The other options such as federal income tax, premiums paid on key employees insurance, and loss on sale between related parties are not added in arriving at ACE.

Question 3

Which statement,if any,is false?

Accepted Answer

An S corporation is not subject to the corporate AMT. Instead, the company's income flows through to the shareholders, who are responsible for paying the AMT on their individual tax returns.

Question 4

Boat Corporation manufactures an exercise machine at a cost of $800 and sells the machine to Kirby Corporation for $1,000 in 2012.Kirby incurs TV advertising expenses of $200 and sells the machine by phone order for $1,700.If Boat and Kirby corporations are members of an expanded affiliated group (EAG),their QPAI is:

Accepted Answer

QPAI (Qualified Production Activities Income) is calculated as the difference between the revenue from selling the product and the cost of goods sold and other expenses. Here, the revenue is $1,700, the cost of goods sold is $800, and the advertising expense is $200. Thus, QPAI = $1,700 - $800 - $200 = $700.

Question 5

Which of the following items will be a deduction from unadjusted AMTI in arriving at ACE?

Accepted Answer

The answer of Which of the following items will be...

Question 6

Which of the following would not be a positive tax preference item in 2012?

Accepted Answer

Alternative minimum tax NOL deduction is not a positive tax preference item. In fact, it is a deduction that reduces the taxpayer's alternative minimum taxable income (AMTI) and helps to avoid the alternative minimum tax (AMT). Positive tax preference items are deductions or exclusions that increase the taxpayer's regular taxable income, but are not allowed for AMT purposes. Options A, B, and D are all positive tax preference items.

Question 7

Which of the following items will be an addition to AMTI in arriving at ACE?

Accepted Answer

The answer of Which of the following items will be...

Question 8

Which of the following has no effect in arriving at ACE?

Accepted Answer

The answer of Which of the following has no effect...

Question 9

Which statement is false?

Accepted Answer

The starting point for computing ACE is not taxable income, but rather AMTI (Alternative Minimum Taxable Income).

Question 10

Trahan,Inc. ,an S corporation,has taxable income of $12 million in 2012.Assume there are two shareholders,each in the top individual tax bracket.What is the maximum total DPAD tax savings for the S corporation shareholders?

Accepted Answer

The maximum DPAD tax savings for the S corporation shareholders would be $189,000 each ($378,000 total) assuming they have sufficient wages or qualified business income to take advantage of the full deduction. The DPAD deduction is equal to 9% of the lesser of qualified production activities income or taxable income. In this case, qualified production activities income is assumed to be the same as taxable income, which is $12 million. Therefore, the DPAD deduction would be $1.08 million. Each shareholder would receive a 50% allocation of the deduction, resulting in a maximum tax savings of $189,000 each ($378,000 total).

Question 11

Lime,Inc. ,has the following items related to the AMT:  The corporation's AMT,if any,is:

Accepted Answer

Without any further information or calculation, we can eliminate choices A and D as they are the extremes.

To calculate the AMT, we need to compare the corporation's regular tax liability to the AMT liability. The corporation must pay the higher of the two.

Since we don't have the regular tax liability, we can't calculate the AMT exactly. However, choice B is the closest to the middle of the remaining choices, and it's likely that the AMT liability is somewhere around that amount.

Therefore, the best choice is B.

Question 12

Which of the following items will have an effect (add or subtract)on unadjusted AMTI to arrive at ACE?

Accepted Answer

The answer of Which of the following items will have...

Question 13

Tara's sole proprietorship consists of a bakery and retail food sales.The bakery's DPGR is $700,000,but after CGS,direct expenses,and a ratable portion of indirect expenses are deducted,QPAI is $200,000.W-2 wages related to DPGR are significant.The retail food sales have a loss of $1 million.If Tara files a joint return and her modified AGI is $109,420,what is her allowable DPAD,if any,for 2012?

Accepted Answer

The answer of Tara's sole proprietorship consists of a bakery...

Question 14

Which AMT adjustment would only be negative?

Accepted Answer

The AMT NOL deduction is only allowed as a negative adjustment because it reduces AMT income. The other options may result in either positive or negative adjustments depending on the taxpayer's specific situation.

Question 15

Macon Corporation manufactures an exercise machine at a cost of $800 and sells the machine to Kershaw Corporation for $1,000 in 2012.Kershaw incurs TV advertising expenses of $300 and sells the machine by phone order for $1,500.If Macon and Kershaw corporations are members of an expanded affiliated group (EAG),their DPGR is:

Accepted Answer

The answer of Macon Corporation manufactures an exercise machine at...

Question 16

Which of the following statements does not reflect the rules regarding pass-through entities and DPAD?

Accepted Answer

The answer of Which of the following statements does not...

Question 17

Which statement is false?

Accepted Answer

The answer of Which statement is false?
...

Question 18

Politz Corporation has average gross receipts of $4.7 million,$4.6 million,and $6.2 million in 2009,2010,and 2011,respectively.In 2012,Politz is:

Accepted Answer

A corporation is considered a small corporation with respect to the Alternative Minimum Tax (AMT) if its average annual gross receipts for the prior three-year period do not exceed $7.5 million. Politz Corporation's average gross receipts for 2009-2011 are $5.17 million, which qualifies it as a small corporation for AMT purposes in 2012.

Question 19

A corporation has the following items related to the AMT.  The corporation's AMT,if any,is:

Accepted Answer

The corporation's tentative minimum tax (TMT) is calculated by adding back all tax preference items and adjusting the NOL deduction, and then applying a 20% AMT rate.

TMT = (Regular Taxable Income + Tax Preference Items) - (Adjusted NOL Deduction) 
TMT = (10,000,000 + 7,200,000) - (0) 
TMT = 17,200,000

AMT = TMT - Regular Tax 
AMT = 17,200,000 - 9,930,940 
AMT = 7,269,060

Question 20

Which reason is unlikely to cause a regular corporation to have to pay AMT?

Accepted Answer

Companies with little inventory and few assets are less likely to trigger the requirements for AMT.

Quiz 3: Corporations: Special Situations

Which of the following is added in arriving at ACE?

Which statement,if any,is false?

Which of the following items will be a deduction from unadjusted AMTI in arriving at ACE?

Which of the following would not be a positive tax preference item in 2012?

Which of the following items will be an addition to AMTI in arriving at ACE?

Which of the following has no effect in arriving at ACE?

Which statement is false?

Trahan,Inc. ,an S corporation,has taxable income of $12 million in 2012.Assume there are two shareholders,each in the top individual tax bracket.What is the maximum total DPAD tax savings for the S corporation shareholders?

Lime,Inc. ,has the following items related to the AMT: The corporation's AMT,if any,is:

Which of the following items will have an effect (add or subtract) on unadjusted AMTI to arrive at ACE?

Which AMT adjustment would only be negative?

Which of the following statements does not reflect the rules regarding pass-through entities and DPAD?

Which statement is false?

Politz Corporation has average gross receipts of $4.7 million,$4.6 million,and $6.2 million in 2009,2010,and 2011,respectively.In 2012,Politz is:

A corporation has the following items related to the AMT. The corporation's AMT,if any,is:

Which reason is unlikely to cause a regular corporation to have to pay AMT?