Question 1

In 2014, Apricot Corporation had taxable income of $120,000. Included in taxable income was a $10,000 capital gain. The $120,000 of taxable income does not include a $15,000 capital loss carryforward available from the previous year. What is Apricot Corporation's 2014 income tax liability before any tax credits?

Accepted Answer

First, we need to calculate the taxable income after considering the capital loss carryforward:

Taxable income = $120,000 - $15,000 = $105,000

Next, we need to calculate the income tax liability using the corporate tax rate schedule:

- For the first $50,000 of taxable income: 15% tax rate 
- For taxable income over $50,000 up to $75,000: 25% tax rate 
- For taxable income over $75,000 up to $100,000: 34% tax rate 
- For taxable income over $100,000 up to $335,000: 39% tax rate

Tax liability calculation:

- The first $50,000 of taxable income is taxed at 15% = $7,500 
- The next $25,000 ($75,000 - $50,000) is taxed at 25% = $6,250 
- The next $25,000 ($100,000 - $75,000) is taxed at 34% = $8,500 
- The remaining $5,000 ($105,000 - $100,000) is taxed at 39% = $1,950

Total tax liability = $7,500 + $6,250 + $8,500 + $1,950 = $24,200

Therefore, the answer is B.

Question 2

The original due date for a tax return of a corporation with a calendar tax year-end falls before the original due date of a return for an individual taxpayer with the same tax year.

Accepted Answer

The original due date for a tax return of a corporation with a calendar tax year-end is March 15th, while the original due date for an individual taxpayer with a calendar year-end is April 15th. Therefore, the statement is true.

Question 3

The F. Repens Corporation has taxable income of $250,000 for 2014, including dividends of $50,000 received from 30 percent-owned domestic corporations. How much is the F. Repens Corporation's dividends received deduction for 2014?

Accepted Answer

The dividends received deduction is equal to 70 percent of the dividends received from 30 percent-owned domestic corporations, which in this case is $35,000 (70% of $50,000). Therefore, the F. Repens Corporation's dividends received deduction for 2014 is $40,000 ($35,000 for 30 percent-owned domestic corporations and $5,000 for other dividends).

Question 4

The accumulated earnings tax will not be imposed on accumulations that can be shown to be necessary to meet the reasonable needs of the business.

Accepted Answer

This statement is true. The accumulated earnings tax is designed to discourage corporations from retaining excessive earnings as a means of avoiding corporate income tax. However, if the corporation can demonstrate that the accumulated earnings are necessary for the reasonable needs of the business, then the tax will not be imposed.

Question 5

The Bay Fig Corporation has $350,000 of taxable income from operations for 2014, and dividends of $100,000 received from 10 percent-owned domestic corporations. How much is the Bay Fig Corporation's dividends received deduction for 2014?

Accepted Answer

The dividends received deduction for dividends received from 10 percent-owned domestic corporations is 70 percent of the dividends received. Therefore, the Bay Fig Corporation's dividends received deduction for 2014 is $70,000 (70% x $100,000).

Question 6

ABC Company owns 40 percent of JMT Company and 95 percent of DEM Company. JMT pays a $80,000 dividend to ABC and DEM pays a $40,000 dividend to ABC in 2014. Assuming that ABC has $1,000,000 of taxable income, calculate ABC's dividends received deduction for 2014.

Accepted Answer

The answer of ABC Company owns 40 percent of JMT...

Question 7

In 2014, Parvifolia, Inc. had $400,000 of revenue from operations and $160,000 of dividends from non-affiliated 15 percent-owned domestic corporations. The corporation's deductible operating expenses totaled $410,000. What is Parvifolia, Inc.'s dividends received deduction for 2014?

Accepted Answer

The dividends received deduction (DRD) for a corporation owning less than 20% of another corporation is 70% of the dividends received. Therefore, the DRD is 70% of $160,000, which equals $112,000. However, since the corporation has an operating loss ($400,000 revenue - $410,000 expenses = -$10,000), the DRD is limited to 70% of the taxable income before the DRD, which is $0. Thus, the DRD is $112,000.

Question 8

S corporations pay taxes at a higher rate than do regular corporations.

Accepted Answer

S corporations are pass-through entities, meaning that the business's income is passed through to its shareholders and taxed at their individual tax rates rather than at the corporate level. Therefore, S corporations generally pay taxes at a lower rate than regular corporations.

Question 9

Which of the following is true with respect to capital gains and losses of a corporation?

Accepted Answer

A corporation can carry a capital loss forward for up to 5 years to offset capital gains in future years. Option A is incorrect because capital losses can only be offset against capital gains, not ordinary income. Option B is incorrect because while the long-term capital gains tax rate for individuals is indeed 15 percent, corporations have a different tax rate for long-term capital gains. Option C is incorrect because corporations cannot carry capital losses back; they can only carry them forward.

Question 10

The corporate alternative minimum tax rate is 28 percent.

Accepted Answer

The answer of The corporate alternative minimum tax rate is...

Question 11

As a general rule, the transfer of property to a corporation in exchange for stock does not result in a taxable transaction.

Accepted Answer

This is known as a non-taxable exchange, or a Section 351 transaction, as long as certain conditions are met such as the transferor receiving control of the corporation through the stock received.

Question 12

If a corporation's status as an S corporation is involuntarily terminated in the middle of the tax year, the corporation must file as an S corporation for the first half of the tax year and a regular corporation for the second half of the tax year.

Accepted Answer

This is correct according to the IRS rules for S corporations. If an S corporation's status is involuntarily terminated during the tax year, it must file as an S corporation for the portion of the year it qualified and then file as a regular corporation for the rest of the year.

Question 13

For 2014, the Beech Corporation has net income on its books of $60,000, including the following items: Federal tax depreciation exceeds the depreciation deducted on the books by $5,000. What is the corporation's taxable income?

Accepted Answer

The answer of For 2014, the Beech Corporation has net...

Question 14

The Nandina Corporation was formed and began operations on July 1, 2014, and incurred the following expenses during the year: If the corporation chooses not to expense but rather amortizes organizational costs over 180 months, what is the amount of its amortization expense for 2014?

Accepted Answer

The answer of The Nandina Corporation was formed and began...

Question 15

Which of the following companies is taxed at a flat rate of 35 percent?

Accepted Answer

Only corporations with taxable income over $10 million are taxed at a flat rate of 35 percent. Option A and C are not taxed at a flat rate of 35 percent.

Question 16

The accumulated earnings tax is designed to prevent shareholders from avoiding the individual income tax.

Accepted Answer

The accumulated earnings tax is imposed on corporations to discourage the accumulation of earnings beyond reasonable business needs and to prevent shareholders from avoiding individual income tax on those earnings.

Question 17

A corporation may be found subject to both the accumulated earnings tax and the personal holding company tax in the same year.

Accepted Answer

The answer of A corporation may be found subject to...

Question 18

Corporations may be subject to the alternative minimum tax.

Accepted Answer

This is true. The alternative minimum tax (AMT) is a separate tax system that limits the impact of certain tax deductions, credits, and exclusions. It applies to both individuals and corporations, and was specifically created to ensure that those who take advantage of significant tax breaks still pay a certain minimum amount of tax. However, in 2018, the Tax Cuts and Jobs Act (TCJA) repealed the corporate AMT, so it is no longer in effect for tax years after December 31, 2017.

Question 19

Which of the following statements is true of corporations?

Accepted Answer

Corporations have distinct tax treatment compared to other entities. Specifically, when a corporation carries back a long-term capital loss, it is treated as a short-term capital loss for tax purposes. This is important because short-term capital losses can offset short-term capital gains, which are taxed at a higher rate than long-term capital gains. Other statements do not accurately describe the tax treatment of corporations. For example, corporate income is taxed differently than partnership income, the charitable contribution deduction limit is not a fixed percentage for all corporations, capital losses have specific treatment under corporate tax law, and organizational expenditures must be capitalized and amortized over a period of years, not deducted immediately.

Question 20

For 2014, what is the maximum tax rate for personal service corporations?

Accepted Answer

The maximum tax rate for personal service corporations in 2014 was 35 percent.

Quiz 11: The Corporate Income Tax