Question 1

A corporation is required to report differences between book and taxable income on either Schedule M-1 or Schedule M-3 of the corporate income tax return.

Accepted Answer

This statement is true. Corporations are required to report differences between book and taxable income on Schedule M-1 or Schedule M-3 of the corporate income tax return.

Question 2

Rogers,Inc.owns 12% of Lampe Corporation's voting common stock.During the current year,Rogers generated $50,000 operating income and received $8,000 dividends from Lampe.Only $1,600 of the dividend is taxable.

Accepted Answer

False

Question 3

Corporations are allowed a deduction for charitable contributions,limited to 10 percent of taxable income before the deduction.

Accepted Answer

Corporations are allowed a deduction for charitable contributions, limited to 10 percent of taxable income before the deduction.

Question 4

In terms of dispersal of ownership,corporations are classified as either closely held or publicly held.

Accepted Answer

This statement is true. Closely held corporations are owned by a small group of individuals, such as family members or a few investors, while publicly held corporations have many shareholders and their shares are traded on public stock exchanges.

Question 5

A nonprofit corporation may incur a federal income tax if it has unrelated business income.

Accepted Answer

If a nonprofit corporation has unrelated business income, it may need to pay federal income tax on that income. This is known as unrelated business income tax (UBIT).

Question 6

Bisou Inc.made a $48,200 contribution to charity this year.Only $39,000 of the contribution was deductible.Bisou can carry the $9,200 nondeductible contribution back three years and forward five years.

Accepted Answer

The IRS does not allow businesses to carry back charitable contributions; they can only carry forward any excess contributions for five years.

Question 7

The stock of closely held corporations is typically restricted as to transferability by some type of buy-sell agreement.

Accepted Answer

This is true because closely held corporations are usually owned by a small group of individuals who want to maintain control over the ownership and direction of the company. To do so, they use buy-sell agreements to restrict the transferability of the stock. These agreements outline the conditions under which shareholders can buy or sell their shares and often contain provisions that require certain approval requirements for any transfers.

Question 8

Eagle,Inc.made a contribution to the Boy Scouts of $25,000 during its current tax year.The corporation's taxable income before any charitable contribution deduction was $200,000.The corporation has a current charitable contribution deduction of $25,000.

Accepted Answer

The maximum deduction for charitable contributions for corporations is limited to 10% of their taxable income before the deduction. Therefore, Eagle, Inc. can only deduct $20,000 (10% of $200,000) in the current tax year, not the full $25,000 contributed.

Question 9

The federal tax law considers the member corporations of an affiliated group to be a single entity for federal tax purposes.An example of this treatment is the requirement to share the 15% tax bracket.

Accepted Answer

The federal tax law does indeed consider the member corporations of an affiliated group to be a single entity for federal tax purposes, which requires them to share the tax brackets.

Question 10

The four primary legal characteristics of a corporation are unlimited liability,limited life,free transferability of interests,and centralized management.

Accepted Answer

The four primary legal characteristics of a corporation are limited liability, perpetual existence, free transferability of ownership interests, and centralized management.

Question 11

Donatoni Corporation owns 40% of Market,Inc.voting common stock.During the current year,Donatoni received a $30,000 dividend from Market.Donatoni must report the dividend as gross income,and is allowed a $21,000 dividends-received deduction.

Accepted Answer

The answer of Donatoni Corporation owns 40% of Market,Inc.voting common...

Question 12

The corporate characteristic of free transferability exists if the corporate stock is subject to a buy-sell agreement.

Accepted Answer

The corporate characteristic of free transferability means that shares of corporate stock can be freely bought and sold without restrictions. A buy-sell agreement, on the other hand, is a contractual arrangement between shareholders that governs the transfer of shares in certain circumstances. It limits the transferability of the stock, therefore it does not meet the criteria for free transferability.

Question 13

The Schedule M-3 reconciliation requires less detailed information than the M-1 reconciliation.

Accepted Answer

The Schedule M-3 reconciliation requires more detailed information than the M-1 reconciliation. The M-3 requires additional disclosure of book-tax differences related to income, deductions, and credits, as well as a breakdown of net income before taxes. The M-1 only requires a simplified calculation of taxable income based on book income adjusted for certain items.

Question 14

A nondeductible charitable contribution is a permanent book/tax difference.

Accepted Answer

The answer of A nondeductible charitable contribution is a permanent...

Question 15

The dividends-received deduction is equal to 80% of any dividends-received by a corporate taxpayer.

Accepted Answer

The dividends-received deduction is generally 50% or 65%, depending on the ownership percentage in the dividend-paying corporation, not 80%.

Question 16

The corporate characteristic of limited liability is more important to the shareholders than the characteristic of centralized management.

Accepted Answer

Limited liability means that shareholders are only responsible for the amount of money they invest in the company and are not personally liable for its debts. This is a crucial protection for shareholders and is often a reason why people invest in corporations. Centralized management, while important, is not as essential to the protection and benefit of shareholders.

Question 17

Dividends-received deductions generally are not allowed for dividends from foreign corporations.

Accepted Answer

This statement is true. Dividends-received deductions are generally not allowed for dividends from foreign corporations. However, there are some exceptions and special rules for certain types of foreign corporations and investments.

Question 18

The purpose of Schedule M-1 is to explain the differences between financial statement income and taxable income.

Accepted Answer

Schedule M-1 is used to reconcile the differences between a company's financial statement income and taxable income. It explains the adjustments made to certain financial statement items to reconcile them to their tax counterparts.

Question 19

At least three corporations are required to form an affiliated group.

Accepted Answer

At least two corporations are required to form an affiliated group, not three.

Question 20

An affiliated group consists of a parent company that directly owns 80% of at least one subsidiary corporation plus all other subsidiaries that are 80% owned within the group.

Accepted Answer

This is the definition of an affiliated group as described by the IRS for tax purposes.

Quiz 11: The Corporate Taxpayer