CTAX

Question 1

Morris Corporation’s income tax return for 2012 shows deductions exceeding gass income by $75,000. Included in the tax return are the following items:

Net operating loss deduction (carryover from 2011) $13,400

Dividends received deduction $6,600

What is Morris’ net operating loss for 2012?

Answer 1

$61,600

Question 2

Certain adjustments must be made to a corporation’s pre-ACE alternative minimum taxable income (AMTT) to arrive at adjusted current earnings (ACE). Which one of the following adjustments increases pre-ACE AMTT to arrive at ACE?

a. Excess of capital losses over capital gains.
b. 80% dividends-received deduction.
c. Private activity bond interest income.
d. Amortization of organizational expenditures.

Answer 2

Amortization of organizational expenditures.

Question 3

Sec. 1244 stock permits shareholders to deduct an ordinary loss on sale or worthlessness of stock. Which of the following is correct with respect to qualifying for Sec. 1244 ordinary loss treatment?

a. The corporation during the 3-year period before the year of loss received more than of its total gross receipts from royalties, rents, dividends, interest, annuities, and gains from sales or exchanges of stock or securities.
b. The shareholder must be the original holder of stock, and an individual or corporation.
c. The stock can be common or preferred, voting or nonvoting.
d. The amount of ordinary loss is limited to $100,000 ($200,000 on joint return); any excess is treated as capital loss.

Answer 3

The stock can be common or preferred, voting or nonvoting.

Question 4

A corporation’s penalty for underpaying federal estimated taxes is

Answer 4

Not deductible.

Question 5

Cooma Corporation’s book income before income taxes for the year ended December 31, 2012, was $260,000. The company began business during March 2012 and organizational costs of $130,500 were expensed when incurred during 2012 for financial statement purposes. For tax purposes these costs are being written off over the minimum allowable period. For the year ended December 31, 2012, Cooma’s taxable income was

Answer 5

$383,250

Question 6

Which of the following entities may adopt any tax year-end?

a. C corporation.
b. Limited liability company.
c. Trust.
d. S corporation.

Answer 6

C corporation.

Question 7

Which of the following is characteristic of C corporation?

a. Subject to double taxation on profits if dividends are paid.
b. Pays taxes on profits after paying dividends to shareholders.
c. Must have only one class of stock.
d. Includes most privately held businesses.

Answer 7

Subject to double taxation on profits if dividends are paid.

Question 8

Tau Corp. which has been operating since 2008, has an October 31 year-end, which coincides with its natural business year. On May 15, 2012, Tau filed the required form to elect S corporation status. All of Tau’s stockholders consented to the election, and all other requirements were met. The earliest date that Tau can be recognized as an S corporation is

Answer 8

November I, 2012.

Question 9

Stone Corp. has been an S corporation since inception. In each of year I, year 2, and year 3, Stone made distributions in excess of each shareholder’s basis. Which of the following statements is correct concerning these three years?

a. In year I only, the excess distributions are tax-free.
b. In year 3 only, the excess distributions are taxed as capital gain.
c. In all three years, the excess distributions are taxed as capital gain.
d. In year I and year 2 only, the excess distributions are taxed as capital gain.

Answer 9

In all three years, the excess distributions are taxed as capital gain.

Question 10

Corporations A and B combine in qualifying reorganization, and form Corporation C, the only surviving corporation. This reorganization is tax-free to the

a. Shareholders and Corporations
b. Shareholders
c. Neither
d. Corporations

Answer 10

Shareholders and Corporations

Question 11

Prime Corp., which had earnings and profits of $250,000, made a nonliquidating distribution of property to its shareholders as a dividend. This property, which had an adjusted basis of $25,000 and a fair market value of $10,000 at date of distribution, did not constitute assets used in the active conduct of Prime’s business. How much loss did Prime recognize as a result of this distribution?

Answer 11

$0

Question 12

Aztec, a C corporation, distributed an asset to aurn, a shareholder. The asset had a fair market value of $30,000 and was subject to a $40,000 liability, assumed by Burn. The asset had an adjusted basis of $25,000. What amount of gain must Aztec recognize?

Answer 12

$15,000

Question 13

Lark Corp. and its wholly owned subsidiary, Day Corp., both operated on a calendar year. In January 2012 Day adopted plan of complete liquidation. Two months later, Day paid all of its liabilities and distributed its remaining assets to Lark. These assets consisted of the following:

Cash $50,000

Land (at cost) 10,000

Fair market value of the land was $30,000. Upon distribution of Day’s assets to Lark, all of Day’s capital stock was cancelled. Lark’s basis for the Day stock was $7,000. Lark’s recognized gain in 2012 on receipt of Day’s assets in liquidation was

Answer 13

$0

Question 14

Gold and Silver are calendar-year C corporations. On June 30th of the current year, Silver Corporation acquired of the outstanding stock of Gold Corporation. As a result, Gold is now a subsidiary of Silver, with Silver Corporation owning of Gold’s voting stock and fair market value (FMV). Which of the following tax return filings would be appropriate for the tvw companies?

a. A consolidated return, because Silver owns at least 80% of both the voting stock and FMV of Gold.
b. A consolidated return, because the acquisition of Gold tock place before the close of the second quarter.
c. Two separate returns, because the acquisition of Gold tock place before the close of the second quarter.
d. separate returns, because Silver owns at least of 80% both the voting stock and FMV of Gold.

Answer 14

A consolidated return, because Silver owns at least of 80% both the voting stock and FMV of Gold.

Question 15

Carr, Inc., a calendar-year corporation incorporated in January 2008, had net operating loss (NOL) of $75,000 in 2012. For each of the years 2008-2011, Carr reported taxable income (loss) before NOL deduction as follows:

2008 $ 15,000

2009 (20,000)

2010 10,000

2011 30,000

When filing its tax return for 2012, Carr did not elect to give up the carryback of its loss for 2012. Carr’s taxable income before net operating loss deduction for 2013 was $80,000. Carr should report a NOL deduction on its tax return for 2013 of

Answer 15

$40,000

Question 16

Hedge Holding Corporation has 20 unrelated stockholders, each of whom owns 100 shares of Hedge stock. For the year ended December 31, 2012, Hedge’s gross income consisted of the following:

Dividends from domestic taxable corporations $20,000

Interest earned on CUS Treasury notes 12,000

Net rental income 6,000

Deductible expenses for 2012 totaled $8,000. Hedge paid no dividends during 2012. Hedge’s liability for personal holding company tax for 2012 will be based on undistributed personal holding company income of

Answer 16

$0

Question 17

Davies Corporation (a C corporation) had a deficit of $160,000 at December 31, 2011. Its net income per books was $80,000 for 2012. Cash dividends on common stock totaling $40,000 were paid in December 2012. Davies should report the distribution to its shareholders as

Answer 17

Ordinary dividends 100%.

Question 18

For the year ended December 31, 2012, Marshall Corporation reported book income, before federal income taxes, of $200,000. The following items were included in the determination of income before federal income taxes.

Provision for state corporate income tax $15,000

Interest earned on united States obligation 20,000

Net long-term capital loss from the sale of

marketable securities 10,000

Interest paid on loan to purchase United

States obligations 12,000

Marshall’s taxable income on its 2012 federal income tax return would be

Answer 18

$210,000

Question 19

A C corporation has gross receipts of $150,000, $35,000 of other income, and deductible expenses of $95,000. In addition, the corporation incurred net long-term capital loss of $25,000 during the current year. What is the corporation’s taxable income?

Answer 19

$90,000

Question 20

Jarovsky Corp., an accrual-basis calendar-year corporation, carried back a net operating loss for the tax year ended December 31, 2012 Jarovsky’s gross revenues have been under $500,000 since inception. Jarcvsky expects to have profits for the tax year ending December 31, 2013. Which method(s) of estimated tax payment can Jarovsky use for its quarterly payments during the 2013 tax year to avoid a penalty for the underpayment of federal estimated taxes?

I. 100% of the preceding tax year method

Il. Annualized income method

Answer 20

II only

Question 21

The following statements pertain either to the accumulated earnings tax, or to the personal holding company tax, or to both:

(1) Imposition of the tax depends on stock ownership test specified in the statute.
(2) Imposition of the tax can be mitigated by sufficient dividend distributions.
(3) The tax should be self-assessed by filing a separate schedule along with the regular tax return. Which of the foregoing statements pertain to the personal holding company tax?

Answer 21

1, 2, and 3

Question 22

On October I, 2012, Derek Corporation sold 4,000 shares of its $10 par value treasury stock for $60,000. These shares were acquired by Derek on January 2, 2012, for $50,000. For 2012, Derek should report

Answer 22

Neither income nor capital gain.

Question 23

Bridge, a C corporation, had $15,000 in accumulated earnings and profits at the beginning of the current year. During the current year, Bridge reported earnings and profits of $10,000 and paid $20,000 in cash distributions to its shareholders in both March and July. What amount of the July distribution should be classified as dividend income to Bridge’s shareholders?

Answer 23

$5,000

Question 24

A corporation that has both preferred and common stock has a deficit in accumulated earnings and profits at the beginning of the year. The current earnings and profits are $25,000. The corporation makes a dividend distribution of $20,000 to the preferred shareholders and $10,000 to the common shareholders. How will the preferred and common shareholders report these distributions?

Answer 24

Preferred - $20,000 dividend income; common - $5,000 dividend income; $5,000 return of capital

Question 25

Evan, an individual, has a 40% interest in EF, an S corporation. At the beginning of the year, Evan’s basis in EF was $2,000. During the year, EF distributed $100,000 and reported operating income of $200,000. What amount should Evan include in gross income?

Answer 25

$80,000

Question 26

A corporation may reduce its income tax by taking tax credit for

Answer 26

Foreign income taxes.

Question 27

What would be the alternative minimum tax liability for corporation that is not exempt from the alternative minimum tax and whose tax return reflects the following for 2012?

Alternative minimum taxable income (after exemption) $110,000

AMT foreign tax credit 5,000

Regular federal income tax (net of foreign tax credit) 4,500

Answer 27

$12,500

Question 28

Ace Corp. files a consolidated return with its wholly owned subsidiary, Barr Corp. During 2012 paid a cash of $10,000 to Ace. How much of this previous dividend is taxable on the 2012 consolidated return?

Answer 28

$0

Question 29

Which of the following is not corporate reorganization as defined in the Internal Revenue Code?

a. Recapitalization.
b. Statutory merger.
c. Mere change in identity.
d. Stock redemption.

Answer 29

Stock redemption

Question 30

Which of the following items should be included on the Schedule M-I, Reconciliation of income (Loss) per Books mth income per Return, of Form 1120, US Corporation Income Tax Return to reconcile book income to taxable income?

a. Premiums paid on key-person life insurance policy.
b. Corporate bond interest.
c. Ending balance of retained earnings.
d. Cash distributions to shareholders.

Answer 30

Premiums paid on key-person life insurance policy.

Question 31

In the current year, Brown, a C corporation, has gross income (before dividends) of $900,000 and deductions of $1,100,000 (excluding the dividends-received deduction). Brown received dividends of $100,000 from a Fortune 500 corporation during the current year. What is Brown’s net operating loss?

Answer 31

$170,000

Question 32

Which of the following groups may elect to file consolidated corporate return?

a. A parent corporation and all more-than-50%-controIIed subsidiaries.
b. Members of an affiliated group.
c. A brother/sister-ccntrclled group.
d. A parent corporation and all more-than-10%-controIIed partnerships.

Answer 32

Members of an affiliated group.

Question 33

On July I, 2012, in connection with a recapitalization of Yorktown Corporation, Robert Moore exchanged 1,000 shares of stock which cost him $95,000 for 1,000 shares of new stock worth $108,000 and bonds in the principal amount of $10,000 with a fair market value of $10,500. What is the amount of Moore’s recognized gain during 2012?

Answer 33

$10,500

Question 34

In 2012, Garland Corp. contributed $40,000 to a qualified charitable organization. Garland’s 2012 taxable income before the deduction for charitable contributions was $410,000. Included in that amount is a $20,000 dividends-received deduction. Garland also had carryover contributions of $5,000 from the prior year. In 2012, what amount can Garland deduct as charitable contributions?

Answer 34

$43,000

Question 35

For the first taxable year in which corporation has qualifying research and experimental expenditures, the corporation

Answer 35

Has a choice of either deducting such expenditures as current business expenses, or capitalizing these expenditures.

Question 36

Tap, calendar-year S corporation, reported the following items of income and expense in the current year:

Revenue $44,000

Operating expenses 20,000

Long-term capital loss 6,000

Charitable contributions 1,000

Business interest expense 4,000

What is the amount of Tap’s ordinary income?

Answer 36

$20,000

Question 37

Brandy Corporation’s unappropriated retained earnings at January I, 2012, was $500,000. For the year ended December 31, 2012, Brandy realized net income per books of $204,000 after deducting federal income tax of $96,000. During 2012, Brandy established a contingency reserve of $112,000. Brandy paid $30,000 in cash dividends during 2012. What amount should appear in the reconciliation Schedule M-2, of Form 1120, as Brandy’s unappropriated retained earnings at December 31, 2012?

Answer 37

$562,000

Question 38

Which one of the following statements concerning the eligibility requirements for S corporations is not correct?

a. An S corporation is permitted to be a partner in a partnership.
b. A partnership is not permitted to be a shareholder of an S corporation.
c. An S corporation is permitted to own 100% of the stock of a C corporation.
d. An S corporation is permitted to own of the stock of another S corporation.

Answer 38

An S corporation is permitted to own of the stock of another S corporation.

Question 39

The following information pertains to Lamb Corp.:

Accumulated earnings and profits at

January I, 2012 $60,000

Earnings and profits for the year ended

December 31, 2012 80,000

Cash distributions to individual stockholders 180,000

during 2012

What is the total amount of distributions taxable as dividend income to Lamb’s stockholders for 2012?

Answer 39

$140,000

Question 40

In 2012, Cape Co. reported book income of $140,000. Included in that amount was $50,000 for meals and entertainment expense and $40,000 for federal income tax expense. In Cape’s Schedule M-I of Form 1120, which reconciles bock income and taxable income, what amount should be reported as taxable income?

Answer 40

$205,000

Question 41

Easy Corporation’s earnings and profits for 2012, its first year of operations, were $22,000. In December 2012, it distributed to its individual stockholders, cash of $10,000 and land with a fair market value of $25,000 at the date of distribution. Prior to the distribution, the stockholders’ tax basis for their stock in the corporation was $76,000. What is the stockholders’ basis for their Easy stock at the end of 2012?

Answer 41

$63,000

Question 42

In 2012, Daly Corp. had the following income:

Profit from operations $100,000

Dividends from less than

20%-owned taxable

domestic corporation 1,000

In Daly’s 2012 taxable income, how much should be included for the dividends-received?

Answer 42

$ 300

Question 43

Grant Corporation, an S corporation, had income of $36,000 for the year ended December 31, 2012. Included in the above is $24,000 of long-term capital gain. Cash distributions to Mr. Hamlin, the sole shareholder, totaled $12,000 during 2012. What amount should Hamlin report on his 2012 individual income tax return as long- term gain passed through from Grant?

Answer 43

$24,000

Question 44

Simpson incorporated a sole proprietorship by exchanging all the assets for the stock of Wawa Co., a new corporation. To qualify for tax-free incorporation, Simpson must be in control of Wawa immediately after the exchange. What minimum percentage of Wawa’s stock must Simpson own to have “control” for this purpose?

Answer 44

80.00%

Question 45

For the year ended December 31, 2012, Haya Corp. had gross business income of $600,000 and expenses of $800,000. Contributions of $5,000 to qualified charities were included in expenses. In addition to the expenses, Haya had a net operating loss carryover of $9,000 from 2011. What was Haya’s net operating loss for 2012?

Answer 45

$195,000

Question 46

In 2010, Celia Mueller bought a $1,000 bond issued by Disco Corporation, for $1,100. Instead of paying off the bondholders in cash, Disco issued 100 shares of preferred stock in 2013 for each bond outstanding. The preferred stock had a fair market value of $15 per share. What is the recognized gain to be reported by Mueller in 2013?

Answer 46

$0

Question 47

Magic Corp., a regular C corporation, elected S corporation status at the beginning of the current calendar year. It had an asset with a basis of $40,000 and a fair market value (FMV) of $85,000 on January I. The asset was sold during the year for $95,000. Magic’s corporate tax rate was 35%. What was Magic’s tax liability as a result of the sale?

