ch 11. Corporate Taxation

Willow Corporation has book income of $300,000 which includes tax expense of $70,000. It reported a capital loss of $10,000, and tax-exempt municipal bond interest of $30,000. Willow's taxable income is: A) $250,000. B) $280,000. C) $340,000. D) $350,000.

D) $350,000.

STU Corporation has taxable income before DRD of $27,000 that includes a dividend of $30,000 from a large publicly-traded domestic corporation. What is the taxable income of STU Corporation? A) $3,000. B) $5,400. C) $6,000. D) $8,100.

D) $8,100.

The corporate AMT exemption amount is: A) $40,000. B) $150,000. C) $310,000. D) An amount that varies depending on corporate AMT income.

D) An amount that varies depending on corporate AMT income.

Which of the following statements is correct? A) 50% of travel and entertainment expenses are added to taxable income to arrive at book income. B) Federal income tax expense is subtracted from book income to arrive at taxable income. C) Tax-exempt interest income is subtracted from taxable income to arrive at book income. D) Charitable contributions in excess of the 10% limit are added to book income to arrive at taxable income.

D) Charitable contributions in excess of the 10% limit are added to book income to arrive at taxable income.

A corporation has a fiscal year-end of May. If the corporation receives an automatic six-month extension to file its return, the return will be due on the 15th of: A) November. B) December. C) January. D) February.

D) February.

When reconciling from book income to taxable income on Schedule M-1, which of the following statements is correct? A) The difference between accelerated depreciation on the books and straight-line depreciation on the tax return in the later years of asset life is a negative adjustment. B) A charitable contribution carryforward realized in the current year is a positive adjustment. C) A charitable contribution above the 10% tax limitation is a positive adjustment. D) Federal income tax expense on the books is a positive adjustment.

D) Federal income tax expense on the books is a positive adjustment.

A corporation has a fiscal year-end of September 30. If the corporation receives an automatic extension to file its return, the return will be due on the 15th day of: A) March. B) April. C) May. D) June.

D) June.

Which of the following statements is true? A) All corporations are subject to AMT. B) Small corporations with average annual gross receipts of less than $10 million are not subject to AMT. C) The AMT rate is 25% of AMT income after exemption. D) The AMT exemption amount is $40,000 for corporations with AMT income of $150,000 or less.

D) The AMT exemption amount is $40,000 for corporations with AMT income of $150,000 or less.

Ramona is a 50% shareholder in a Subchapter S corporation. At the beginning of the year, her basis in the stock was $100,000. The corporation reported total ordinary income of $60,000 and total dividend income of $20,000. The corporation also borrowed an additional $20,000 from a local bank. What is the basis of Ramona's stock at the end of the year? A) $140,000. B) $150,000. C) $180,000. D) $200,000.

A) $140,000.

Sunrise Corporation owns 30% of Sunset Corporation. Both are domestic corporations. Sunset pays a $10,000 dividend to Sunrise. What amount of dividend income will be included in the taxable income of Sunrise Corporation? A) $2,000. B) $3,000. C) $8,000. D) $10,000.

A) $2,000.

Alabaster Company is a Subchapter S corporation. It properly reported net income of $250,000 for financial statement purposes. It had net capital gains of $60,000 and charitable contributions of $20,000. What is the taxable income of Alabaster Company that will be reported to its shareholders on Schedule K-1? A) $210,000. B) $270,000. C) $290,000. D) $330,000.

A) $210,000.

Valarie owns 100% of Green Company. Green has earnings and profits of $10,000. The corporation distributes property with a basis of $9,000 and a FMV of $12,000 to Valarie. She must report dividend income of: A) $2,000. B) $9,000. C) $10,000. D) $12,000.

C) $10,000.

A corporation has taxable income of $400,000. What is its tax liability? A) $22,100. B) $113,900. C) $136,000. D) $140,000.

C) $136,000.

JJJ Company has earnings and profits of $30,000. The corporation distributes property with a basis of $40,000 and a FMV of $35,000 to Jill, its sole shareholder. Her basis in the stock is $30,000. Which of the following statements is correct? A) Jill reports a nontaxable return of capital of $5,000. B) Jill reports dividend income of $35,000. C) JJJ Company records a loss of $5,000. D) None of the statements are correct.

A) Jill reports a nontaxable return of capital of $5,000.

Adam owns 100% of Banana Company and has a basis of $60,000 in its stock. The company has earnings and profits of $54,000 and distributes a cash dividend to Adam of $72,000. Adam has a: A) Nontaxable distribution of $18,000. B) Capital gain of $12,000. C) Dividend of $72,000. D) Nontaxable distribution of $6,000.

A) Nontaxable distribution of $18,000.

Which of the following statements is correct with respect to the formation of a corporation? A) The basis of the stock in the hands of the shareholder will be equal to the basis of the property contributed plus any gain recognized minus any boot received. B) If the 80% test is met, the transferors may recognize a gain or a loss, depending on the facts and circumstances. C) To the corporation, the basis of property received is equal to the basis of the property in the hands of the transferor. D) The transferor will record a gain if he or she contributes property subject to a liability.

A) The basis of the stock in the hands of the shareholder will be equal to the basis of the property contributed plus any gain recognized minus any boot received.

A corporation can elect to be taxed as a Subchapter S corporation if it meets certain requirements including that it has 100 or fewer shareholders, all of whom are individuals, estates, and certain trusts. A) True B) False

A) True

A corporation must file Form 1120 2 ½ months after the end of its fiscal year. A) True B) False

A) True

A shareholder of a Subchapter S corporation is required to personally report his or her proportionate share of corporate net income. A) True B) False

A) True

As part of a corporate formation meeting the 80% test, an individual who contributes property and receives, in return, stock plus property, will report a taxable gain equal to the lower of the FMV of the property received or the gain on the transfer. A) True B) False

A) True

C corporations with average annual gross receipts over $5 million must use the accrual basis of accounting. A) True B) False

A) True

If a shareholder receives cash from a corporation in complete liquidation of his or her ownership interest and the cash received is less than the shareholder's basis in the stock, the shareholder will report a loss. A) True B) False

A) True

Initially, corporations with average annual gross receipts for the last three years of $5 million or less are not subject to the corporate AMT rules. A) True B) False

A) True

Schedule M-1 reconciles from net income per books to net income per the tax law. A) True B) False

A) True

MMM Company has taxable income of $300,000. The company received a dividend of $50,000 from a domestic corporation in which it holds a 60% ownership interest. It also has tax depreciation that is $20,000 greater than financial statement depreciation. These items were properly accounted for in determining taxable income. Without regard to tax expense, what is financial statement income of MMM Company? A) $330,000. B) $340,000. C) $360,000. D) Some other number.

C) $360,000.

Benedict transfers land with a FMV of $900,000 to a newly-formed corporation in exchange for all of the stock. The land has a basis of $500,000 and debt of $300,000. The basis of the land, in the hands of the corporation is: A) $300,000. B) $400,000. C) $500,000. D) $900,000.

C) $500,000.

A corporation subject to AMT has AMT income of $270,000. What is the amount of alternative minimum tax? A) $57,500. B) $54,000. C) $52,000. D) $46,000.

C) $52,000.

Orange Corporation was formed in 2009. In that year it had a net capital loss of $2,000. In 2010, it had a net capital gain of $5,000. In 2011, the company reported a net capital loss of $9,000. What is the amount of capital loss carryforward to 2012? A) $0. B) $4,000. C) $6,000. D) $9,000.

C) $6,000.

Arturo transfers land with a FMV of $900,000 to a newly-formed corporation in exchange for all of the stock. The land has a basis of $600,000 and debt of $400,000. The basis of the land, in the hands of the corporation is: A) $300,000. B) $400,000. C) $600,000. D) $900,000.

C) $600,000.

PQR Corporation has taxable income before DRD of $60,000 that includes a dividend of $10,000 from a large publicly-traded domestic corporation. What is the tax liability of PQR Corporation? A) $7,500. B) $8,000. C) $8,250. D) $10,000.

C) $8,250.

