Question 1

For a corporation in 2012,the domestic production activities deduction is equal to 9% of the higher of (1)qualified production activities income or (2)taxable income.However,the deduction cannot exceed 50% of the W-2 wages related to qualified production activities income.

Accepted Answer

The answer of For a corporation in 2012,the domestic production...

Question 2

Schedule M-1 is used to reconcile net income as computed for financial accounting purposes with taxable income reported on the corporation's income tax return.

Accepted Answer

Schedule M-1 is typically used by corporations to make adjustments necessary to reconcile book income for tax purposes. The schedule shows the differences between a corporation's accounting income and taxable income, and it reconciles the two by aligning book income with taxable income.

Question 3

Ed,an individual,incorporates two separate businesses that he owns by establishing two new corporations.Each corporation generates taxable income of $50,000.Each corporation will have a tax liability of $7,500.

Accepted Answer

The answer of Ed,an individual,incorporates two separate businesses that he...

Question 4

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

Accepted Answer

The answer of No dividends received deduction is allowed unless...

Question 5

Generally,corporate net operating loss can be carried back 3 years and forward 5 years to offset taxable income for those years.

Accepted Answer

The answer of Generally,corporate net operating loss can be carried...

Question 6

A calendar year C corporation can receive an automatic 6-month extension to file its 2012 corporate return (Form 1120)by filing Form 7004 by March 15,2013.

Accepted Answer

A calendar year C corporation can indeed receive an automatic 6-month extension to file its 2012 corporate return (Form 1120) by filing Form 7004 by March 15, 2013.

Question 7

A personal service corporation with taxable income of $100,000 will have a tax liability of $22,250.

Accepted Answer

The answer of A personal service corporation with taxable income...

Question 8

In the current year,Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum,a qualified public charity.The museum included the painting in its permanent collection.Oriole Corporation purchased the painting 5 years ago for $10,000.Oriole's charitable contribution deduction is $30,000 (ignoring the taxable income limitation).

Accepted Answer

When a corporation donates a property to a qualified public charity, the charitable contribution is generally equal to the fair market value of the property at the time of the donation. In this case, Oriole Corporation's charitable contribution deduction is $30,000, which is the fair market value of the painting at the time of the donation. The fact that Oriole Corporation purchased the painting 5 years ago for $10,000 is not relevant for the charitable contribution deduction.

Question 9

On December 20,2012,the directors of Quail Corporation (an accrual basis,calendar year taxpayer)authorized a cash donation of $5,000 to the American Cancer Society,a qualified charity.The payment,which is made on April 10,2013,may be claimed as a deduction for tax year 2012.

Accepted Answer

To be deductible for a tax year, a charitable contribution must be paid by the end of that year (December 31 for calendar year taxpayers). Since the payment was made on April 10, 2013, it cannot be claimed as a deduction for tax year 2012.

Question 10

Lilac Corporation incurred $4,700 of legal and accounting fees associated with its incorporation.The $4,700 is deductible as startup expenditures on Lilac's tax return for the year in which it begins business.

Accepted Answer

The $4,700 of legal and accounting fees associated with incorporation are considered capital expenditures and must be amortized over a period of 180 months starting with the month the business begins, rather than being fully deductible as startup expenditures in the year the business begins.

Question 11

Black Corporation,an accrual basis taxpayer,was formed and began operations on February 1,2012.During its first year of operations (February 1 - December 31,2012),Black incurred the following expenses: fee paid to state of incorporation of $2,000,accounting and legal services incident to organization of $9,000,and expenses related to the printing and sale of stock certificates of $10,000.Black has $11,000 of qualified organizational expenditures that it may elect to amortize.

Accepted Answer

The expenses incurred by Black Corporation for the fee paid to state of incorporation, accounting and legal services incident to organization, and expenses related to the printing and sale of stock certificates are all considered organizational expenses. These expenses can be either deducted currently or amortized over a period of 180 months (15 years), subject to certain limitation. Black Corporation has elected to amortize $11,000 of the organizational expenses, which is the maximum amount it can elect to amortize in the first year of operations.

