Chapter 15 Quiz

Mountain Company owns 25% of Valley Company. Both are domestic corporations. Valley pays a $60,000 dividend to Mountain. What amount of dividend income will be included in the taxable income of Mountain Company?

$21,000.(65% of the dividend is excluded, so 35% (or $21,000) is taxable.)

Chen received a $10,000 dividend from a Subchapter C corporation. He also owns a 50% interest in a Subchapter S corporation that reported $100,000 of taxable income. He received a distribution of $20,000 from the Subchapter S corporation. How much income will Chen report as a result of these events?

$60,000.(The $10K dividend from the C corporation plus $50K from the S corporation. The S corporation distribution does not matter)

Which of the following statements is incorrect?

A C corporation can own stock of an S corporation.

Which of the following statements is correct?

A corporation is a legal entity that is taxed on its taxable income.

Banana Company is widely held. It owns 85% of Strawberry Corporation. Two individuals hold the remaining 15%. Which of the following statements is true?

Banana and Strawberry can elect to file a consolidated tax return.

Which of the following items increase basis for a stockholder of a Subchapter S corporation?

Capital contributions.

For Subchapter C corporations, which of the following statements is true?

Capital losses can be carried back three years and then carried forward five years.

A calendar-year corporate taxpayer must make its final estimated tax payment on the 15th of which month?

December.

Concerning the business interest expense deduction, which of the following statements is true?

Disallowed interest expense can be carried forward indefinitely.

Which of the following is a positive adjustment on Schedule M-1?

Excess of capital losses over capital gains.

Two individuals form a corporation and own all of its stock. One individual contributes cash, and the other contributes property encumbered by a mortgage. The new corporation assumes the mortgage. Which of the following statements is true with respect to the individual who contributes the property?

Gain is recognized to the extent of relief of liability in excess of the basis of property contributed.

Annabelle forms a corporation in which she is the sole shareholder. She transfers $20,000 cash plus land with a $100,000 adjusted basis and a $160,000 FMV in exchange for all the stock of the corporation. The corporation assumes the $140,000 mortgage on the land. What is her basis in the stock, and what is the gain she must report (if any)?

Gain of $20,000; stock basis is zero.

Parker Company has earnings and profits of $8,000. It distributes capital gain property with a basis of $2,000 and FMV of $9,000 to Gertrude Parker, its sole shareholder. Gertrude has a basis of $10,000 in her stock. Which of the following statements is true with respect to this transaction?

Gertrude will report dividend income of $8,000 and a nontaxable distribution of $1,000.

Tameka and Janelle form a corporation in which each will own 50% of the stock. Tameka contributes $50,000 in cash. Janelle contributes property with a basis of $30,000 and an FMV of $60,000. She receives $10,000 of inventory from the corporation. Which of the following statements is true?

Janelle will report a gain of $10,000.

A corporation has a fiscal year-end of June. If the corporation does not receive an automatic extension of time to file its return, the return will be due on the 15th of:

October

Which of the following statements is false?

Passive loss rules apply to all corporations.

Which, if any, of the following statements concerning the shareholders of a Subchapter C corporation is correct?

Shareholders are taxed on distributions from corporate earnings and profits.

Which of the following statements concerning the shareholders of a Subchapter S corporation is correct?

Shareholders are taxed on their proportionate share of earnings whether or not distributed.

Which of the following is a negative adjustment on Schedule M-1?

Tax-exempt interest income

Svetlana forms a corporation in which she is the sole shareholder. She contributes a vehicle with a basis of $15,000 and an FMV of $8,000 in exchange for stock. She also contributes cash of $2,000. Svetlana will recognize:

neither a gain nor loss.