Answer 47

$15,750

Question 48

Darien Corp. was a calendar-year S corporation. Darien’s S status terminated on February I, 2012, when Aspar Corp. became a shareholder. During 2012 (366-day calendar year), Darien had nonseparately computed income of $274,500. If no election is made by Darien, What amount of the income, if any, would be allocated to the S short year for 2012?

Answer 48

$23,250

Question 49

The accumulated earnings tax can be imposed

Answer 49

Regardless of the number of stockholders of a corporation.

Question 50

Monahan Corp. owns stock in Zimmerman Corp. For Monahan and Zimmerman to qualify for the filing of consolidated returns, at least what percentage of Zimmerman’s total voting power and total value of stock must be directly owned by Monahan?

Total voting Power Total value of stock

a. 51% 51%
b. 51% 80%
c. 80% 51%
d. 80% 80%

Answer 50

80% 80%

Question 51

During 2012 Bell Corporation had worldwide taxable income of $675,000 and a tentative United States income tax of $229,500. Sell’s taxable income from business operations in Country A was $300,000, and foreign income taxes paid were $125,000 stated in United States dollars. How much should Bell claim as a credit for foreign income taxes on its United States income tax return for 2012?

Answer 51

$102,000

Question 52

Washington, Lincoln, and Roosevelt formed President Corporation during 2013. Pursuant to the incorporation agreement, Washington transferred cash of $60,000 for 600 shares of stock, Lincoln transferred property with an adjusted basis of $5,000 and a fair market value of $15,000 for 150 shares of stock, and Roosevelt performed services valued at $25,000 in exchange for 250 shares of stock. Assuming the fair market value of President Corporation’s stock is $100 per share, what is President Corporation’s tax basis for the property received from Lincoln?

Answer 52

$15,000

Question 53

Schliedenglooben Corp. made a pro rata distribution of marketable securities in redemption of its stock in a complete liquidation during 2011. These securities, which had been purchased in 2006 for $80,000, had a fair market value of $40,000 when distributed. What loss does Schliedenglccben recognize as a result of the distribution?

Answer 53

40,000 long-term capital loss.

Question 54

Pursuant to a plan of corporate reorganization adopted in the current year, Myra Eber exchanged 1,000 shares of Faro Corp. common stock that she had purchased for $75,000, for 1,800 shares of Judd Corp. common stock having a fair market value of $86,000. As a result of this exchange, Eber’s recognized gain and her basis in the Judd stock should be

Recognized gain Basis

a. $11,000 $86,000
b. $11,000 $75,000
c. $0 $86,000
d. $0 $75,000

Answer 54

$0 $75,000

Question 55

In the computation of corporation’s taxable income for particular year, net capital loss sustained in that year is

Answer 55

Not deductible.

Question 56

Webster, a C corporation, has $70,000 in accumulated and no current earnings and profits. Webster distributed $20,000 cash and property with an adjusted basis and fair market value of $60,000 to its shareholders. What amount should the shareholders report as dividend income?

Answer 56

$70,000

Question 57

Rela Associates, a partnership, transferred all of its assets, with a basis of $300,000, along with liabilities of $50,000, to a newly formed corporation in return for all of the corporation’s stock. The corporation assumed the liabilities. Rela then distributed this stock to its partners in liquidation. In connection with this incorporation of the partnership, Rela recognizes

Answer 57

No gain or loss on the transfer of its assets, nor on the assumption of Rela’s liabilities by the corporation.

Question 58

Baker Corp., a calendar-year C corporation, realized taxable income of $36,000 from its regular business operations for calendar year 2012. In addition, Baker had the following capital gains and losses during 2012:

Short-term capital gain $ 8,500

Short-term capital loss (4,000)

Long-term capital gain 1,500

Long-term capital loss (3,500)

Baker did not realize any other capital gains or losses since it began operations. What is Baker’s total taxable income for 2012?

Answer 58

$38,500

Question 59

Blue Corp. had operating income of $80,000 after deducting $5,000 for contributions to the state university but not including dividends of $1,000 received from nonaffiliated taxable domestic corporations. In computing the maximum allowable deduction for contributions, how much is the base amount to which Blue should apply the percentage limitation?

Answer 59

$86,000

Question 60

Donna Andersen and Dana Marwick formed the Northern Corporation on July 5, 2013. On the same date Andersen paid $90,000 cash to Northern for 900 shares of its common stock. Simultaneously, Marwick received 100 shares of Northern’s common stock for services rendered. How much should Marwick include as taxable income for 2013 and what will be the basis of her stock?

Taxable income Basis of stock

a. $10,000 $10,000
b. $10,000 $0
c. $0 $10,000
d. $0 $0

Answer 60

$10,000 $10,000

Question 61

Brooke, Inc., an S corporation, was organized on January 2, 2012, with two equal shareholders. Each shareholder invested $5,000 in Brooke’s capital stock, and each loaned $15,000 to the corp Brooke then borrowed $60,000 from a bank for working capital. Brooke sustained an operating loss of $90,000 for the year ended December 31, 2012. If each shareholder materially participates in the corporation’s business, how much loss can each shareholder claim on his 2012 income tax return?

Answer 61

$20,000

Question 62

Catchem Corp., calendar-year corporation, was formed on January 2, 2009, and had gross receipts for its first four taxable years as follows:

Year Gross Receipts

2009 $4,000,000

2010 9,000,000

2011 10,000,000

2012 7,000,000

What is the first taxable year that Catchem Corp. is not exempt from the alternative minimum tax (AMT)?

Answer 62

2012

Question 63

Consolidated returns may be filed

Answer 63

Only by parent-subsidiary affiliated groups.

Question 64

Mem Corp., which had earnings and profits of $500,000, made a nonliquidating distribution of property to its stockholders during 2012. This property had an adjusted basis of $10,000 and a fair market value of $15,000 at the date of distribution. The property was subject to a liability of $12,000, which its stockholders assumed. How much gain did Mem have to recognize as a result of this distribution?

Answer 64

$5,000

Question 65

Richards Corporation had taxable income of $280,000 before deducting charitable contributions for its tax year ended December 31, 2012, but after deducting a dividends-received deduction of $34,000. Richards made cash contributions of $35,000 to charitable organizations. How much can Richards deduct as contributions for 2012?

Answer 65

$31,400

Question 66

If corporation’s charitable contributions exceed the limitation for deductibility in particular year, the excess

Answer 66

May be carried forward to a maximum of 5 succeeding years.

Question 67

April Corporation’s book income before taxes for 2012 was $60,000. During 2012, April paid $3,000 in cash dividends on its outstanding cumulative preferred stock and paid $8,000 as a contribution to a qualified charitable organization. For 2012, April’s taxable income was

Answer 67

$61,200

Question 68

Boone Corporation, which is not exempt from the alternative minimum tax, reported adjusted current earnings (ACE) of $500,000 for 2012. Its alternative minimum taxable income (before the alternative minimum tax NOL deduction and ACE adjustment) was $200,000. Bone Corporation’s alternative minimum taxable income (after exemption) for 2012 was

Answer 68

$425,000

Question 69

Yuki Corporation, which began business in 2011, incurred the following costs in 2011 in connection with organizing the corporation:

Printing of stock certificates $ 5,000

Underwriters’ commissions

on sale of stock 100,000

What portion of these costs qualifies as amortizable organizational expenditures?

Answer 69

$0

Question 70

Quigley, Roberk, and Storm form a corporation. Quigley exchanges $25,000 of legal fees for 30 shares of stock. Roberk exchanges land with a basis of $10,000 and a fair market value of $100,000 for 60 shares of stock. Storm exchanges $10,000 cash for 10 shares of stock. What amount of income should each shareholder recognize?

Quigley Roberk Storm

a. $0 $0 $0
b. $25,000 $90,000 $0
c. $25,000 $90,000 $10,000
c. $0 $90,000 $0

Answer 70

$25,000 $90,000 $0

Question 71

Which of the following statements regarding personal holding companies is correct?

a. One of the requirements for being a personal holding company is that the corporation receive at least of its adjusted ordinary gross income as “personal holding company income” (e.g., dividends, interest, rents, royalties, and other passive income).
b. The personal holding company tax may be avoided by dividend payments sufficient to reduce undistributed personal holding company income to zero.
c. Personal holding companies are taxed at ordinary’ rates on taxable income plus of personal holding company income.
d. One of the requirements for being a personal holding company is that during the last half of the tax year, five or fewer individuals own more than of the company’s outstanding stock directly or indirectly.

Answer 71

The personal holding company tax may be avoided by dividend payments sufficient to reduce undistributed personal holding company income to zero.

Question 72

The corporate dividends-received deduction

Answer 72

Is affected by a requirement that the investor corporation must own the investee’s stock for specified minimum holding period.

Question 73

Jens, an individual, owns 80% and 100% of the total value and voting power of A and B Corps., respectively, which in turn own the following (both value and voting power):

                                         Ownership

Property A Corp B Corp

C corp. 80%

D corp. 100%

All companies are C corporations except B Corp., which had elected S status since inception. Which of the following Statements is correct with respect to the companies’ ability to file a consolidated return?

a. A and C may file as group, and B and D may file as a group.
b. A and C may not file as a group, and B and D may not file as a group.
c. A, C, and D may file as a group.
d. A and C may file as a group, but B and D may not file as group.

Answer 73

A and C may file as a group, but B and D may not file as group.

Question 74

For the year ended December 31, 2012, Atkinson, Inc. had gross business income of $160,000 and dividend income of $100,000 from unaffiliated domestic corporations that are 20%-owned. Business deductions for 2012 amounted to $170,000. What is Atkinson’s dividends-received deduction for 2012?

Answer 74

$72,000

Question 75

Moss Corp.’s income statement for 2012 showed the following expenses for life insurance premiums:

Group-term life insurance premiums

paid on employees’ lives with the

employees’ dependents as beneficiaries $10,000

Term life insurance premiums paid on

life of Moss’ president with Moss Corp.

as beneficiary 7,000

On its 2012 tax return, how much should Moss deduct for life insurance premiums?

Answer 75

$10,000

Question 76

Ed, the sole stockholder of Looney Corp., paid $70,000 for Looney’s stock in 2009. During 2013, Ed contributed a parcel of land to Looney but was not given any additional stock for this contribution. Ed’s basis for the land was $5,000, and its fair market value was $15,000 on the date of the transfer of title. What is Ed’s adjusted basis for his Looney stock following the contribution of the parcel of land?

Answer 76

$75,000

Question 77

The following statements pertain either to the accumulated earnings tax, or to the personal holding company tax, or to both:

(1) Imposition of the tax depends on stock ownership test specified in the statute.

(2 )Imposition of the tax can be mitigated by sufficient dividend distributions.

(3) The tax should be self-assessed by filing a separate schedule along with the regular tax return.

Which of the foregoing statements pertain to the accumulated earnings tax?

Answer 77

2 only

Question 78

Jagdon Corp.’s book income was $150,000 for the current year, including interest income from municipal bonds of $5,000 and excess capital losses over capital gains of $10,000. Federal income tax expense of $50,000 was also included in Jagdon’s books. What amount represents Jagdon’s taxable income for the current year?

Answer 78

$205,000

Question 79

Beta, C corporation, reported the following items of income and expenses for the year:

Gross income from operations $600,000

Dividend income from a 30% owned

domestic corporation 100,000

Operating expenses 400,000

What is Seta’s taxable income for the year?

Answer 79

$220,000

Question 80

Would the following expense items be reported on Schedule M-I of the corporate income tax return (Form 1120) showing the reconciliation of income per books with income per return?

a. Deduction for a net capital loss and Business meals for executive out-of-town travel.
b. Deduction for a net capital loss
c. Business meals for executive out-of-town travel
d. Neither

Answer 80

Deduction for a net capital loss and Business meals for executive out-of-town travel.

Question 81

In the reconciliation of income per books with income per return

Answer 81

Both temporary and permanent differences are considered.

Question 82

Genetic Corp.’s operating income for the year ended December 31, 2012, amounted to $100,000. Also in 2012, a machine owned by Genetic was completely destroyed in an accident. This machine’s adjusted basis immediately before the casualty was $20,000. The machine was not insured and had no salvage value. In Genetic’s 2012 tax return, what amount should be deducted for the casualty loss?

Answer 82

$20,000

Question 83

In 2012, Ace Corp. adopted a plan of complete liquidation. Distributions to stockholders during 2012, under this plan of complete liquidation, included marketable securities purchased in 2009 with a basis of $100,000 and a fair market value of $120,000 at the date of distribution. In Ace’s 2012 return, what amount should be reported as long-term capital gain?

Answer 83

$20,000

Question 84

Denison Corp., a calendar-year domestic C corporation, is not a personal holding company. For purposes of the accumulated earnings tax, Denison has accumulated taxable income for 2012. Which step(s) can Denison take to eliminate or reduce any 2012 accumulated earnings tax?

I. Demonstrate that the “reasonable needs” of its business require the retention of all or part of the 2012 accumulated taxable income.

II. Pay dividends by March IS, 2013.

Answer 84

Both I and II

Question 85

Which of the following entities must pay taxes for federal income tax purposes?

a. Limited partnership.
b. Joint venture.
c. C corporation.
d. General partnership.

Answer 85

C corporation.

Question 86

Sandy is the sole shareholder of Swallow, an S corporation. Sandy’s adjusted basis in Swallow stock is $60,000 at the beginning of the year. During the year Swallow reports the following income items:

Ordinary income $30,000

Tax-exempt income 5,000

Capital gains 10,000

In addition, Swallow makes nontaxable distribution to Sandy of $20,000 during the year. What is Sandy’s adjusted basis in the Swallow stock at the end of the year?

Answer 86

$85,000

Question 87

Dole, the sole owner of Enson Corp., transferred a building to Enson. The building had an adjusted tax basis of $35,000 and a fair market value of $100,000. In exchange for the building, Dole received $40,000 cash and Enson common stock with a fair market value of $60,000. What amount of gain did Dole recognize?

Answer 87

$40,000

Question 88

Euclid Corp.’s 2012 alternative minimum taxable income before exemption was $250,000. The exempt portion of Euclid’s 2012 alternative minimum taxable income was

Answer 88

$15,000

Question 89

For the year ended December 31, 2012, Shady Corporation had net income per books of $2,000,000. Included in the determination of net income were the following items:

Interest income on municipal bonds $60,000

Damages received from settlement

of patent infringement lawsuit 125,000

Interest paid on loan to purchase

municipal bonds 22,000

Provision for federal income tax 796,000

What should Shady report as its taxable income for 2012?

Answer 89

$2,758,000

Question 90

How does noncorporate shareholder treat the gain on redemption of stock that qualifies as partial liquidation of the distributing corporation?

Answer 90

Entirely as capital gain

Question 91

Chicago Corp., a calendar-year C corporation, had accumulated earnings and profits of $100,000 as of January I, 2012, and had a deficit in its current earnings and profits for the entire 2012 tax year in the amount of $140,000. Chicago Corp. distributed $30,000 cash to its shareholders on December 31, 2012. What would be the balance of Chicago Corp.’s accumulated earnings and profits as of January I, 2013?

Answer 91

$(40,000)

Question 92

Page Corp. owns 80% of Saga Corp.’s outstanding capital stock. Saga’s capital stock consists of 50,000 shares of common stock issued and outstanding. Saga’s 2012 net income was $70,000. During 2012 Saga declared and paid dividends of $30,000. In conformity with generally accepted accounting principles, Page recorded the following entries in 2012:

                                                                  Debit         Credit

Investment in Saga Corp. common stock $56,000

Equity in earnings of subsidiary $56,000

Cash 24,000

Investment in Saga Corp. common stock 24,000

In its 2012 consolidated tax return, Page should report dividend revenue of

Answer 92

$0

Question 93

In 2013, Dr. Ernest Griffiths, cash-basis taxpayer, incorporated his medical practice. No liabilities were transferred. The following assets were transferred to the corporation

Cash $20,000

Equipment:

Adjusted basis            $140,000

Fair market value        $180,000

Immediately after the transfer, Griffiths owned 100% of the corporation’s stock. The corporation’s total basis for the transferred assets is

Answer 93

$160,000

Question 94

On June 30, 2012, Ral Corporation had retained earnings of $100,000. On that date, it sold a plot of land to a noncorporate stockholder for $50,000. Ral had paid $40,000 for the land in 2008, and it had a fair market value of 80,000 when the stockholder bought it. The amount of dividend income taxable to the stockholder in 2012 is

Answer 94

$30,000

Question 95

Wallace purchased 500 shares of Kingpin, Inc. 15 years ago for $25,000. Wallace has worked as an owner/employee and owned of the company throughout this time. This year, Kingpin, which is not an S corporation, redeemed 100% of Wallace’s stock for $200,000. What is the treatment and amount of income or gain that Wallace should report?

Answer 95

$175,000 long-term capital gain.

Question 96

In April, A and a formed X Corp. A contributed $50,000 cash, and a contributed land worth $70,000 (with an adjusted basis of $40,000). B also received $20,000 cash from the corporation. A and B each receives 50% of the corporation’s stock. What is the tax basis of the land to X Corp.?

Answer 96

$60,000

Question 97

Paul Benson and Arthur Kronk each own one-half of the stock of Bekro Corporation, which has earnings and profits of $15,000. Bekro distributes property with fair market value of $24,000 to its stockholders, each stockholder receiving property with a fair market value of $12,000. The gross amount reportable by each stockholder as a dividend is

Answer 97

$ 7,500

Question 98

Forrest Corp. owned 100% of both the voting stock and total value of Diamond Corp. Both corporations were C corporations. Forrest’s basis in the Diamond stock was $200,000 When it received a lump sum liquidating distribution of property as a result of the redemption of all Diamond stock. The property had an adjusted basis of $270,000 and a fair market value of $500,000. What amount of gain did Forrest recognize on the distribution?

Answer 98

$0

Question 99

Luba Corp. was organized in 2013 with the intention of operating as an S corporation. What is the maximum number of stockholders allowable for eligibility as an S corporation?

Answer 99

100

Question 100

When computing corporation’s federal income tax for estimated income tax purposes, which of the following should be taken into account?

a. Neither
b. Alternative minimum tax
c. Coporate tax credits
d. Corporate tax credits and Alternative minimum tax

Answer 100

Corporate tax credits and Alternative minimum tax

Question 101

On April I, 2013, Crowe and Greene formed Apex Corporation. The same day Crowe paid $150,000 for 500 shares of Apex common stock, and Greene transferred land and building to Apex in exchange for 500 shares of common stock. The land and building had an adjusted basis to Greene of $120,000, a fair market value of $200,000, and was subject to a mortgage of $60,000 on April I, 2013. The mortgage was assumed by Apex. Apex had no other shares of stock outstanding on April I, 2013. The basis of the land and building to Apex on April I, 2013, is

Answer 101

$120,000

Question 102

Boles Corp., an accrual-basis, calendar-year S corporation, has been an S corporation since its inception and is not subject to the uniform capitalization rules. In the current year, Boles recorded the following:

Gross receipts $50,000

Dividend income from investments 5,000

Supplies expense 2,000

Utilities expense 1,500

What amount of ordinary business income should Boles report on its 2012 Form 1120S, US Income Tax Return for an S Corporation, Schedule K?

Answer 102

$46,500

Question 103

Frigo, the sole stockholder of Toll Corp., paid $50,000 for Toll’s stock in 2006. In 2012, Frigo contributed a parcel of land to Toll but was not given any additional stock for this contribution. Frigo’s basis for the land was $20,000, and its fair market value was $13,000 on the date of the transfer of title. What is Frigo’s adjusted basis for the Toll stock

Answer 103

$70,000

Question 104

Tan Corp. calculated the following taxes for the current year:

Regular tax liability $210,000

Tentative minimum tax 240,000

Personal holding company tax 65,000

What is Tan’s total tax liability for the year?

Answer 104

$305,000

Question 105

Boles Corp., an accrual-basis, calendar-year S corporation, has been an S corporation since its inception and is not subject to the uniform capitalization rules. In 2012, Boles recorded the following: Gross receipts $50,000

Dividend income from investments 5,000

Supplies expense 2,000

Utilities expense 1,500

On Boles’ 2012 S corporation Form 1120-S Schedule K, Shareholders’ Shares of income, Deductions, Credits, stated from business income?

Answer 105

$5,000

Question 106

When corporation has an unused net capital loss that is carried back or carried forward to another tax year

Answer 106

It is treated as a short-term capital loss Whether or not it was short-term when sustained.

Question 107

Commerce Corp. elects S corporation status as of the beginning of year 2013. At the time of Commerce’s election, it held a machine with a basis of $20,000 and a fair market value of $30,000. In March of 2013, Commerce sells the machine for $35,000. What amount of Commerce’s gain would be subject to the built-in gains tax?

Answer 107

$10,000

Question 108

Axel Corp. was incorporated and began business in 2010. In computing its alternative minimum tax for 2011, it determined that it had adjusted current earnings (ACE) of $500,000 and alternative minimum taxable income (prior to the ACE adjustment) of $450,000. For 2012, it had adjusted current earnings of $200,000 and alternative minimum taxable income (prior to the ACE adjustment) of $300,000. What is the amount of Axel Corp.’s adjustment for adjusted current earnings that will be used in calculating its alternative minimum tax for 2012?

Answer 108

$(37,500)

Question 109

Reproduced below are the 2012 corporate tax rates.

If Taxable income is: The Tax is :

Over But not over Of the amount over-

0 $50,000 15% $0

50,000 75,000 $ 7,500 + 25% 50,000

75,000 13,750 + 34% 75,000

Mason Corporation’s 2012 taxable income was $80,000. Mason’s 2012 federal income tax would be

Answer 109

$15,450

Question 110

No penalty will be imposed on corporation for underpayment of estimated tax for particular year if

Answer 110

The tax for that year is less than $500.

Question 111

Bellamy Corporation reported Retained Earnings— unappropriated of $1,500,000 at December 31, 2011, on its 2011 tax return. Information for 2012 is available as follows:

Net income per books $600,000

Taxable income 850,000

Dividends paid on common stock 450,000

Debit adjustment to the beginning

balance of retained earnings for

correction of an accounting error 500,000

What amount should Bellamy report for Retained Earnings—unappropriated at December 31, 2012, on its 2012 tax return?

Answer 111

$1,150,000

Question 112

Klaus Corporation, which is not exempt from the alternative minimum tax, reported adjusted current earnings (ACE) and alternative minimum taxable income (AMTI) prior to the alternative minimum tax NOL deduction and ACE adjustments for 2010 through 2012 as follows:

           2010               2011               2012

Ace $200,000 $200,000 $200,000

AMTI 100,000 240,000 350,000

What is the amount of Klaus Corporation’s alternative minimum tax ACE adjustment for 2012?

Answer 112

$(45,000)

Question 113

Brisk Corp. is an accrual-basis, calendar-year C corporation with one individual shareholder. At year-end, Brisk had $600,000 accumulated and current earnings and profits as it prepared to make its only dividend distribution for the year to its shareholder. Brisk could distribute either cash of $200,000 or land with an adjusted tax basis of $75,000 and a fair market value of $200,000. How would the taxable incomes of both Brisk and the shareholder change if land were distributed instead of cash?

Brisk’s taxable income Shareholders taxable income

a. No change No change
b. Increase No change
c. No change Decrease
d. Increase Decrease

Answer 113

Increase No change

Question 114

One of the elections new corporation must make is its choice of an accounting period. Which of the following entities has the most flexibility in choosing an accounting period?

Answer 114

C corporation.

Question 115

A corporation will not be subject to the alternative minimum tax for calendar year 2013 if

Answer 115

The 2013 calendar year is the corporation’s first tax year.

Question 116

Kneenober Corp., an accrual-basis calendar-year C corporation, liquidated in 2011. In cancellation of all their Kneenober stock, each Kneenober shareholder received a liquidating distribution of $5,000 cash and land with a tax basis of $4,000 and a fair market value of $8,750. Before the distribution, each shareholder’s tax basis in Kneenober stock was $7,000. What amount of gain should each Kneenober shareholder recognize on the liquidating distribution?

Answer 116

$6,750

Question 117

Pope, C corporation, owns 15% of Arden Corporation. Arden paid $3,000 cash dividend to Pope. What is the amount of Pope’s dividend-received deduction?

Answer 117

$2,100

Question 118

Ames and Roth form Homerun, a C corporation. Ames contributes several autographed baseballs to Homerun. Ames purchased the baseballs for $500, and they have a total fair market value of $1,000. Roth contributes several autographed baseball bats to Homerun. Roth purchased the bats for $5,000, and they have a fair market value of $7,000. What is Homerun’s basis in the contributed bats and balls?

Answer 118

$5,500

Question 119

On July I, 2013, Mr. Grey formed Dover Corporation. The same date Grey paid $100,000 cash and transferred land with an adjusted basis of $50,000 to Dover in exchange for 3,000 shares of its common stock. The land had a fair market value of $85,000 on the date of the exchange. Dover had no other shares of common stock outstanding on July I, 2013. As a result of the above transaction, Grey’s basis in his stock and Dover’s basis in the land, respectively, are

Answer 119

$150,000 and $85,000

Question 120

Fox, the sole shareholder in Fall, a C corporation, has a tax basis of $60,000. Fall has $40,000 of accumulated positive earnings and profits at the beginning of the year and $10,000 of current positive earnings and profits for the current year. At year-end, Fall distributed land with an adjusted basis of $30,000 and a fair market value (FMV) of $38,000 to Fox. The land has an outstanding mortgage of $3,000 that Fox must assume. What is Fox’s tax basis in the land?

Answer 120

$38,000

Question 121

ParentCo, SubOne, and SubTwo have filed consolidated returns since their inception. The members reported the following taxable income (losses) for the year.

Parent Co $ 50,000

SubOne (60,000)

SubTwo (40,000)

No member reported capital gain or loss or charitable contributions. What is the amount of the consolidated net operating loss?

Answer 121

$ 50,000

Question 122

Which of the following are amortizable organizational expenditures?

a. Expenses of temporary directors meetings.
b. Professional fees to issue the corporation’s stock.
c. Commissions paid by the corporation to underwriters for stock issue.
d. Printing costs to issue the corporation’s stock.

Answer 122

Expenses of temporary directors meetings.

Question 123

Bishop Corporation reported taxable income of $700 Bishop’s records as follows:

Provision for federal income tax per books $238,000

Depreciation claimed on the tax return 130,000

Depreciation recorded in the bocks 75,000

Life insurance proceeds on death of

corporate officer 100,000

Bishop reported net income per books for 2012 of

Answer 123

$617,000

Question 124

Lyle Corp. is a distributor of pharmaceuticals and sells only to retail drug stores. During 2013, Lyle received unsolicited samples of nonprescription drugs from a manufacturer. Lyle donated these drugs in 2013 to a qualified exempt organization and deducted their fair market value as a charitable contribution. What should be included as gass income in Lyle’s 2013 return for receipt of these samples?

Answer 124

Fair market value.

Question 125

Parent Corp. and Subsidiary Corp. file consolidated returns on a calendar-year basis. In January 2011, Subsidiary sold land, which it had used in its operations, to Parent for $75,000. Immediately before this sale, Subsidiarv’s basis for the land was $45,000. Parent held the land primarily for sale to customers in the ordinary course of business. In July 2012, Parent sold the land to Dubin, an unrelated individual, for $90,000. In determining the consolidated taxable income for 2012, how much should Subsidiary take into account as a result of the 2011 sale of land from Subsidiary to Parent?

Answer 125

$30,000