Question 12

Peach Corporation had $210,000 of active income,$45,000 of portfolio income,and a $230,000 passive loss during the current year.If Peach is a closely held C corporation that is not a PSC,it can deduct $230,000 of the passive loss in the year.

Accepted Answer

The answer of Peach Corporation had $210,000 of active income,$45,000...

Question 13

Azul Corporation,a calendar year C corporation,received a dividend of $50,000 from Naranja Corporation.Azul owns 10% of the Naranja Corporation stock.Assuming it is not subject to the taxable income limitation,Azul's dividends received deduction is $35,000.

Accepted Answer

The dividends received deduction for a C corporation that owns less than 20% of the stock in another corporation is 50% of the dividend received. Therefore, Azul's dividends received deduction would be $25,000 (50% x $50,000) if it did not own more than 20% of Naranja's stock. However, since it owns 10%, it qualifies for a 65% deduction (not 50%) under the DRD rules. This results in a $35,000 dividend received deduction for Azul.

Question 14

An expense that is deducted in computing net income per books but not deductible in computing taxable income is a subtraction item on Schedule M-1.

Accepted Answer

An expense that is deducted in computing net income per books but not deductible in computing taxable income is an addition item on Schedule M-1, not a subtraction item, because it increases taxable income relative to book income.

Question 15

For purposes of the estimated tax payment rules,a "large corporation" is defined as a corporation that had an average taxable income of $1 million or more in any of the three preceding years.

Accepted Answer

This is the correct definition of a "large corporation" for purposes of the estimated tax payment rules.

Question 16

On December 31,2012,Flamingo,Inc. ,a calendar year,accrual method C corporation,accrues a bonus of $50,000 to its president (a cash basis taxpayer),who owns 75% of the corporation's outstanding stock.The $50,000 bonus is paid to the president on February 1,2013.For Flamingo's 2012 Form 1120,the $50,000 bonus will be a subtraction item on Schedule M-1.

Accepted Answer

The $50,000 bonus is an accrual item for Flamingo, Inc. in 2012, but since it is paid to the president (a cash basis taxpayer) in 2013, it will not be a subtraction item on Schedule M-1 for Flamingo's 2012 Form 1120. Instead, it will be reported as a deduction on Flamingo's 2013 Form 1120 when the bonus is paid.

Question 17

Heron Corporation,a calendar year C corporation,had an excess charitable contribution for 2011 of $5,000.In 2012,Heron made a further charitable contribution of $20,000.Heron's 2012 deduction is limited to $15,000 (10% of taxable income).The current year's contribution must be applied first against the $15,000 limitation.

Accepted Answer

This is correct as per the IRS rules on excess charitable contributions. Any current year contributions must first be applied against the 10% limitation before any carryforward amount from previous years can be used.

Question 18

Because of the taxable income limitation,no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.

Accepted Answer

The dividends received deduction (DRD) is allowed even if a corporation has a net operating loss (NOL) for the current taxable year. The limitation affects the amount of DRD that can be used to reduce taxable income, not the allowance of the deduction itself.

Question 19

The due date (not including extensions)for filing a 2012 Federal income tax return for a calendar year C corporation (Form 1120)is April 15,2013.

Accepted Answer

The answer of The due date (not including extensions)for filing...

Question 20

Crow Corporation,a C corporation,donated scientific property (basis of $30,000,fair market value of $50,000)to State University,a qualified charitable organization,to be used in research.Crow had held the property for four months as inventory.Crow Corporation may deduct $50,000 for the charitable contribution (ignoring the taxable income limitation).

Accepted Answer

The answer of Crow Corporation,a C corporation,donated scientific property (basis...

Quiz 2: Corporations: Introduction and Operating Rules