Tax Corp Chapter 3
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- 1.Creek Corporation had $210,000 of active income, $45,000 of portfolio income, and a $230,000 passive activity loss during the year. If Creek is a closely held C corporation that is not a personal service corporation (PSC), it can deduct $230,000 of the passive activity loss in the year.
- A.
True
- B.
False
- 2.For 2019, Mindy is the newly hired chief executive officer of Snow Corporation, a publicly traded corporation. For the current year, her compensation package included cash compensation of $3,500,000, taxable fringe benefits of $210,000, a bonus tied to company performance of $4,000,000, and nontaxable fringe benefits of $120,000. How much of Mindy's total compensation package can Snow Corporation deduct?
- A.
a.$1,000,000
- B.
b.$1,120,000
- C.
c.$7,830,000
- D.
d.$7,500,000
- E.
e.$0
- 3.Oliver is the sole shareholder of a C corporation, and Lonnie owns a sole proprietorship. Both businesses were started in 2019, and each business has a long-term capital gain of $20,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is false?
- A.
a.Oliver's corporation does not receive a preferential tax rate on the $20,000 long-term capital gain.
- B.
b.Oliver must report a $20,000 long-term capital gain on his 2019 tax return.
- C.
c.Oliver's corporation pays a tax of $4,200 on the capital gain.
- D.
d.Lonnie receives a preferential tax rate on a long-term capital gain of $20,000.
- E.
e.Lonnie must report a $20,000 long-term capital gain on his 2019 tax return.
- 4.No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.
- A.
True
- B.
False
- 5.Tundra Corporation, a calendar year C corporation, was formed and began operations on July 1, 2019. The following expenses were incurred during the first tax year (July 1 through December 31, 2019) of operations: Expenses of temporary directors and of organizational meetings $9,000 Fee paid to the state of incorporation 1,000 Accounting services incident to organization 2,500 Legal services for drafting the corporate charter and bylaws 3,500 Expenses incident to the printing and sale of stock certificates 4,000 Assuming a § 248 election, what is Tundra's deduction for organizational expenditures for 2019?
- A.
a.$533
- B.
b.$5,367
- C.
c.$5,500
- D.
d.$5,000
- E.
e.$0
- 6.What is the effect of a corporation's method of accounting on the corporation's use of the organizational expenditures deduction under § 248?
- A.
a.Using the deduction and the cash method of accounting is generally counterproductive.
- B.
b.The deduction tends to yield better tax results when the corporation uses the cash method of accounting.
- C.
c.The corporation's method of accounting is of no consequence.
- D.
d.The deduction tends to yield better tax results when the corporation uses the accrual method of accounting.
- E.
e.Using the deduction and the accrual method of accounting is generally counterproductive.
- 7.Johnny, an individual, incorporates two separate businesses that he owns by establishing two new corporations on January 1, 2019. Each corporation generates taxable income of $50,000. Each corporation will have a tax liability of $7,500 ($50,000 × 15%).
- A.
True
- B.
False
- 8.During 2019, Savannah Corporation, a calendar year C corporation, had operating income of $510,000, operating expenses of $370,000, a short-term capital loss of $25,000, and a long-term capital gain of $80,000. How much is Savannah's tax liability for 2019?
- A.
a.$47,250
- B.
b.$101,850
- C.
c.$123,900
- D.
d.$107,100
- E.
e.$40,950
- 9.The AMT rules are the same for individuals and corporations.
- A.
True
- B.
False
- 10.As a result of the TCJA of 2017, high-income individuals might consider the corporate entity form as a means to reduce their tax burden.
- A.
True
- B.
False
- 11.In any single year, a corporation can be subject to both the accumulated earnings tax and the personal holding company tax.
- A.
True
- B.
False
- 12.A corporation must make estimated tax payments unless its tax liability can reasonably be expected to be less than $1,000.
- A.
True
- B.
False
- 13.Dalmatian Corporation acquired intellectual property in 2019 and expensed amortization of $101,000 on its financial statements, which were prepared according to GAAP. For Federal income tax purposes, Dalmatian deducted $131,000. How much tax return amortization would Dalmatian Corporation report on Part III of Schedule M–3?
- A.
a.$20,000
- B.
b.$101,000
- C.
c.$232,000
- D.
d.$131,000
- E.
e.$0
- 14.Markson, the sole shareholder of Garnet Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Markson would prefer to have the payment treated as salary instead of a dividend.
- A.
True
- B.
False
- 15.Summer Corporation had operating income of $100,000, a long-term capital loss of $6,000, and a long-term capital gain of $1,000. As a result of these transactions, Summer has no capital loss to carry back or carry forward.
- A.
True
- B.
False
- 16.Corporate-source income maintains its identity as it passes through the corporation to the shareholders.
- A.
True
- B.
False
- 17.For 2019, Mindy is the newly hired chief executive officer of Snow Corporation, a publicly traded corporation. For the current year, her compensation package included cash compensation of $3,500,000, taxable fringe benefits of $210,000, a bonus tied to company performance of $4,000,000, and nontaxable fringe benefits of $120,000. How much of Mindy's total compensation package can Snow Corporation deduct?
- A.
a.$1,000,000
- B.
b.$0
- C.
c.$1,120,000
- D.
d.$7,500,000
- E.
e.$7,830,000
- 18.Creek Corporation had $210,000 of active income, $45,000 of portfolio income, and a $230,000 passive activity loss during the year. If Creek is a closely held C corporation that is not a personal service corporation (PSC), it can deduct $230,000 of the passive activity loss in the year.
- A.
True
- B.
False
- 19.Herman is the sole owner of Cliff Company. For 2019, the only income of Cliff was a long-term capital gain of $25,000. The business made no distributions during the year to Herman. Which of the following statements is false?
- A.
a.If Cliff Company is a C corporation, Herman will report none of the $25,000 long-term capital gain on his personal income tax return.
- B.
b.If Cliff Company is a sole proprietorship, Herman must report the $25,000 long-term capital gain on his personal income tax return.
- C.
c.If Cliff Company is an S corporation, a preferential tax rate applies to the $25,000 long-term capital gain.
- D.
d.If Cliff Company is a C corporation, a preferential tax rate does not apply to the $25,000 long-term capital gain.
- E.
e.If Cliff Company is an S corporation, Herman will report none of the $25,000 long-term capital gain on his personal tax return.
- 20.On December 31, 2019, Topaz, Inc., an accrual basis C corporation, accrues a $90,000 bonus to Barry, its vice president and a 70% shareholder. Topaz pays the bonus to Barry, who is a cash basis taxpayer, on March 15, 2020. Topaz deducts the bonus in 2020, the year in which it is included in Barry's gross income.
- A.
True
- B.
False
- 21.Oliver is the sole shareholder of a C corporation, and Lonnie owns a sole proprietorship. Both businesses were started in 2019, and each business has a long-term capital gain of $20,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is false?
- A.
a.Oliver must report a $20,000 long-term capital gain on his 2019 tax return.
- B.
b.Oliver's corporation pays a tax of $4,200 on the capital gain.
- C.
c.Oliver's corporation does not receive a preferential tax rate on the $20,000 long-term capital gain.
- D.
d.Lonnie receives a preferential tax rate on a long-term capital gain of $20,000.
- E.
e.Lonnie must report a $20,000 long-term capital gain on his 2019 tax return.
- 22.Gully, a C corporation, had $115,000 net income from operations, a short-term capital gain of $15,000, and a $10,000 short-term capital loss in 2019. Gully Corporation's taxable income is $115,000.
- A.
True
- B.
False
- 23.Ruby Corporation, a calendar year, accrual method C corporation, has two cash method, calendar year shareholders who are unrelated to each other. Cole owns 55% of the stock, and Martin owns the remaining 45%. During 2019, Ruby paid a salary of $200,000 to each shareholder. On December 31, 2019, Ruby accrued a bonus of $50,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 1, 2020, what is Ruby Corporation's 2019 deduction for the above amounts?
- A.
a.$450,000
- B.
b.$250,000
- C.
c.$0
- D.
d.$500,000
- E.
e.$400,000
- 24.Entities with average annual gross receipts of $25 million or less for the most recent three-year period can use the _____ method to account for inventories.
- A.
a.Capital
- B.
b.Limited hybrid
- C.
c.Accrual
- D.
d.Hybrid
- E.
e.Cash
- 25.For a net operating loss arising in 2019, the NOL can be carried back two years and forward 20 years.
- A.
True
- B.
False
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