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Exam 2: Corporations: Introduction and Operating Rules

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Question 41

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

A) A corporation must hold stock for more than 90 days in order to qualify for a deduction with respect to dividends on such stock.
B) The taxable income limitation does not apply with respect to the 100% deduction available to members of an affiliated group.
C) If a stock purchase is financed 75% by debt,the deduction for dividends on such stock is reduced by 75%.
D) The taxable income limitation does not apply if the normal deduction (i.e. ,70% or 80% of dividends) results in a net operating loss for the corporation.
E) None of the above.

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

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Question 42

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Briefly describe the charitable contribution deduction rules applicable to C corporations.

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Tax year of deduction: In general,a char...

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Question 43

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George Judson is the sole shareholder and employee of Black Corporation,a C corporation that is engaged exclusively in engineering services.During the year,Black has gross revenues of $420,000 and operating expenses (excluding salary) of $200,000.Further,Black Corporation pays George a salary of $190,000.The salary is reasonable in amount and George is in the 35% marginal tax bracket irrespective of any income from Black.Assuming that Black Corporation distributes all after-tax income as dividends,how much total combined income tax do Black and George pay in the current year? (Ignore any employment tax considerations. )

A personal service corporation with taxable income of $100,000 will have a tax liability of $22,250.

Jade Corporation,a C corporation,had $100,000 operating income and $40,000 operating expenses during the year.In addition,Jade had a $2,000 long-term capital gain and a $10,000 short-term capital loss.Compute Jade's taxable income for the year.

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%).

Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.

Because of the taxable income limitation,no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.

Quail Corporation is a C corporation with net income of $125,000 during the current year.If Quail paid dividends of $25,000 to its shareholders,the corporation must pay tax on $100,000 of net income.Shareholders must report the $25,000 of dividends as income.

Rose is a 50% partner in Wren Partnership.During the year,Wren earned net profit of $100,000 ($210,000 gross income - $110,000 operating expenses)and distributed $20,000 to each partner.Rose must report Wren Partnership profit of $20,000 on her Federal income tax return.

During the current year,Kingbird Corporation (a calendar year C corporation) had the following income and expenses: On October 1,Kingbird Corporation made a contribution to a qualified charitable organization of $9,000 in cash (not included in any of the above items) .Determine Kingbird's charitable contribution deduction for the current year.

In the current year,Plum Corporation,a computer manufacturer,donated 100 laptop computers to a local school district (a qualified educational organization) .The computers were constructed by Plum earlier this year,and the school district allocated the computers among its various schools where they will be used for educational purposes.Plum's basis in the computers is $50,000,and their fair market value is $120,000.What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation) ?

Flycatcher Corporation,a C corporation,has two equal individual shareholders,Nancy and Pasqual.In the current year,Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder.Regardless of any tax consequences resulting from their interests in Flycatcher,Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket.With respect to the current year,which of the following statements is incorrect?

Emerald Corporation,a calendar year C corporation,was formed and began operations on April 1,2012.The following expenses were incurred during the first tax year (April 1 through December 31,2012) of operations: Assuming a § 248 election,what is the Emerald's deduction for organizational expenditures for 2012?

Eagle Company,a partnership,had a short-term capital loss of $10,000 during the year.Aaron,who owns 25% of Eagle,will report $2,500 of Eagle's short-term capital loss on his individual tax return.

Ostrich,a C corporation,has a net short-term capital gain of $20,000 and a net long-term capital loss of $90,000 during 2012.Ostrich also has taxable income from other sources of $1 million.Prior years' transactions included the following:

Jason,an architect,is the sole shareholder of Purple Corporation,a personal service corporation.The corporation paid Jason a salary of $225,000 during its fiscal year ending October 31,2012.How much salary must Purple pay Jason during the period November 1 through December 31,2012,to permit the corporation to continue to use its fiscal year without negative tax effects?

Compare the basic tax and nontax factors of doing business as a partnership,an S corporation,and a C corporation.Circle the correct answers.

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.

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.