Question 1

Benedict transfers land with a FMV of $900,000 to a newly-formed corporation in exchange for all of the stock.The land has a basis of $500,000 and debt of $300,000.The basis of the land,in the hands of the corporation is:

Accepted Answer

The basis of the land in the hands of the corporation is $500,000. This is because under Section 351 of the Internal Revenue Code, when property is transferred to a corporation by one or more persons in exchange for stock in such corporation, and immediately after the exchange such person or persons are in control of the corporation, the basis of the property in the hands of the transferee corporation is the same as it would be in the hands of the transferor. This is known as a carryover basis. The debt on the property does not affect the basis of the property in the hands of the corporation.

Question 2

PQR Corporation has taxable income before DRD of $60,000 that includes a dividend of $10,000 from a large publicly-traded domestic corporation.What is the tax liability of PQR Corporation?

Accepted Answer

PQR Corporation is eligible for a domestic dividend received deduction (DRD) of 50% on the $10,000 dividend, resulting in a DRD of $5,000. Therefore, the taxable income after DRD is $55,000. 
The tax liability for PQR Corporation can be calculated as follows:
- On the first $50,000 of taxable income: $7,500 (tax rate of 15%)
- On the remaining $5,000 of taxable income: $750 (tax rate of 15%)
Thus, the total tax liability is $8,250. 
Therefore, the answer is C.

Question 3

Which of the following statements is true?

Accepted Answer

The answer of Which of the following statements is true?
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Question 4

Which of the following items decrease basis for a stockholder of a Subchapter S corporation?

Accepted Answer

Charitable contributions made by an S corporation are passed through to the shareholders and can decrease the shareholder's basis in the corporation's stock. This is because the income and deductions of an S corporation flow through to its shareholders, who report them on their personal tax returns. While net income increases basis and capital contributions and loans from the shareholder to the corporation also increase or do not affect the basis, charitable contributions (as part of the corporation's deductions) can reduce it.

Question 5

STU Corporation has taxable income before DRD of $27,000 that includes a dividend of $30,000 from a large publicly-traded domestic corporation.What is the taxable income of STU Corporation?

Accepted Answer

DRD (Dividends Received Deduction) allows corporations to deduct a portion of dividends received from another corporation. In this case, STU Corporation received a dividend of $30,000, which is eligible for a DRD of 50% (since the dividend is received from a domestic corporation). Therefore, the DRD for STU Corporation is $15,000 ($30,000 x 50%).

Taxable income before DRD is $27,000, so subtracting the DRD of $15,000 from it gives a taxable income of $12,000 ($27,000 - $15,000).

Therefore, the taxable income of STU Corporation is $12,000, which is option D.

Question 6

Which of the following statements is correct with respect to the formation of a corporation?

Accepted Answer

The basis of the stock in the hands of the shareholder is calculated as the basis of the property contributed plus any gain recognized minus any boot received.

Question 7

Which of the following statements is incorrect?

Accepted Answer

Corporations that own foreign subsidiaries can file a Form 1120, but they may also need to file additional forms such as Form 5471 to report transactions with their foreign subsidiaries.

Question 8

MMM Company has taxable income of $300,000.The company received a dividend of $50,000 from a domestic corporation in which it holds a 60% ownership interest.It also has tax depreciation that is $20,000 greater than financial statement depreciation.These items were properly accounted for in determining taxable income.Without regard to tax expense,what is financial statement income of MMM Company?

Accepted Answer

Financial statement income is calculated by starting with taxable income and adjusting for any items that are not recognized on the financial statements, such as tax depreciation. Therefore, financial statement income for MMM Company would be:

Taxable income: $300,000
Add: Tax-exempt dividend income (60% of $50,000): $30,000
Add: Tax depreciation in excess of financial statement depreciation: $20,000
Financial statement income: $360,000

Question 9

Zeus owns 100% of Grecian Image Corporation and his basis in the stock is $105,000.He receives cash of $20,000 and property with FMV of $100,000 and basis of $140,000 in complete liquidation of his ownership interest.What amount of gain or loss should Zeus recognize as a result of this transaction?

Accepted Answer

In a complete liquidation, Zeus would recognize gain or loss based on the difference between the fair market value (FMV) of the assets received and his basis in the stock. Here, Zeus receives assets with a total FMV of $120,000 ($20,000 cash + $100,000 property) against his basis of $105,000 in the stock. Thus, Zeus would recognize a gain of $15,000 ($120,000 - $105,000). The basis of the property received and the FMV of the stock are not directly relevant for calculating the recognized gain in this scenario.

Question 10

A C corporation has a fiscal-year end of February 28.If the corporation receives an automatic extension to file its return,the return will be due on the 15^th day of:

Accepted Answer

The answer of A C corporation has a fiscal-year end...

Question 11

Kyung formed a corporation and owns all of the stock.He contributed property with a FMV of $90,000 and a basis of $85,000,and he received $15,000 cash from the corporation.Kyung's basis in his stock is:

Accepted Answer

Kyung's basis in his stock is the sum of the FMV of the property he contributed ($90,000) and the cash he received ($15,000), which is $105,000. However, since he had a basis in the property of $85,000, he must reduce his basis in the stock by the amount of the cash received, which is $15,000. Therefore, his basis in the stock is $90,000 ($85,000 + $15,000 - $15,000). Therefore, the correct answer is choice B.

Question 12

A C corporation has a fiscal year-end of May.If the corporation receives an automatic extension to file its return,the return will be due on the 15^th of:

Accepted Answer

C corporations with a fiscal year-end have their tax returns due on the 15th day of the fourth month following the end of their fiscal year. For a fiscal year ending in May, the original due date would be September 15th. An automatic extension provides an additional six months, making the extended due date March 15th.

Question 13

If a corporation would like a Subchapter S election to be valid for the current year,a Form 2553 must be filed:

Accepted Answer

A corporation must file Form 2553 either before the 15th day of the third month of the current fiscal year, or during the prior fiscal year to make a valid Subchapter S election for the current year. Therefore, option D is the correct answer.

Question 14

Which of the following statements is correct?

Accepted Answer

The answer of Which of the following statements is correct?
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Question 15

Valarie owns 100% of Green Company.Green has earnings and profits of $10,000.The corporation distributes property with a basis of $9,000 and a FMV of $12,000 to Valarie.She must report dividend income of:

Accepted Answer

Valarie must report dividend income of $10,000, which is the amount of the earnings and profits of Green Company. The distribution is considered a dividend to the extent of the corporation's earnings and profits. The basis and FMV of the property distributed do not affect the dividend income amount in this context.

Question 16

Which of the following statements is incorrect?

Accepted Answer

Schedule M-3 is required for corporations with total assets of $10 million or more, not less than $250,000. Therefore, statement C is incorrect.

Question 17

What is the AMT exemption amount for a corporation with AMT income of $250,000?

Accepted Answer

The answer of What is the AMT exemption amount for...

Question 18

Sunrise Corporation owns 30% of Sunset Corporation.Both are domestic corporations.Sunset pays a $10,000 dividend to Sunrise.What amount of dividend income will be included in the taxable income of Sunrise Corporation?

Accepted Answer

80% of the dividend is excluded from income.

Question 19

JJJ Company has earnings and profits of $30,000.The corporation distributes property with a basis of $40,000 and a FMV of $35,000 to Jill,its sole shareholder.Her basis in the stock is $30,000.Which of the following statements is correct?

Accepted Answer

The distribution of property with a basis higher than its FMV results in a loss to the corporation of $5,000. However, since Jill's basis in the stock is only $30,000, she can only receive a nontaxable return of capital of $30,000. The remaining $5,000 is treated as a capital loss to Jill, which she can use to offset other capital gains or deduct up to $3,000 against ordinary income. Therefore, option A is correct. Option B is incorrect because a distribution of property is not considered a dividend. Option C is also incorrect because although the corporation incurs a loss, it does not directly affect the tax treatment of the distribution to Jill.

Question 20

QRS Corporation has a fiscal year-end that ends on September 30.It is required to make quarterly estimated payments.The first estimated payment will be due on the 15^th of:

Accepted Answer

The answer of QRS Corporation has a fiscal year-end that...

Quiz 15: Corporate Taxation

Benedict transfers land with a FMV of $900,000 to a newly-formed corporation in exchange for all of the stock.The land has a basis of $500,000 and debt of $300,000.The basis of the land,in the hands of the corporation is:

PQR Corporation has taxable income before DRD of $60,000 that includes a dividend of $10,000 from a large publicly-traded domestic corporation.What is the tax liability of PQR Corporation?

Which of the following statements is true?

Which of the following items decrease basis for a stockholder of a Subchapter S corporation?

STU Corporation has taxable income before DRD of $27,000 that includes a dividend of $30,000 from a large publicly-traded domestic corporation.What is the taxable income of STU Corporation?

Which of the following statements is correct with respect to the formation of a corporation?

Which of the following statements is incorrect?

Zeus owns 100% of Grecian Image Corporation and his basis in the stock is $105,000.He receives cash of $20,000 and property with FMV of $100,000 and basis of $140,000 in complete liquidation of his ownership interest.What amount of gain or loss should Zeus recognize as a result of this transaction?

A C corporation has a fiscal-year end of February 28.If the corporation receives an automatic extension to file its return,the return will be due on the 15th day of:

Kyung formed a corporation and owns all of the stock.He contributed property with a FMV of $90,000 and a basis of $85,000,and he received $15,000 cash from the corporation.Kyung's basis in his stock is:

A C corporation has a fiscal year-end of May.If the corporation receives an automatic extension to file its return,the return will be due on the 15th of:

If a corporation would like a Subchapter S election to be valid for the current year,a Form 2553 must be filed:

Which of the following statements is correct?

Valarie owns 100% of Green Company.Green has earnings and profits of $10,000.The corporation distributes property with a basis of $9,000 and a FMV of $12,000 to Valarie.She must report dividend income of:

Which of the following statements is incorrect?

What is the AMT exemption amount for a corporation with AMT income of $250,000?

Sunrise Corporation owns 30% of Sunset Corporation.Both are domestic corporations.Sunset pays a $10,000 dividend to Sunrise.What amount of dividend income will be included in the taxable income of Sunrise Corporation?

JJJ Company has earnings and profits of $30,000.The corporation distributes property with a basis of $40,000 and a FMV of $35,000 to Jill,its sole shareholder.Her basis in the stock is $30,000.Which of the following statements is correct?

QRS Corporation has a fiscal year-end that ends on September 30.It is required to make quarterly estimated payments.The first estimated payment will be due on the 15th of:

A C corporation has a fiscal-year end of February 28.If the corporation receives an automatic extension to file its return,the return will be due on the 15^th day of:

A C corporation has a fiscal year-end of May.If the corporation receives an automatic extension to file its return,the return will be due on the 15^th of:

QRS Corporation has a fiscal year-end that ends on September 30.It is required to make quarterly estimated payments.The first estimated payment will be due on the 15^th of: