Question 1

Which of the following statements is incorrect regarding the taxation of C corporations?
A) The highest corporate marginal tax rate is 39%.
B) Taxable income of a personal service corporation is taxed at a flat rate of 35%.
C) A tax return must be filed whether or not the corporation has taxable income.
D) Similar to those applicable to individuals, the marginal tax rate brackets for corporations are adjusted for inflation.
E) None of the above.

Accepted Answer

Corporate tax rates are not adjusted for inflation like individual tax brackets.

Question 2

During the current year, Lavender Corporation, a C corporation in the business of manufacturing tangible research equipment, made charitable contributions to qualified organizations as follows:
  Lavender Corporation's taxable income (before any charitable contribution deduction) is $2.5 million.

Accepted Answer

The answer of During the current year, Lavender Corporation, a...

Question 3

Warbler Corporation, an accrual method regular corporation, was formed and began operations on March 1, 2011. The following expenses were incurred during its first year of operations (March 1 - December 31, 2011):

Accepted Answer

The answer of Warbler Corporation, an accrual method regular corporation,...

Question 4

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

Accepted Answer

The answer of Compare the basic tax and nontax factors...

Question 5

Almond Corporation, a calendar year C corporation, had taxable income of $900,000, $1.1 million, and $790,000 for 2008, 2009, and 2010, respectively. Almond's taxable income is $1.5 million for 2011. Compute the minimum estimated tax payments for 2011 for Almond Corporation.

Accepted Answer

The answer of Almond Corporation, a calendar year C corporation,...

Question 6

Osprey Company had a net loss of $200,000 from merchandising operations in 2011, its first year of operations. Mary, the sole owner of Osprey, works full time in the business. She has a large amount of income from other sources and is in the 35% marginal tax bracket irrespective of Osprey. Considering this information, compare the affect of Osprey's loss to Mary under the various types of entity forms discussed in the chapter.

Accepted Answer

The answer of Osprey Company had a net loss of...

Question 7

Vireo Corporation, a calendar year C corporation, has taxable income of $1.3 million and $3 million for 2010 and 2011, respectively. The minimum 2011 estimated tax installment payments for Vireo are:
A) April 15, 2011, $110,500; June 15, 2011, $110,500; September 15, 2011, $110,500; December 15, 2011, $110,500.
B) April 15, 2011, $110,500; June 15, 2011, $399,500; September 15, 2011, $399,500; December 15, 2011, $399,500.
C) April 15, 2011, $110,500; June 15, 2011, $399,500; September 15, 2011, $255,000; December 15, 2011, $255,000.
D) April 15, 2011, $255,000; June 15, 2011, $255,000; September 15, 2011, $255,000; December 15, 2011, $255,000.
E) None of the above.

Accepted Answer

The minimum 2011 estimated tax installment payments for Vireo are $110,500 for April 15, 2011, $399,500 for June 15, 2011, $255,000 for September 15, 2011, and $255,000 for December 15, 2011.

Question 8

Canary Corporation, an accrual method C corporation, uses the calendar year for tax purposes. Leticia, a cash method taxpayer, is both a shareholder of Canary and the corporation's CFO. On December 31, 2011, Canary has accrued a $100,000 bonus to Leticia. Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations.
  Under § 267(a)(2), an accrual method taxpayer must defer a deduction for an expenditure attributable to a cash method related party until such time the related party reports the amount as income. For purposes of this limitation, a more-than-50% shareholder of the corporation is a related party.

Accepted Answer

The answer of Canary Corporation, an accrual method C corporation,...

Question 9

During the current year, Quartz Corporation (a calendar year C corporation) has the following transactions:
  Quartz owns 15% of ABC Corporation's stock. How much is Quartz Corporation's taxable income (loss) for the year?

Accepted Answer

The answer of During the current year, Quartz Corporation (a...

Question 10

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income. Which of the following items is a subtraction on Schedule M-1?
A) Proceeds on key employee life insurance.
B) Excess of capital losses over capital gains.
C) Book depreciation in excess of tax depreciation.
D) Income subject to tax but not recorded on the books.
E) None of the above.

Accepted Answer

Proceeds on key employee life insurance are not taxable and are subtracted from book income to reconcile to taxable income.

Question 11

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income. Which of the following items is an addition on Schedule M-1?
A) Premiums paid on key employee life insurance.
B) Proceeds of life insurance paid on death of key employee.
C) Charitable contributions carryover from previous year.
D) Tax-exempt interest.
E) None of the above.

Accepted Answer

Premiums paid on key employee life insurance are deductible as a business expense for tax purposes, but are not included in financial net income per books, so they are added back on Schedule M-1 to reconcile taxable income. The other options are either excluded from taxable income (proceeds of life insurance paid on death of key employee, tax-exempt interest) or are already included in financial net income per books (charitable contributions carryover from previous year).

Question 12

Heron Corporation, a calendar year, accrual basis taxpayer, provides the following information for this year and asks you to prepare Schedule M-1:

Accepted Answer

The answer of Heron Corporation, a calendar year, accrual basis...

Question 13

Ostrich, a C corporation, has a net short-term capital gain of $40,000 and a net long-term capital loss of $180,000 during 2011. Ostrich also has taxable income from other sources of $1 million. Prior years' transactions included the following:

Accepted Answer

The answer of Ostrich, a C corporation, has a net...

Question 14

During the current year, Waterthrush Company had operating income of $510,000 and operating expenses of $400,000. In addition, Waterthrush had a long-term capital gain of $30,000. How does Lucinda, the sole owner of Waterthrush Company, report this information on her individual income tax return under following assumptions?

Accepted Answer

The answer of During the current year, Waterthrush Company had...

Question 15

Which of the following statements is correct regarding the taxation of C corporations?
A) The due date for a corporate income tax return (ignoring extensions) is the fifteenth day of the third month following the close of the corporation's tax year.
B) A corporation with taxable income of less than $500 need not file a tax return.
C) The alternative minimum tax does not apply.
D) In general, the required annual payment for corporate estimated taxes is 90% of the corporation's final tax for the current year.
E) None of the above.

Accepted Answer

The due date for a corporate income tax return is the fifteenth day of the fourth month following the close of the corporation's tax year (not the third month).

Answer: E
 None of the statements are entirely correct. A corporation with taxable income of less than $500 must still file a tax return, the alternative minimum tax does apply to some corporations, and the required annual payment for corporate estimated taxes is generally 100% of the corporation's final tax for the current year or 110% of the prior year's tax liability.

Question 16

Beige Company has approximately $250,000 in net income in 2011 before deducting any compensation or other payment to its sole owner, Janet (who is single). Assume that Janet is in the 35% marginal tax bracket. Discuss the tax aspects of each of the following arrangements. (Ignore any employment tax considerations.)

Accepted Answer

The answer of Beige Company has approximately $250,000 in net...

Question 17

Shaw, an architect, is the sole shareholder of Shaw Corporation, a professional association. The corporation paid Shaw a salary of $255,000 during its fiscal year ending October 31, 2011.

Accepted Answer

The answer of Shaw, an architect, is the sole shareholder...

Question 18

During the current year, Shrike Company had $220,000 net profit from operations. Carlos, the sole owner of Shrike, is in the 35% marginal tax bracket. Determine the combined tax burden for Shrike and Carlos under the following two independent situations. (Ignore any employment taxes.)

Accepted Answer

The answer of During the current year, Shrike Company had...

Question 19

During the current year, Coyote Corporation (a calendar year C corporation) has the following transactions:

Accepted Answer

The answer of During the current year, Coyote Corporation (a...

Question 20

On December 30, 2011, the board of directors of Gull Corporation, a calendar year, accrual method C corporation, authorized a contribution of $50,000 to a qualified charitable organization. For purposes of the taxable income limitation applicable to charitable deductions, Gull has taxable income of $420,000 and $370,000 for 2011 and 2012, respectively. Describe the tax consequences to Gull Corporation under the following independent situations.

Accepted Answer

The answer of On December 30, 2011, the board of...

Quiz 2: Corporations: Introduction and Operating Rules

Which of the following statements is incorrect regarding the taxation of C corporations?

During the current year, Lavender Corporation, a C corporation in the business of manufacturing tangible research equipment, made charitable contributions to qualified organizations as follows: Lavender Corporation's taxable income (before any charitable contribution deduction) is $2.5 million.

Warbler Corporation, an accrual method regular corporation, was formed and began operations on March 1, 2011. The following expenses were incurred during its first year of operations (March 1 - December 31, 2011):

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

Almond Corporation, a calendar year C corporation, had taxable income of $900,000, $1.1 million, and $790,000 for 2008, 2009, and 2010, respectively. Almond's taxable income is $1.5 million for 2011. Compute the minimum estimated tax payments for 2011 for Almond Corporation.

Vireo Corporation, a calendar year C corporation, has taxable income of $1.3 million and $3 million for 2010 and 2011, respectively. The minimum 2011 estimated tax installment payments for Vireo are:

During the current year, Quartz Corporation (a calendar year C corporation) has the following transactions: Quartz owns 15% of ABC Corporation's stock. How much is Quartz Corporation's taxable income (loss) for the year?

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income. Which of the following items is a subtraction on Schedule M-1?

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income. Which of the following items is an addition on Schedule M-1?

Heron Corporation, a calendar year, accrual basis taxpayer, provides the following information for this year and asks you to prepare Schedule M-1:

Ostrich, a C corporation, has a net short-term capital gain of $40,000 and a net long-term capital loss of $180,000 during 2011. Ostrich also has taxable income from other sources of $1 million. Prior years' transactions included the following:

Which of the following statements is correct regarding the taxation of C corporations?

Shaw, an architect, is the sole shareholder of Shaw Corporation, a professional association. The corporation paid Shaw a salary of $255,000 during its fiscal year ending October 31, 2011.

During the current year, Shrike Company had $220,000 net profit from operations. Carlos, the sole owner of Shrike, is in the 35% marginal tax bracket. Determine the combined tax burden for Shrike and Carlos under the following two independent situations. (Ignore any employment taxes.)

During the current year, Coyote Corporation (a calendar year C corporation) has the following transactions: