Advanced Tax Exam 1
16.6.3 delve co issued $1 million of 40 year convertible bonds on October 1 1981 for $892,000 . The amount of bond discount deductible on Delve's income tax return for the year ended March 31, 2018, is A. 0 B. 2,700 C. 10,800 D. 108,000
B. 2,700
16.12.2 The following information is available for Briner Corporation for the current tax year ended December 31: Revenues from sales $ 8,000,000 Cost of goods sold (4,000,000) Operating expenses (2,000,000) Taxable income $ 2,000,000 The tax liability for Briner's current tax year ended December 31 is A. 400,000 B. 420,000 C. 500,000 D. 700,00
B. 420,000
16.13.3 A calendar year 2 corporation filed its YEar 1 return on April 30 year 2, without securing an extension of time to file. It could not show a reasonable cause. If the tax due was 5,000 and no payments had been made prior to filing the failure to file and failure to pay penalties would equal A. 250 B. 500 C. 750 D. 1,000
B. 500
16.10.11 Corporation Z's net long-term capital loss exceeded its net short-term capital gain by $5,000 in Year 6. To what taxable year is the net capital loss first carried? A. Year 1 B. Year 3 C. Year 5 D. Year 7
B. Year 3
16.8.3 During the current year, a corporation contributed three computers (that were for sale as inventory) to the New Roads Elementary School. The computers had a fair market value of $700 each and a basis of $500 each. What is the corporation's charitable contribution with regard to the computers? A. 2,100 B. 1,800 C. 1,500 D. 500
C. 1,500
16.6.5 On May 15, Corporation A issued callable 20 year converitble bonds at a face value of 200,000 bearing interest at 5% per year. Under the terms of the bonds the call price before May 15 of next year is 210,000. On July 1 of the current year, A calls the bonds for 210,000. What amount of the premium can A deduction on its current year income tax return A. 0 B. 5,000 C. 10,000 D. 150,000
C. 10,000
16.3.7 The results of an examination of PKP Corporation's tax return from 3 years ago in the current year reflected an additional tax liability of 10,000 which was caused by the negligent actions of the corporate officers. Excluding interest on the under payment PKP owes the IRS A. 10,000 B. 10,500 C. 11,000 D. 12,000
D. 12,000
16.5.1 Expenses that may be deducted for federal income tax purposes entirely in the year incurred by the corporation are A. Research and experimental expenses B. organizational Expenditures C. internally developed computer software costs D. Research and experimental expense and internally developed computer software costs
D. Research and experimental expense and internally developed computer software costs
16.3.1 The City of Cleveland transferred land worth of $250,000 to Monitor Corp as part of an inducement to locate new plant in the city. The land had been acquired by the city several years ago at a cost of $100,000. The income that Monitor must recognize as a result of the transfer and the basis of the land to Monitor are: A. 250000 of income 250000 of basis B. 100000 of income, 100000 of basis C. 0 of income, 100000 of basis D. 0 of income, 0 of income
$0 of income, $0 of basis.
16.7.7 Britney, Inc. has gross income for the current year of $150,000 excluding dividends of $100,000 received from nonaffiliated, domestic, taxpaying corporations in which Britney owns a 5% interest. The dividends were not from debt-financed portfolio stock. The company's operating expenses for the year are $160,000. Britney's allowable dividends-received deduction is A. $45,000 B. $50,000 C. $58,500 D. $65,000
A. $45,000
16.4.4 Corporation R was organized and began active business on Jan 4 of the current year. R incurred the following expenses in connection with creating the business: Professional fees for issuance of stock: $4,000 State incorporation fees: $2,000 Printing cost for stock certificates: $1,500 Broker's commissions on sale of stock: $7,000 Legal fees for drafting the charter: $5,000 Expense for temporary directors: $7,000 Total: $26,500 The maximum amount of organizational expense that may be deducted by R on its current year income tax return is A. $5,600 B. $5,300 C. $14,000 D. $26,500
A. $5,600
16.14.4 In order for Corporation X, a calendar-year taxpayer to be required to make estimated tax payments in the current year , its expected tax liability would have to be A. $500 or more B. $600 or more C. $1,000 or more D. $2,000 or more
A. $500 or more
16.11.1 During the current year, Webster Corporation repurchased 2,000 shares of its $1 par common stock in the open market for $5,000. Webster later resold 1,000 of these treasury shares to new shareholders when the stock was selling for $4 per share. Webster will report a gain (loss) on its current-year tax return of? A. 0 B. (1,000) C. 1,500 D. 3,000
A. 0
16.11.2 The following information pertains to treasury stock sold by Lee Corporation to an unrelated broker in the current year: Proceeds received $50,000 Cost 30,000 Par value 9,000 What amount of capital gain should Lee recognize in the current year on the sale of this treasury stock? A. 0 B. 41,000 C. 20,000 D. 21,000
A. 0
16.2.3 Mr. Aowned 75% of the voting stock and 85% of the nonvoting stock of Corp Y. Mr. A transferred property with a fair market value of $90,000 and an adjusted basis of $70,000 to Y for an additional 5% of the voting stock and 5% of the nonvoting stock. What is the amount of gain to be recognized by Mr. A? A. 0 B. 8000 C. 10000 D. 20000
A. 0
16.7.2 Corporations cannot take a deduction for dividend.s received from any of the following entities except A. A regulated investment company B. A real estate investment trust C. A corporation whose stock has been held less than 46 days during the 90 day period beginning 45 days before the stock becomes ex-dividend with respect ot the dividend D. Any corporation corporation under an obligation (pursuant to a short sale or otherwise) to make related payments for positions in substantially similar or related property
A. A regulated investment company
16.13.2 ABC Corporation a C corporation ends it tax year on October 30. When must ABC's income tax return be filed for the year ending October 30, Year 1 ? A. February 15, Year 2 B. April 15, Year 2 C. January 15 , Year 2 D> March 15 Year 2
A. February 15, Year 2
16.5.10 Kelso Corp is a publicly held corp whose securities are traded on national exchange and are registered under Sec. 12 of the Securities Exchange Act of 1934. The CEO's compensation package is approved annually by an outside compensation committee and the corp's shareholders. The following comp is paid to its CEO during the year: I. Salary II. Bonus that is paid based upon the attainment of certain profit performance minimums III. Fringe benefits that are nontaxable to the employee IV. Incentive stock options that are awarded annually upon the attainment of certain profit performance minimums. Which of the following types of compensation are included in determining whether the Ceo's compensation exceeds the $1 million executive compensation limitation? A. I only. B. I and II. C. I, II, and III. D. I, II, III, and IV.
A. I only.
16.1.14 The selection of an accounting method for tax purposes by a newly incorporated C Corp A. Is made on the initial tax return by using the chosen method B. Is made by filing a request for a private letter ruling from the IRS C. Must first be approved by the company's board of directors D. Must be disclosed in the company's organizing documents
A. Is made on the initial tax return by using the chosen method
16.12.8 Which one of the following statements about the taxation of personal service corporations is false for tax years beginning after 2017? A. Personal service corporations are subject to the "flat" 21% tax rate only if more than 75% of their gross income is earned income. B. Taxable income of a qualified personal service corporation is taxed at 21% rate C. Substantially all of the stock of the corporation must be owned by current or retired employees(or their estates or heirs) that are employed performing services of the corporation in connection with activities in certain professional fields D. The fields covered by the personal service corporation rules are health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting
A. Personal service corporations are subject to the "flat" 21% tax rate only if more than 75% of their gross income is earned income.
16.9.8 Which of the following statements concerning net operating losses is false? A. There are no limitations on the use of net operating losses. B. Section 382 generally limits the "pre-change in ownership" NOLs absorbed in any "post-change in ownership" taxable year C. Section 382 limits the use of NOLs to the product of the fair market value of the loss corporation's stock times the "long-term tax-exempt rate" D. The Sec. 382 limitiation is triggered by a more than 50 percentage point change in ownership
A. There are no limitations on the use of net operating losses.
16.13. 1 under which of the following circumstances would a corporation be required to file a federal income tax return? A. the corporation has disposed of all of its assets except for a small sum of cash retained to pay state taxes to preserve its corporate charter B. A corporation with no assets stops doing business and dissolves and is treated as a corporation under state law for limited purposes connected with winding up its affairs C. the corporation has dissolved and is in bankruptcy D. Last year, corporation M ceased doing business and disposed of all of its assets. However, during all of the current year, M was in the process of suing Corporation B
A. the corporation has disposed of all of its assets except for a small sum of cash retained to pay state taxes to preserve its corporate charter
16.1.10 Jack Carson transferred a building that had an adjusted basis of $75,000 and a fair market value of $130,000 to Corporation R in exchange for 80% of R's only class of stock and a car with an adjusted basis to R of $25,000. The fair market value of the stock at the time of the transfer was $100,000, and the car's fair market value was $30,000. What is the amount of R's basis in the building? A. $130,000 B. $105,000 C. $100,000 D. $75,000
B. $105,000
16.1.7 Taxpayer C acquired sufficient stock of Corporation Y in an exchange to meet the nonrecognition of gain or loss requirements. Stock was acquired as follows (stock listed at fair market value): Received $30,000 in stock for cash of $20,000 Received $100,000 in stock for property with adjusted basis of $50,000 Received $15,000 in stock for services rendered Received $25,000 in stock for bonds of Corporation Y (basis of $18,000) per conversion privilege What is the total amount includible in Taxpayer C's income? A. $10,000 B. $15,000 C. $25,000 D. $32,000
B. $15,000
16.5.9 Included in Kell Corporation's operating expenses were the following life insurance premiums: Term life insurance premiums paid on the life of Kell"s controller, with Kell as owner and beneficiary of the policy $2,000 Group-term life insurance premiums paid on employees' lives, with the employees' dependents as owners and beneficiaries of the policies 18,000 In its income tax return, what amount should Kell deduct for life insurance premiums? A. $20,000 B. $18,000 C. $2,000 D. $0
B. $18,000
16.2.1 In an exchange transaction, Jesse transferred land worth $50,000 to his 80% - controlled corp in exchange for additional stock of the corporation worth $20,000 and cash of $20,000. The basis of the property to him was $15,000 and was subject to a $10,000 mortgage, which the corp assumed. Jesse must report a gain of: A. $10,000 B. $20,000 C. $30,000 D. $35,000
B. $20,000
16.1.9 Stone, a cash-basis taxpayer, incorporated her CPA practice. No liabilities were transferred. The following assets were transferred to the corp: Cash (checking account) = $500 Computer Equipment: - Adjusted basis: 30,000 - Fair Market Value: 34,000 - Cost: 40,000 Immediately after the transfer, Stone owned 100% of the corp's stock. The corp's total basis for the transferred assets is: A. $30,000 B. $30,500 C. $34,500 D. $40,500
B. $30,500
16.1.11 Mr. Wind transferred property subject to a $35,000 liability to Corp X in exchange for 90% of X's only class of outstanding stock. Mr. Wind's adjusted basis in the property transferred was $40,000. The fair market value of the stock at the time of the transfer was $60,000. What is Corporation X's basis in the property received and what is Mr. Wind's basis in the stock received? A. $35,000, $5,000 B. $40,000, $5,000 C. $60,000, $40,000 D. $75,000, $75,000
B. $40,000, $5,000
16.4.3 Dale Corporation's book income before federal income taxes was $520,000 for the current year ended Dec. 31. Dale was organized this year. Organization costs of $360,000 are being written off over a 20-year period for financial statement purposes. For tax purposes, these costs are being written off over the minimum allowable period. For the current year ended Dec. 31, taxable income is A. $749,000 B. $514,000 C. $520,000 D. $546,000
B. $514,000
16.1.8 Anna transferred land with an adjusted basis to her $20,000 and a fair market value of $56,000 to Elm Corporation in exchange for 100% of Elm Corp's only class of stock. The land was subject to a liability of $26,000, which Elm assumed for legitimate business purposes. The fair market value of Elm's stock at the time of transfer was $30,000. What is the amount of Anna's recognized gain? A. $0 B. $6,000 C. $10,000 D. $36,000
B. $6,000
16.1.13 On August 15 of last year, the ABC Partnership purchased telephone equipment for $10,000. The equipment is 5-year property under the MACRS rules. Depreciation in the amount of $2,000 was claimed by ABC on the equipment last year. On April 1 of the current year, ABC Partnership was incorporated with its assets being exchanged for King Corporation stock and notes. Gain of $1,000 was recognized on the transfer of the equipment that was purchased last year. What amount of depreciation is claimed by ABC and King on the equipment in the current year? A. $800, $2,400 B. $800, $2,600 C. $1,600, $2,600 D. $880, $2,640
B. $800, $2,600
16.5.16 Kara Corp. incurred the following expenditures in connection with the repurchase of its stock from shareholders to avert a hostile takeover: Interest on borrowings used to repurchase stock $100,000 Legal and accounting fees in connection with the repurchase 400,000 The total of the above expenditures deductible is A. 0 B. 100,000 C. 400,000 D. 500,000
B. 100,000
16.12.5 Sappington Corporation is a C corporation that has a $1 million net operating loss carryover from last year. Sappington's taxable income (before deducting the loss carryover) for the current year is $12 million. What is its income tax liability? A. 2,200,000 B. 2,310,000 C. 2,520,000 D. 3,850,000
B. 2,310,000
16.9.6 In its first year of operations, which began on March 12 of the current year, KAN Corporation had a loss from operations of $30,000 and short-term capital gains of $10,000. Included in the loss from operations was a net fire loss of $5,000. What is the amount of KAN's net operating loss carryover from the current year? A. 15,000 B. 20,000 C. 25,000 D. 30,000
B. 20,000
16.12.3 Net income per books of Pat Jordan's psychology clinic was $140,825 for the year ended September 30, 2018. Select from the following account information those items that would be necessary to reconcile book income to the income to be reported on the return, and compute taxable income per return. Capital gains $ 3,600 Capital losses 8,200 Entertainment expenses 10,850 Federal income tax expense 62,225 Tax-exempt interest income 5,000 Net income 140,825 Cash distribution to shareholders 20,000 A. 203,050 B. 213,500 C. 202,225 D. 207,650
B. 213,500
16.12.14 Grady Corporation's book income before income taxes was $300,000 for the current year. Organization costs of $150,000 incurred at the organization date 2 years earlier were written off when incurred for financial reporting purposes and over the minimum period for income tax purposes. Assuming there were no other reconciling items, what is Grady's taxable income for the current year? A. 270,000 B. 290,000 C. 300,000 D. 310,000
B. 290,000
16.6.6 On Dec 31 1982 Homer corporation issued 2 million of 50 year bonds for 2.6 million. On Dec 31, 2018, Homer issued new bonds with a face value of 3 million for which it received 3.4 million and used part of the proceeds to repurchase for 2,164,000 the bonds issued in 1982. No elections were made to adjust the basis of any property. What is the taxable income to homer on the repurchase of the 1982 bonds? A. 0 B. 4,000 C. 168,000 D. 436,000
B. 4,000
16.8.6 During the year, Sweetheart Corporation had the following income and expenses: Gross receipts $1,200,000 Salaries and wages 600,000 Contribution to qualified charities 90,000 Capital gains 30,000 Depreciation expense 70,000 Dividend income from a 20%-owned domestic corporation 120,000 Dividends-received deduction 96,000 What is the amount of Sweetheart's charitable contribution deduction for the year? A. 90,000 B. 68,000 C. 52,000 D. 43,000
B. 68,000
16.5.15 Finway Corporation has paid the following ordinary and necessary business expenses with regard to its sales force in the current year: Daily auto rental $2,000 Meals at restaurants while traveling 2,500 Meals furnished on business premises that are excluded from the employees' gross income 500 Cabs and limousines 1,000 Reimbursements for auto expenses of employees using the IRS standard mileage rate 2,250 The total amount that Finway may deduct for tax purposes in the current year is A. 8,250 B. 7,000 C. 6,750 D. 6,500
B. 7,000
16.7.8 Andron Corporation owns 30% of the stock of Blackbird Corporation, 10% of the stock of Connie Corporation, and 80% of the stock of Dannin Corporation. Blackbird and Connie are both U.S. corporations, and Dannin is a foreign (non-U.S.) corporation doing 100% of its business in South America. Andron has taxable income before the dividends-received deduction of $200,000 and has received the following dividends: Blackbird $ 5,000 Connie 10,000 Dannin 20,000 The dividends-received deduction for Andron Corporation would be A. 7,500 B. 8,250 C. 9,750 D. 29,000
B. 8,250
16.8.5 During the current year, Corporation G received $30,000 in dividends from a 60%-owned taxable domestic corporation. G received no other dividends. G's charitable contributions for the year totaled $15,000. G's taxable income for the year was $70,000 after the dividends-received deduction but before the deduction for charitable contributions. What is the amount of Corporation G's charitable contribution deduction for the year? A. 7,000 B. 8,950 C. 10,000 D. 15,000
B. 8,950
16.9.3 How much of Corporation A's Year 1 net operating loss of $120,000 may be deducted in Year 2 based on the following information pertaining to A's Year 2 return? Taxable income before the net operating loss deduction $90,000 Charitable contribution deduction 10,000 Total charitable contributions for Year 2 12,000 A. 88,000 B. 80,000 C. 100,000 D. 92,000
B. 80,000
16.5.6 Lynch Corporation is a publicly traded corporation whose top executives are subject to the $1 million limitation on their compensation. Carlton Lynch, the corporation's chief executive officer, receives $1.8 million of salary for the current year. How do the executive and the corporations report the compensation that is paid? A. Carlton Lynch reports $1 million of earned income and $800,000 of dividend income, and the corporation deducts $1 million. B. Carlton Lynch reports $1.8 million of earned income, and the corporation deducts $1 million of compensation. C. Carlton Lynch reports $1 million of earned income, and the corporation deducts $1 million of compensation. D. None of the answers are correct.16.5.6 Lynch Corp is a publicly traded corp whose top executives are subject to the $1 million limitation on their compensation. David Lynch, the corp's chief executive officer, receives $1.8 million of salary for the current year. How does the executive and corp report the comp that is paid?
B. Carlton Lynch reports $1.8 million of earned income, and the corporation deducts $1 million of compensation.
16.7.12 The dividends-received deduction A. Must exceed the applicable percentage of the recipient shareholder's taxable income B. Is affected by a requirement that the investor corporation must own the investee's stock for a specified minimum holding period C. Is unaffected by the percentage of the investee's stock owned by the investor corporation D. May be claimed by S corporations
B. Is affected by a requirement that the investor corporation must own the investee's stock for a specified minimum holding period
16.8.7 Norwood Corp is an accrual-basis taxpayer. For the year ended December 31, year 1, it had book income before tax of $450,000 after deducting a charitable contribution of $50,000. The contribution was authorized by the board of directors in December, Year 1, but was not actually paid until March 1, Year 2. How should Norwood treat this charitable contribution for tax purposes to minimize its Year 1 Taxable income? A. It cannot claim a deduction in Year 1 but must apply the payment against Year 2 income B. Make an election cclaiming a deduction for Year 1 of 50,000 with no carryover C. Make an election claiming a deduction for Year 1 of 45,000 with no carryover D. Make an election carrying the deduction back 3 years
B. Make an election cclaiming a deduction for Year 1 of 50,000 with no carryover
16.5.12 Daynite corporation a domestic corporation acquired a 90% interest in KDB corporation 5 years ago for 50,000. During the current year, the stock of KDN was declared worthless. KDN's income for all taxable years was from sources other than passive or portfolio income. What are the character and the amount of the deduction Daynite should take in the current year? A. Long term capital loss of 50,000 B. Ordinary loss of 50,000 C. Long term capital loss of 3,000 D. No loss is permitted
B. Ordinary loss of 50,000
16.7.5 For this year, Pine Corporation had losses of $20,000 from operations. It received $180,000 in dividends from a 25%-owned domestic corporation. Pine's taxable income is $160,000 before the dividends-received deduction. What is the amount of Pine's dividend-reduction deduction? A. $0 B. $117,000 C. $104,000 D. $180,000
C. $104,000
16.1.4 You transfer property with an adjusted basis of $20,000 and a FMV of $31,000 in exchange for 100% of the stock in a new corp. You receive 100 shares of stock having a FMV of $16,000 and $10,000 in cash. The corporation also assumes a $5,000 mortgage on the property. Which of the following is true? A. $11,000 gain realized; $0 recognized B. $15,000 gain realized, $11,000 recognized C. $11,000 gain realized, $10,000 recognized D. $10,000 gain realized, $5,000 gain recognized
C. $11,000 gain realized, $10,000 recognized
16.1.12 On June 10 of last year, Celeste purchased a computer for $6,000 that she uses in her sole proprietorship. The computer is 5-year property under the MACRS rules. Depreciation in the amount of $1,200 was claimed last year by Celeste on the computer. On February 1 of this year, Celeste transferred the computer and the other assets of her proprietorship to C Corporation in exchange for all of C's stock. No gain or loss was recognized on the exchange. What amount of depreciation is claimed by Celeste and C Corporation on the computer in the current year? A. $0, $1,920 B. $0, $1,200 C. $160, $1,760 D. $960, 960
C. $160, $1,760
16.7.9 Snow corporation owns a 20% interest in Hail Corporation, a domestic corporation. For the current year, Snow had gross receipts of $390,000, operating expenses of $400,000, and dividend income of $120,000 from Hail. The dividends were not from debt-financed portfolio stock. What is Snow's dividends-received deduction for the current year? A. $24,000 B. $60,000 C. $71,500 D. $78,000
C. $71,500
16.6.9 Scott corporation transferred stock with a fair market value of 20,000 to its creditor in satisfaction of indebtedness of 30,000. The stock's book value was 15,000. How much income from this transaction should Scott include in its income tax return? A. 0 B. 5,000 C. 10,000 D. 15,000
C. 10,000
16.12.13 For the current year, Maple Corporation's book income before federal income tax was $100,000. Included in this $100,000 were the following: Provision for state income tax $1,000 Interest earned on U.S. Treasury bonds 6,000 Interest expense on bank loan to purchase U.S. Treasury bonds 2,000 Maple's taxable income for the current year was A. 96,000 B. 97,000 C. 100,000 D. 101,000
C. 100,000
16.13.5 P corporation a c corporation filed a federal tax return and appropriately paid a 1,150,000 for its federal tax liability incurred in year 1, which was a full 12 month calendar year tax year. Early in Year 2 P estimated its Year 2 tax liability and paid a total of 1.12 million in equal installments on the corporation's year 2 return was completed. The return indicated an actual liability of 1.3 million. The corporation desires to defer the payment of the balance of tax due as long as possible while paying the least amount. What are the amount and the due date(s) in Year 3 of the corporation's minimum obligation (not considering weekends and holidays) A. 50,000 on April 15 and September 15 B. 50,000 on April 15 and June 15 C. 100,000 on April 15 D. 100,000 on Septmeber 15
C. 100,000 on April 15
16.12.9 The Sunra Corporation had the following data available for the current year: Gross profit on sales $40,000 Dividend income from nonaffiliated domestic corporations (not debt financed - 20%-owned) 2,000 Operating expenses (exclusive of charitable contributions) 28,000 Charitable contributions 1,500 Sunra's taxable income for the current year is A. 10,600 B. 11,200 C. 11,300 D. 12,700
C. 11,300
16.7.10 Pugsley Corporation purchased 20% of Mantle Corporation's common stock in August of the current year and paid for the purchase with $100,000 cash and $100,000 borrowed from its bank. During the current year, Pugsley received $30,000 in dividends from Mantle and paid $8,000 in interest expense on the bank loan. Pugsley did not make any principal payments on the loan during the year. If Pugsley had taxable income of $50,000 before special deductions, what is its dividends-received deduction for the year? A. 0 B. 9,750 C. 11,500 D. 19,500
C. 11,500
16.10.4 In its first year of operations, Rowley Corporation, not a dealer in securities, realized taxable income of $128,000 from the operation of its business. In addition to its regular business operations, it realized the following gains and losses from the sale of marketable securities: Short-term capital gain $ 10,000 Short-term capital loss (4,000) Long-term capital gain 12,000 Long-term capital loss (32,000) What is Rowley's total taxable income? A. 114,000 B. 124,000 C. 128,000 D. 134,000
C. 128,000
16.7.11 Universal Corporation had the following items of income and expenses in the current year: Gross income $1,000,000 Deductible expenses 1,200,000 Dividends received from domestic corporations (20%-owned) 20,000 Universal had no debt related to its stock ownership. Universal is entitled to a dividends-received deduction in the current year of A. 0 B. 10,000 C. 13,000 D. 20,000
C. 13,000
16.12.7 For the current year, Corporation Z had $60,000 of taxable income from operations. It also sold depreciable assets to its 100% shareholder as follows: Sale Date / Property / Sales Price / Total Depreciation Cost Claimed Jan. 30 / A / $ 4,000/ $ 8,000 / $3,000 June 10 / B / 7,000 / 8,000 / 4,000 Dec. 10 / C / 15,000 / 15,000 / 3,000 What is Z's corporate income tax for the current year? A. 12,390 B. 13,860 C. 13,860 D. 15,960
C. 13,860
16.12.15 For the current year, accrual-basis Corp. A's books and records reflected the following: Net income per books $104,000 Accrued federal income tax 35,000 Net capital loss 4,000 Tax-exempt interest 5,000 Book depreciation in excess of allowable tax depreciation 2,000 Based on the above facts, what is the amount of A's taxable income? A. 69,000 B. 70,000 C. 140,000 D. 150,000
C. 140,000
16.12.4 For the current year, Sun Corporation had operating income of $80,000, exclusive of the following capital gains and losses: Long-term capital gain $14,000 Short-term capital gain 6,000 Long-term capital loss (2,000) Short-term capital loss (8,000) What is Sun's income tax liability for the current year? A. 16,000 B. 19,600 C. 18,900 D. 21,000
C. 18,900
16.8.9 For year 2, a corp had taxable income of $70,000 without regard to the contribution deduction. Contributions made in Year 2 totaled $5,000 and a $4,000 carryover of excess contributions from Year 1 is available to apply to Year 2. What is the amount of contribution carryover available for Year 3 and what is its source? A. 0 B. 2,000 from year 2 C. 2,000 from Year 1 D. 3,000 from Year 1
C. 2,000 from Year 1
16.6.8 Sanders Corp issued a $1 million, 10-year debenture for $1.2 million on January 1, Year 1. In Year 7, how much income must Sanders report on its Year 7 income tax return from issuance of this bond? A. 240,000 B. 200,000 C. 20,000 D. 0
C. 20,000
16.10.1 Wonder, Inc., had taxable income of $200,000 exclusive of the following: Gain on sale of land used in business $25,000 Loss on sale of machinery used in business (13,000) Loss on sale of securities held 3 years (4,000) Loss on sale of securities held 3 months (3,000) On what amount of taxable income should Wonder compute tax? A. 200,000 B. 202,500 C. 205,000 D. 212,000
C. 205,000
16.14.1 For Year 2, Corporation N, a calendar -year taxpayer had a tax liability of 100,000, consisting of 45,000 in regular taxes and 55,000 in alternative minimum taxes. N's year 1 tax liability was 200,000. What is the amount N must have paid for each quarter for Year 2 to avoid any penalty or interest for underpayment of estimated tax? A. 11,250 B. 22,250 C. 25,000 D. 50,000
C. 25,000
16.8.4 Brave, Inc., made cash donations of $30,000 to various qualified charities during the current year. The following data for this year are also available: Revenue from operations $800,000 Interest income from various corporate bonds 150,000 Business expenses (not including the charitable contribution deduction) 700,000 Brave had no dividend income or carryovers of any type for the year. Brave's allowable charitable deduction for the year is A. 5,000 B. 12,500 C. 25,000 D. 30,000
C. 25,000
16.12.16 In the current year, Acorn, Inc., had the following items of income and expense: Sales $500,000 Cost of sales 250,000 Dividends received 25,000 The dividends were received from a corporation of which Acorn owns 30%. In Acorn's current-year income tax return, what amount should be reported as income before special deductions? A. 525,000 B. 508,750 C. 275,000 D. 250,000
C. 275,000
16.7.6 Alpha is a U.S. corporation that owns 21% of the stock of Omega, a foreign corporation that is not a foreign personal holding company. Forty percent of Omega's post-1986 undistributed income is from effectively connected business sources in the U.S. Alpha's dividend from Omega is $20,000 in the current year. Alpha has no debt related to its stockholdings. What is Alpha's dividends-received deduction? A. 0 B. 8,000 C. 5,200 D. 13,000
C. 5,200
16.7.3 The dividends-received deduction for a corporation allows a(n) A. 65% deduction for all dividends received from nonaffiliated corporations B. 50% deduction for all dividends received from nonaffiliated corporations C. 50% deduction for dividends received from a corporation when ownership is less than 20%, a 65% deduction for dividends received from nonaffiliated corporations when ownership is 20% or more (but less than 80%), and 100% deduction for dividends received from affiliated corporations when ownership is 80% or more D. 50% deduction for dividends received from a corporation when ownership is less than 20% and 65% deduction for dividends received from nonaffiliated corporations when ownership is 20% or more
C. 50% deduction for dividends received from a corporation when ownership is less than 20%, a 65% deduction for dividends received from nonaffiliated corporations when ownership is 20% or more (but less than 80%), and 100% deduction for dividends received from affiliated corporations when ownership is 80% or more
16.10.3 In the current year, Little Company sold land that had been held strictly for investment purposes for $70,000. The original cost of the land when purchased 2 years ago was $80,000. During the year, Little also had a capital gain of $6,000 and received dividends from investments of $3,000. The amount of the loss that is deductible by Little in the current year from the sale of the land is A. 0 B. 3,000 C. 6,000 D. 9,000
C. 6,000
16.10.5 Ryan Corporation had the following gains and losses during the current year: Lt capital gain $5,000 Lt capital loss 8,000 St capital gain 3,000 St capital loss 7,000 Sec. 1245 gain from deprec recapture 6,000 The nature and amount of Ryan's current-year capital loss carryback/carryforward is a A. 1,000 short term capital loss B. 1,000 long -term capital loss C. 7,000 short term capital loss D. 3,000 long term capital loss and a 4,000 short term capital loss
C. 7,000 short term capital loss
16.5.14 Carey Corporation, a calendar-year taxpayer, employs the allowance method for its bad debts for financial reporting purposes. The credit balance in the allowance account was $100,000 on December 31 of last year. On December 31 of the current year, Carey determined that a reasonable allowance would be $87,500. Carey wrote off $75,000 against the allowance account during this year. Carey's current-year deduction for bad debt expense on its federal income tax return is A. 100,000 B. 87,500 C. 75,000 D. 62,500
C. 75,000
16.10.14 During its first year of operations, Laser Corporation incurred an operating loss of $50,000 and a long-term capital loss of $8,000. In Year 2, the corporation had ordinary taxable income totaling $125,000, a net short-term capital gain of $10,000, and a net long-term capital gain of $15,000. Laser's taxable income, classified by type of tax treatment, for Year 2 is A. 67,000 ordinary income and 25,000 long term capital gain B. 75,000 ordinary income and 17,000 long term capital gain C. 75,000 ordinary income , 2,000 short term gain , and 15,000 long term capital gain D. 85,000 ordinary income and 7,000 long term capital gain
C. 75,000 ordinary income , 2,000 short term gain , and 15,000 long term capital gain
16.12.18 Bender Corporation's retained earnings balance at January 1 of the current year was $600,000. During the year, Bender paid cash dividends of $150,000 and received a federal income tax refund of $26,000 (which was not included in book income) as a result of an IRS audit of Bender's tax return from 3 years ago. Bender's net income per books for the current year ended December 31 was $274,900 after deducting federal income tax of $73,075. How much should be shown in the reconciliation Schedule M-2 of Form 1120 as Bender's retained earnings at December 31? A. 600,900 B. 724,900 C. 750,900 D. 900,900
C. 750,900
16.12.17 In the current year, Strong Corporation had net income per books of $65,000, tax-exempt interest of $1,500, excess contributions of $3,000, excess tax depreciation over book depreciation of $4,500, premiums paid on term life insurance on corporate officers of $10,000 (Strong is the beneficiary), and accrued federal income tax of $9,700. Based on this information, what is Strong Corporation's taxable income as would be shown on Schedule M-1 of its corporate tax return? A. 58,700 B. 61,700 C. 81,700 D. 93,700
C. 81,700
16.5.5 Corporation H, a calendar-year, accrual-basis taxpayer, distributed shares of Corporation B stock to H's employees in lieu of salaries. The salary expense would have been deductible as compensation if paid in cash. On the date of the payment, H's adjusted basis in the Corporation B stock distributed was $15,000, and the stock's fair market value was $85,000. What is the tax effect to Corporation H? A. 85,000 deductions B. 15000 Deductions C. 85,000 deductions and a 70,000 recognized gain D. 15,000 deduction and a 70,000 recognized gain
C. 85,000 deductions and a 70,000 recognized gain
16.12.19 Corporation T's records reflect the following information: Net income per books $50,000 Federal income tax 8,500 Refund of prior year's income tax 1,000 Contributions carryover from prior year 300 Increase in reserve for contingencies 1,200 Unappropriated retained earnings at beginning of year 40,000 Cash dividends paid 2,000 Stock dividends paid 1,500 Tax-exempt interest 3,500 Based on this information and using generally accepted accounting principles, what is T's unappropriated retained earnings balance at the end of the year? A. 74,000 B. 77,800 C. 85,300 D. 86,300
C. 85,300
16.8.10 Corporation D donated meat products inventory with a cost of $8,500 and a fair market value of $10,000 to a public charity. The conditions regarding the special rule on appreciation have been met (i.e., the charity used the inventory for the care of the needy). D's taxable income before the contribution deduction is $95,000. What is D's allowable contribution deduction? A. 750 B. 8500 C. 9250 D. 9500
C. 9250
16.9.7 Which one of the following statements about a current-year corporate net operating loss (NOL) is true? A. The carryback period may be forgone and the carryforward period increased to 22 years B. A dividends -received deduction may not create, nor may it add to, an NOL C. A corporation does not make adjustments to its NOL for nonbusiness deductions. D. If the corporation elects to carry back the current year loss, the immediately prior taxable year would be the first year to which the loss would be carried
C. A corporation does not make adjustments to its NOL for nonbusiness deductions.
16.12.11 In the reconciliation of income per books with income per return, A. Only temporary differences are considered B. Only permanent differences are considered C. Both temporary and permanent differences are considered D. Neither temporary nor permanent differences is considered
C. Both temporary and permanent differences are considered
16.10.12 Smyth Corp. has both a capital loss and a net operating loss for the current year. The capital loss A. Cannot be deducted currently but can be carried forward for 5 years B. Is included in the net operating loss C. Cannot be deducted currently but can be carried back 3 years, then carried forward 5 years. D. Is treated as an ordinary loss
C. Cannot be deducted currently but can be carried back 3 years, then carried forward 5 years.
16.8.2 In the current year, Rock Corporation made contributions totaling $20,000 to qualified charitable organizations. Due to the 10% limit, it could only deduct $15,000 of the contributions on its return. Which of the following statements is true regarding the excess contributions of $5,000? A. Charitable contributions in excess of the limit may, subject to limitations, be carried back to each of the 3 prior years B. A contribution carryover, subject to limitations, is used before the deduction of contributions for the carryover year C. Charitable contributions in excess of the limit may, subject to limitations, be carried over to each of the following 5 years. D. Charitable contributions in excess of the limit may, subject to limitations, be carried over to each of the following 20 years.
C. Charitable contributions in excess of the limit may, subject to limitations, be carried over to each of the following 5 years.
16.1.1 Donna exchanges property having an $18,000 adjusted basis and a $35,000 fair market value for 70 shares of the newly created Table Corp stock. Evelyn exchanges legal services worth $15,000 for the remaining 30 shares of Table's stock. Which of the following is true? A. Evelyn recognizes no income, and the exchange is nontaxable B. Evelyn must recognize $15,000 of income but Donna's transfer of property qualifies under IRC Sec 351 as nontaxable C. Evelyn must recognize $15,000 of income and Donna must recognize $17,000 gain on the exchange D. The exchange qualifies as a nontaxable exchange under IRC SEC 351
C. Evelyn must recognize $15,000 of income and Donna must recognize $17,000 gain on the exchange
16.4.1 All of the following items can be amortized as a qualified organizational expense except A. fee paid to a state of incorporation B. Expense of organizational meeting of directors C. Expense for issuance or sale of stock D. Organizational meetings of shareholder
C. Expense for issuance or sale of stock
16.13.4 In each of the following situations a form 7004 Application for automatic extension of time to file certain business income tax, Information and other returns was properly and timely filed for a C corporation. Which one of the following tax returns was filed late Tax year ended, Date filed A. Nov 30, year 1 ; Sep 15 year 2 B. August 31 year 1 ; June 2 year 2 C. July 31 year 1 ; May 30 year 2 D. Dec 31 year 1 ; Sep 15 year 2
C. July 31 year 1 ; May 30 year 2
16.1.3 Aaron transferred property worth $75,000 and services worth $25,000 to the BJ Corporation. In exchange, he received stock in BJ valued at $100,000. Immediately after the exchange, Aaron owned 80% of the only class of outstanding stock. Which of the following is true with regard to Aaron's treatment of this transaction? A. Short term capital gain of $100,000 B. Short term capital gain of $25,000 C. Ordinary income of $25,000 D. No income until the stock is sold
C. Ordinary income of $25,000
16.3.2 On January 2 of the current year, City M gave the A Corporation $200,000 cash to purchase a building within the city limits. The building was purchased on June 1 of the same year for $150,000. What is the correct method of handling the excess money received? A. Long-term capital gain. B. Short-term capital gain C. Reduction of basis in other assets. D. Nontaxable contribution to capital with $50,000 that is not spent being added to the basis of the building that was purchased.
C. Reduction of basis in other assets.
16.1.6 Paul, Randy and Steve form North Corporation by transferring the following properties: ...........................BASIS.. FMV..... RECEIVED Paul Machine. $10,000 $12,500 25 SHARES Randy Land ...$18,000 $25,000 40 SHARES + $5,000 north note Steve Cash .....$17,500 $17,500 35 SHARES The 100 shares represent all of the outstanding stock of North Corporation. Using the rules for IRC sect 351, which of the following is correct? A. the exchange does not qualify for IRC Sec 351 nontaxable treatment B. The exchange qualifies for IRC Sec 351 and is nontaxable except that Randy must recognize $7,000 of capital gain C. The exchange qualifies for IRC Sec 351 and is nontaxable except Randy must recognize $5,000 of capital gain D. The exchange qualifies for IRC Sec 351 and is nontaxable except that randy must recognize $5,000 of ordinary income
C. The exchange qualifies for IRC Sec 351 and is nontaxable except Randy must recognize $5,000 of capital gain
16.5.7 A $1 million limitation has been placed on the compensation that is deductible to employers. which one of the following statements is false? A. the limitation applies for both the regular income tax and the alternative minimum tax calculation B. The limitation applies only to publicly held companies C. The limitation applies to all compensation earned by any employee of the corporation D. The limitation does not change the reporting of the disallowed compensation amount by the employee
C. The limitation applies to all compensation earned by any employee of the corporation
16.12.1 All of the following statements about the current corporate tax rates are false except A. Corporate taxable income is subject to tax under an eight bracket graduated rate system B. The tax rate is 15% of the first 50,000 of taxable income C. The tax rate is 21% D. The largest U.S. corporations pay a 35% marginal tax rate
C. The tax rate is 21%
16.6.1 All of the following are true except A. An original issue discount must be included in income as it accrues over the term of the debt instrument, whether or not any payments are received from the issuer B. The original issue discount rules do not apply to US savings bonds C. the amount of the original issues discount is the difference between the stated redemption price at maturity and the par value D. An original issue discount can be treated as zero if it is less than one-fourth of 1%(.0025) of the stated redemption price at maturity multiplied by the number of years from the date of issue to maturity
C. the amount of the original issues discount is the difference between the stated redemption price at maturity and the par value
16.13.6 Martin, a Corporation's bookkeeper, told the owner that she could not have all the tax information ready for the accountant immediately after the tax year end of june 30. She was having surgery and asked if the tax return could be postponed. The accountant's answer should be: A. No, the return must be filed by sep 15 B. yes, we can request an extension until oct 15 C. yes, we cab request an extension until the following April 15 D. No, the return must be filed by oct 15
C. yes, we cab request an extension until the following April 15
16.10.6 Corporation X is a calendar-year taxpayer which began operations in Year 1. It incurred the following during the years indicated: Net Long-Term Capital Gain (Loss) / Net Short-Term Capital Gain (Loss) Year 1. $(1,000) / 0 Year 2. 0 / $(2,000) Year 3. $2,000 / 0 Year 4. 0 / $(3,000) Year 5 $1,000 0 Year 6 0 $(1,000) What is the total carryover to Year 7 identified as to year and amount? A. $(1,000): Year 3 - $2,000. Year 4 - $(3,000) B. $(2,000); Year 4 - $(3,000). Year 5 - $1,000 C. $(4,000); Year 1 - $(1,000), Year 4 - $(3,000) D. $(4,000); Year 4 - $(3,000), Year 6 - $(1,000).
D. $(4,000); Year 4 - $(3,000), Year 6 - $(1,000).
16.5.11 On December 31, Year 1, ABC Corp an accrual basis personal service corp (PSC), accrued a $25,000 to Mrs. Adams, an employee-owner. She owns 15% of the outstanding stock of the corp. Mrs. Adams is a cash-basis taxpayer and received the bonus on April 15, Year 2. ABC Corp, a calendar-year taxpayer, may take a deduction on its Year 1 return of which of the following amounts? A. $25,000 B. $21,250 C. $3,750 D. $0
D. $0
16.12.12 Wright Corporation reported $100,000 of book income before income taxes for the current year. The income statement disclosed the following information: Christmas gifts to 40 customers at $100 each. Dividends of $20,000 received from Morley, Ltd., a 20%-owned corporation that is not subject to United States income tax. Insurance premiums of $15,000 on a policy insuring the life of the president of the corporation, under which Wright Corporation is the beneficiary. What should Wright report as its taxable income for the current year? A. $98,000 B. $103,000 C. $115,000 D. $118,000
D. $118,000
16.8.1 Which of the following contributions made by Natvale Corporation, a domestic corporation, is not deductible for federal income tax purposes? A. 100 shares of Natvale's preferred stock to Soo valley community college: the stock has been held in the treasury (60 pershare FMV on the date of the gift) B. 2,5000 to the lcoal humane society C. 7,500 to the american red cross D. $2,000 to Chilean Adoptions, a private foundation in Chile that operates orphanages.
D. $2,000 to Chilean Adoptions, a private foundation in Chile that operates orphanages.
16.14.3 On March 31, Govan, a calendar year corporation determined its estimated tax liability of the previous year to be 12,000. It should have made estimated tax payments of A. $4,000 no later than the 15th day of the fourth, sixth and ninth months B. $3,000 no later than the 15th day of the fourth, seventh, and 10th months of the current year and first month of the following year C. $3,000 no later than the 15th day of the third, sixth, ninth, and 12th months D. $3,000 no later than the 15th day of the fourth. .sixth, ninth, and 12th months
D. $3,000 no later than the 15th day of the fourth. .sixth, ninth, and 12th months
16.10.8 In 2018, Capital Corporation reported gross profits of $150,000, deductible expenses of $28,000, and a net capital loss of $10,000. Capital reported the following net capital gains during 2015-2017: Year / Net Capital Gains 2015 / $5,000 2016 / 1,000 2017 / 3,000 What is the amount of Capital's capital loss carryover to 2019? A. 10,000 B. 7,000 C. 5,000 D. 1,000
D. 1,000
16.8.8 In Year 2, Green Corporation had a net operating loss and has a net operating loss carryback of $4,400 available to Year 1. Green had the following income and expenses for Year 1 when it was originally reported: Gross profit $205,000 Other deductions (including $1,700 of charitable contributions) 194,200 What is Green's deduction for contributions when the Year 1 taxable income is recomputed? A. 640 B. 810 C. 1,080 D. 1,250
D. 1,250
16.14.2 Finbury Corporation's taxable income for the year ended Dec 31 year 2 was 2 million. Finbury's year 1 income tax liability was 600,000. For Finbury to escape the estimated tax underpayment penalty for the year ending dec 321, year 2 its total year 2 estimated tax payments must equal at least. A. 100% of its Year 1 tax liability B. 90% of its year 2 tax liability C. 97% of its Year 2 tax liability D. 100% of its Year 2 tax liability
D. 100% of its Year 2 tax liability
16.9.1 For the current year, Lakeside Corporation had the following results: Gross income from operations $200,000 Dividends from a 25%-owned domestic corporation for which a 65% deduction is allowed 50,000 Operating expenses 340,000 Charitable contributions 20,000 NOL carryforward 30,000 What is the amount of Lakeside's net operating loss for the current year before NOL carryforward? A. 110,000 (250,000-360,000) B. 90,000 (250,000-340,000) C. 80,000 (50,000 +30,000) D. 122,500
D. 122,500
16.9.4 Items that pertain to Ward Corporation for the year are presented below. Taxable loss b4 capital transactions $(15,000) Short-term capital gains 10,000 Long-term capital losses (30,000) For the year, Ward Corporation has a net operating loss of A. 35,000 B. 15,000 and a cpaital loss deduction of 3,000 C. 5,000 and a long term capital loss of 30,000 D. 15,000 and a long term capital loss of 20,000
D. 15,000 and a long term capital loss of 20,000
16.2.4 Sam owns 100% of M Corporation's single class of stock. Sam transfers land and a building having a $30,000 and $100,000 adjusted basis, respectively, to M Corporation in exchange for additional M Corporation common stock worth $200,000 and IBM stock worth $20,000. The IBM stock had a $5,000 basis on M Corporation's books. Peter transfers $50,000 in cash for 15% of the M Corporation common stock. What amount of gain or loss is recognized by Sam and M Corporation on the exchange? A. 0, 0 B. 0, 15000 C. 20000, 0 D. 20000, 15000
D. 20000, 15000
16.5.8 Phantom Corp, a cash-method corporation, paid the following educational expenses for its employees: Tuition: $15,000 Textbooks: 5,000 Travel: 3,000 Laboratory fees: 1,000 The education was not required of the employees to maintain or improve their skills in their present positions. Phantom can claim a deduction for these expenses of: A. 0 B. 15,000 C. 21,000 D. 24,000
D. 24,000
16.6.2 On august 1 of this year corporation a which is a calendar year taxpayer issued original issue discount bonds with a face value of 500,000 and carrying a 11% coupon rate. The bonds had a 4 year maturity and issue price of 456,300. What is A's original issue discount deduction for the current year assuming a current market yield of 14%? A. 10,925 B. 8,882 C. 4,579 D. 3,723
D. 3,723
16.12.6 Caddo Corporation is owned by three engineers, all of whom are employed by the corporation. It primarily performs civil engineering activities with respect to construction projects. During the current year, Caddo Corporation earned $150,000 of taxable income. Caddo has not elected to be taxed under Subchapter S. What is Caddo's current-year regular tax liability? A. 30,000 B. 0 C. 52,500 D. 31,500
D. 31,500
16.12.20 Dantor Corporation, a domestic corporation, has $250,000 of taxable income from business conducted solely in the U.S. Dantor also operates two foreign branch offices. The Hamburg branch has $50,000 of taxable income related to business conducted solely in Germany. The Rome branch has $150,000 of taxable income, of which 50% is related to business conducted solely in Italy and 50% is related to business conducted solely in the U.S. Dantor's income subject to taxation in the U.S. is A. 250,000 B. 325,000 C. 400,000 D. 450,000
D. 450,000
16.10.9 General Corporation, a calendar-year taxpayer, reported taxable income of $100,000, all ordinary, on its corporate income tax return. The company has discovered that it inadvertently omitted a long-term capital gain of $15,000 from the return. General's income tax liability should have been larger by A. 4,200 B. 5,100 C.5,250 D. 5,850
D. 5,850
16.5.4 Mr b is the nonshareholder president of corporation m he paid 50 a share for 100 shares of m stock that has a par value of 60 and a fair market value of 100. The stock was subject to a substantial risk of forfeiture at the time of purchase on Jan 28 year 1. Mr b sold this stock to his wife on feb 1 year 1 for 10 a share. On feb 28 year 2 the stock was no longer subject to a substaintial risk of forfeiture and had a fair market value of 120 a share. Assume that M withholds any neccessary amount on the portion of income considered compensation to Mr. B. How much can corpoartio M deduct on this transaction year 2? A. 0 B. 1000 C. 5000 D. 6000
D. 6000
16.6.7 Andi corp issued 1 million face amount of bonds 5 years ago and established a sinking fund to pay the debt at maturity. The bondholders appointed an independent trustee to invest the sinking fund contributions and to administer the trust. In the current year, the fund earned 60,000 in interest on bank deposits and 8,000 in net long term capital gains. All of the trust income is accumulated with Andi's periodic contributions so that the aggregate amount will be sufficient to pay the bonds when the mature. What amount of trust income was taxable to Andi in the current year? A. 0 B. 8,000 C. 60,000 D. 68,000
D. 68,000
16.9.2 Based on the following information, what is the amount of Corporation X's net operating loss for the current year? Gross income from business operations $500,000 Dividends from 20%-owned taxable domestic corporations 150,000 Business expenses 625,000 Last year's net operating loss (available for carryover to the current year) 100,000 A. 0 B. 16,250 C. 75,000 D. 72,500
D. 72,500
16.10.10 In Year 1, Corporation E had a net short-term capital gain of $15,000, a net long-term capital gain of $8,000, and an $11,000 short-term capital loss carryback from Year 3. In Year 1, what is E's net long-term capital gain after the carryback? A. 0 B. 4,000 C. 6,000 D. 8,000
D. 8,000
16.1.2 Jones incorporated a sole proprietorship by exchanging all the proprietorship's assets for the stock of Nu Co., a new corporation. To qualify for tax-free incorporation, Jones must be in control of Nu immediately after the exchange. What percentage of Nu's stock must Jones own to qualify as "control" for this purpose? A. 50% B. 51% C. 66.67% D. 80%
D. 80%
16.2.2 Ms. D transferred the following assets to Corporation E: Adjusted Basis Fair Market Value Cash 1000 1000 Equip 2000 1500 Land 4,500 6000 In exchange Ms D received 51% of E's only class of outstanding stock. The stock had no established value. What is Corporation E's total basis in all the assets received assuming that Ms D recognized the correct amount of gain on the exchange? A. 6000 B. 7000 C. 7500 D. 8500
D. 8500
16.5.13 In the case of a corporation that is not a financial institution, which of the following statements is true with regard to the deduction for bad debts? A. Either the reserve method or the direct charge-off method may be used, if the election is made in the corporation's first taxable year. B. On approval from the IRS, a corporation may change its method from direct charge-off to reserve. C. If the reserve method was consistently used in prior years, the corporation may take a deduction for a reasonable addition to the reserve for bad debts. D. A corporations is required to use the direct charge-off method rather than the reserve method.
D. A corporation is required to use the direct charge-off method rather than the reserve method.
16.12.10 Which of the following determinations made in corporate financial accounting may need adjustment to conform with tax accounting requirements? A. Dividend revenue from other domestic corporations B. Charitable contributions expense C. Insurance expense D. All of the answers are correct.
D. All of the answers are correct.
16.4.5 When determining the proper treatment of a corporation's organizational and start-up costs, which of the following is true? A. The election must be made on the tax return for the first year you are in business, even if the return is not properly filed B. The period of amortization may be 60 months or more C. Costs associated with the transfers of assets to the corporation are amortizable organizational costs D. Amortization of organization and start-up costs start with the month the business operations begin
D. Amortization of organization and start-up costs start with the month the business operations begin
16.6.4 shaney corporation repurchase its own outstanding bond in the open market for 258,000 on May 31 of the current year. The bonds were originally issued on May 5 3 years ago at face value of 250,000. For its tax year ending dec 31 of the current year, Shaney should report A. Neither income nor a deduction B. A capital gain of 8,000 C. A capital loss of 8,000 D. An ordinary deduction of 8,000
D. An ordinary deduction of 8,000
16.7.1 Which of the following qualifies for the dividends-received deduction? A. Dividends received from a foreign corporation that earned all of its income from sources outside the US B. Dividends on deposits in a mutual savings bank C. Dividends paid from real estate investment trust ordinary income D. Dividends from taxable domestic corporation
D. Dividends from taxable domestic corporation
16.1.5 Which of the following is not taken into account when determining if a gain or loss should be recognized on the transfer of property to a corporation in exchange for a controlling interest in stock of the corporation? A. Ownership of at least 80% of the total combined voting power of all stock entitled to vote B. Ownership of at least 80% of the total number of shares of all other classes of stock C. Receipt of money in addition to stock D. Fair market value of property transferred
D. Fair market value of property transferred
16.4.2 Which of the folowing are organizational costs? A. Expenses of temporary directors; survey of potential markets B. Advertisements for the opening of business; state incorporation fees C. Deductible research and experimental costs; set-up accounting services D. Legal services for drafting the charter; cost of organizational meetings
D. Legal services for drafting the charter; cost of organizational meetings
16.9.5 Yuma Corporation had a net operating loss in the current year. The net operating loss A. Can only be carried back to each of the 3 years before the current year and not carried forward B. May be carried back to each of the 3 years before the current year and then carried forward to each of the 5 years after the current year C. Must be carried back to each of the 3 years before the current year and hen carried forward to each of the 7 years after the current year D. May not be carried back though it may be carried forward indefinitely.
D. May not be carried back though it may be carried forward indefinitely.
16.10.13 The following information was taken from Wolverine Corporation's current-year federal income tax return: Gross income $700,000 DRD 60,000 Other business deductions 750,000 Net short-term capital loss 5,000 Net long-term capital loss 10,000 Which one of the following most accurately reflects Wolverine's federal income tax position for the current year? A. Net operating loss of $50,000; the dividends received deduction and the capital losses are separate carryback and carryover items B. Net operating loss of $50,000; only the capital losses are separate carryback and carryover items C. Net operating loss of $65,000 the dividends received deduction is not allowed and cannot be carried over D. Net operating loss of $110,000; the capital losses are separate carryback and carryover items.
D. Net operating loss of $110,000; the capital losses are separate carryback and carryover items.
16.5.2. Which one of the following items would not be fully deductible by a corporation? A. Group term life insurance premiums where the average policy had a face value of $80,000 B. Entertainment of employees at a Christmas party on the employer's premises. C. Depreciation on luxury cars used entirely for business purposes. D. Parking fines.
D. Parking fines.
16.14.5 The Snow Corporation, a calendar-year taxpayer, estimates at the end of March, Year 1 that its federal income tax for Year 1 will be $800,000. It pays $200,000 of estimated tax by April 15, Year 1, and pays another 200,000 on June 15, Year 1. At the end of august , a recalculation shows that its tax is expected to be 900,000. Which of the following is true ? A. Payment due Sep 15 - 200,000; payment due Dec 15 - 300,000 B. Payment due Sept 15 - 250,000; payment due Dec 15 - 250,000 C. Payment due Sept 15 - 200,000; payment due Dec 15 - 200,000; Payment due Mar 15, Year 2 100,000 D. Payment due Sept 15 - 275,000; payment due Dec 15 - 225,000
D. Payment due Sept 15 - 275,000; payment due Dec 15 - 225,000
16.5.3 Able corporation is owned entirely by Mr a able pays Mr a 300,000 in salary of the current year. AS a result of an IRS audit, reasonable compensation for Mr. A is determined to be 180,000. Which of the following statements regarding Mr A's compensation is false A. The 120,000 of unreasonable compensation is dividend to Mr A B. The 120,000 of unreasonable compensation cannot be deducted by Able C. The 120,000, if repaid my Mr. A as part of a repayment agreement can be deducted by Mr. A in the year in which the repayment occurs D. The $120,000 , if not repaid by Mr. A, is treated as a capital contribution made by Mr. A to Able
D. The $120,000 , if not repaid by Mr. A, is treated as a capital contribution made by Mr. A to Able
16.7.4 For a domestic corporation to deduct a percentage of the dividends it receives from a foreign corporation, certain tests must be met. Which of the following conditions need not be present? A. The domestic corporation owns at least 10% of the foreign corporation B. The foreign corporation has income effectively connected with a trade or business in the US C. The corporation is not foreign personal holding company D. The foreign corporation has derived income effectively connected with its U.S. business amounting to at least 50% of its gross income from all sources for a 36-month period.
D. The foreign corporation has derived income effectively connected with its U.S. business amounting to at least 50% of its gross income from all sources for a 36-month period.
16.10.2 With regard to the treatment of capital losses by a corporation other than an S corporation, which of the following statements is false? A. If a corporation has a net capital loss, if cannot deduct the loss in the current year. B. When a corporation carries a long term net capital loss to another year, it is treated as a short term loss C. A corporation may not carry a capital loss form or to, a year during which it is an S corporation D. When figuring a current-year net capital loss, you must include any capital loss carried from another year.
D. When figuring a current-year net capital loss, you must include any capital loss carried from another year.
16.10.7 Which one of the following statements is applicable to corporate capital gains for the current tax year? A. Long Term capital gains are eligible for an alternative tax rate 20% B. If capital losses exceed capital gains, only $3,000 of the excess is currently deductible C. Capital gains are excluded in computing the 10% of income limitation for charitable contribution purposes. D. Whether carried forward or backward, excess long-term capital losses are treated as short-term capital losses for the year to which they are carried.
D. Whether carried forward or backward, excess long-term capital losses are treated as short-term capital losses for the year to which they are carried.