Which of the following statements is correct? A) Distributions paid in excess of earnings and profits are taxable to the extent of stockholder basis. B) Distributions of appreciated property create a gain to the stockholder recipient. C) A distribution from earnings and profits is a dividend. D) Earnings and profits are exactly the same as retained earnings.

C) A distribution from earnings and profits is a dividend.

Which of the following statements is incorrect? A) A corporation can choose a fiscal year-end of its choice when filing its first tax return. B) A corporate tax return is due 2 ½ months after the end of the fiscal year. C) Corporations that own foreign subsidiaries cannot file a Form 1120. D) Some corporations can use the cash-basis of accounting.

C) Corporations that own foreign subsidiaries cannot file a Form 1120.

QRS Corporation has a fiscal year-end that ends on September 30. It is required to make quarterly estimated payments. The first estimated payment will be due on the 15th of: A) November. B) December. C) January. D) February.

C) January.

A C corporation has a fiscal year-end of April 30. It does not request an extension of time to file its income tax return. It must file its return no later than the 15th day of: A) September. B) August. C) July. D) June.

C) July.

TTT Corporation has a fiscal year-end that ends on March 30. It is required to make quarterly estimated payments. The first estimated payment will be due on the 15th of: A) May. B) June. C) July. D) August.

C) July.

A corporation has a fiscal-year end of February 28. If the corporation receives an automatic extension to file its return, the return will be due on the 15th day of: A) September. B) October. C) November. D) December.

C) November.

Which of the following statements is incorrect? A) Schedule M-1 is a reconciliation from book income to taxable income. B) Schedule L is prepared in accordance with the accounting method used to keep financial accounting records. C) Schedule M-3 is only prepared by corporations with total receipts and total assets of less than $250,000. D) Schedule M-1 shows all book tax differences, regardless of whether they are permanent or temporary differences.

C) Schedule M-3 is only prepared by corporations with total receipts and total assets of less than $250,000.

Zeus owns 100% of Grecian Image Corporation and his basis in the stock is $105,000. He receives cash of $20,000 and property with FMV of $100,000 and basis of $140,000 in complete liquidation of his ownership interest. What amount of gain or loss should Zeus recognize as a result of this transaction? A) $5,000 loss. B) $15,000 gain. C) $55,000 gain. D) Some other number.

B) $15,000 gain.

What is the AMT exemption amount for a corporation with AMT income of $250,000? A) $0. B) $15,000. C) $25,000. D) $40,000.

B) $15,000.

Barrie owns 100% of a Subchapter S corporation and her basis in the stock is $200,000. In the current year, the corporation reports an ordinary loss of $250,000 and interest income of $20,000. How much of the loss can Barrie claim in the current year? A) $200,000. B) $220,000. C) $250,000. D) The amount cannot be determined with the information provided.

B) $220,000.

Pricilla formed a corporation and owns all of the stock. She contributed property with a FMV of $60,000 and a basis of $55,000 and she received $10,000 cash from the corporation. Pricilla's taxable gain is: A) $0. B) $5,000. C) $10,000. D) $60,000.

B) $5,000.

Kyung formed a corporation and owns all of the stock. He contributed property with a FMV of $90,000 and a basis of $85,000, and he received $15,000 cash from the corporation. Kyung's basis in his stock is: A) $70,000. B) $75,000. C) $85,000. D) $90,000.

B) $75,000.

Which of the following items decrease basis for a stockholder of a Subchapter S corporation? A) Capital contributions. B) Charitable contributions. C) Loans from the shareholder to the corporation. D) Net income.

B) Charitable contributions.

A corporation can deduct a charitable contribution of up to 50% of its adjusted gross income. A) True B) False

B) False

A corporation may elect to become a Subchapter S corporation only at the time it is initially formed. A) True B) False

B) False

Adjusted Gross Income for a corporation is equal to sales minus cost of goods sold. A) True B) False

B) False

Corporate distributions to shareholders are called dividends. A) True B) False

B) False

If a corporation has a net capital loss, the loss is carried forward indefinitely. A) True B) False

B) False

Schedule L is a reconciliation of net income per books to net income per the tax law. A) True B) False

B) False

When a corporation is formed, the transaction is tax-free. A) True B) False

B) False