FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 2: Corporations Introduction and Operating Rules

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Essay

Review LaterAdd Note

Review Later

Explain the rules regarding the accounting periods available to corporate taxpayers.

Correct Answer

verified

In general, a corporate taxpayer may sel...

View Answer

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

Ivory Corporation, a calendar year, accrual method C corporation, has two cash method, calendar year shareholders who are unrelated to each other. Craig owns 35% of the stock, and Oscar owns the remaining 65%. During 2016, Ivory paid a salary of $100,000 to each shareholder. On December 31, 2016, Ivory accrued a bonus of $25,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 3, 2017, compute Ivory Corporation's 2016 deduction for the above amounts.

A) $250,000
B) $225,000
C) $200,000
D) $125,000
E) None of above

F) None of the above
G) D) and E)

Correct Answer

verified

Show Answer

Question 23

True/False

Review LaterAdd Note

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).

*Based on preceding year's tax, for first installment only: [$900,000 taxable income × 34% (see Exhibit 2.1) ] = $306,000 ÷ 4 = $76,500. **Based on current year's tax, for remaining installments: [$1.5 million taxable income × 34% (see Exhibit 2.1) ] = $510,000 ÷ 4 = $127,500. Second installment must include shortfall from first installment: [$127,500 + ($127,500 - $76,500) ] = $178,500. -Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income. Which of the following items is a subtraction on Schedule M-1?

A taxpayer is considering the formation of a business that would derive some amounts of tax-exempt interest, qualified dividends, and capital gains. Explain how these income categories would be reported and taxed under the various types of entity forms discussed in the chapter. Consider the tax implications both to the entities and to their owners.

A personal service corporation must use a calendar year, and is not permitted to use a fiscal year.

As a general rule, C corporations must use the cash method of accounting. However, under several exceptions to this rule (e.g., average annual gross receipts of $5 million or less for the most recent 3-year period), a C corporation can use the accrual method.

In 2016, Bluebird Corporation had net income from operations of $100,000. Further, Bluebird recognized a long-term capital gain of $30,000, and a short-term capital loss of $45,000. Which of the following statements is correct?

The passive loss rules apply to closely held C corporations and to personal service corporations but not to S corporations.

The corporate marginal income tax rates range from 15% to 39%, while the individual marginal income tax rates range from 10% to 39.6%.

Double taxation of corporate income results because dividend distributions are included in a shareholder's gross income but are not deductible by the corporation.

Which of the following statements is incorrect regarding the dividends received deduction?

A calendar year C corporation can receive an automatic 9-month extension to file its corporate return (Form 1120) by timely filing a Form 7004 for the tax year.

Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year both businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income from the corporation on her individual tax return.

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.

Azure Corporation, a C corporation, had a long-term capital gain of $50,000 in the current year. The maximum amount of tax applicable to the capital gain is $7,500 ($50,000 × 15%).

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).

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2016. Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year. The corporation distributed $45,000 to Juanita, and the partnership distributed $45,000 to Carlos. Which of the following statements relating to 2016 is incorrect?

Which of the following statements is correct regarding the taxation of C corporations?

Nancy is a 40% shareholder and president of Robin Corporation, a regular corporation. The board of directors of Robin has decided to pay Nancy a $75,000 bonus for the year based on her outstanding performance. The directors want to pay the $75,000 as salary, but Nancy would prefer to have it paid as a dividend. If Robin Corporation is in the 34% marginal tax bracket and Nancy is in the 33% marginal tax bracket irrespective of the treatment of the bonus, discuss which form of payment would be most beneficial for each party. (Ignore any employment tax considerations.)