Question 1

Ed,an individual,incorporates two separate businesses that he owns by establishing two new C corporations.Each corporation generates taxable income of $50,000.As a general rule,each corporation will have a tax liability of $11,125.

Accepted Answer

Each C corporation is subject to a flat tax rate of 21% on its taxable income, which in this case would result in a tax liability of $10,500 ($50,000 x 21%). Therefore, the total tax liability for both corporations would be $21,000 ($10,500 + $10,500), which is greater than $22,250 (2 x $11,125).

Question 2

Hornbill Corporation,a cash basis and calendar year C corporation,was formed and began operations on May 1,2017.Hornbill incurred the following expenses during its first year of operations (May 1 - December 31,2017): temporary directors meeting expenses of $10,500,state of incorporation fee of $5,000,stock certificate printing expenses of $1,200,and legal fees for drafting corporate charter and bylaws of $7,500.Hornbill Corporation's 2017 deduction for organizational expenditures is $5,800.

Accepted Answer

The total expenses incurred by Hornbill Corporation for organizational expenditures during its first year of operations (May 1 - December 31, 2017) are $24,200 ($10,500 + $5,000 + $1,200 + $7,500). However, the deduction allowed for organizational expenditures is limited to $5,800. Therefore, the answer is true.

Question 3

On December 20,2017,the directors of Quail Corporation (an accrual basis,calendar year taxpayer) authorized a cash donation of $5,000 to the American Cancer Society,a qualified charity.The payment,which is made on April 11,2018,may be claimed as a deduction for tax year 2017.

Accepted Answer

The donation was authorized in 2017, even though it was not paid until 2018. For accrual basis taxpayers, donations are deductible in the year authorized, not the year paid.

Question 4

A corporation must file a Federal income tax return even if it has no taxable income for the year.

Accepted Answer

All corporations, regardless of whether they have taxable income or not, are required to file a federal income tax return. The return provides information on the corporation's financial activity and any deductions or losses that may be carried over to future years.

Question 5

On December 31,2017,Flamingo,Inc.,a calendar year,accrual method C corporation,accrues a bonus of $50,000 to its president (a cash basis taxpayer),who owns 75% of the corporation's outstanding stock.The $50,000 bonus is paid to the president on February 2,2018.For Flamingo's 2017 Form 1120,the $50,000 bonus will be a subtraction item on Schedule M-1.

Accepted Answer

The bonus is not deductible in 2017 because it was paid to a related party and not paid within 2.5 months after the year-end. Therefore, it is not a subtraction item on Schedule M-1 for 2017.

Question 6

No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

Accepted Answer

The answer of No dividends received deduction is allowed unless...

Question 7

For a corporation,the domestic production activities deduction is equal to 9% of the lesser of (1) qualified production activities income or (2) taxable income.However,the deduction cannot exceed 50% of the W-2 wages related to qualified production activities income.

Accepted Answer

This is an accurate description of the domestic production activities deduction for corporations according to the Internal Revenue Service.

Question 8

In the current year,Crow Corporation,a C corporation,donated scientific property (basis of $30,000,fair market value of $50,000) to State University,a qualified charitable organization,to be used in research.Crow had held the property for four months as inventory.Crow Corporation may deduct $50,000 for the charitable contribution (ignoring the taxable income limitation).

Accepted Answer

Since the property was held as inventory and for less than a year (short-term capital gain property), Crow Corporation can only deduct the property's basis, which is $30,000, not its fair market value.

Question 9

Because of the taxable income limitation,no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.

Accepted Answer

The dividends received deduction (DRD) is allowed even if a corporation has a net operating loss (NOL) for the current taxable year. The limitation affects the amount of DRD that can be used to reduce taxable income, not the allowance of the deduction itself.

Question 10

Lilac Corporation incurred $4,700 of legal and accounting fees associated with its incorporation.The $4,700 is deductible as startup expenditures on Lilac's tax return for the year in which it begins business.

Accepted Answer

The $4,700 of legal and accounting fees associated with incorporation are considered capital expenditures and must be amortized over a period of 180 months starting with the month the business begins, rather than being fully deductible as startup expenditures in the year the business begins.

Question 11

A calendar year C corporation can receive an automatic 9-month extension to file its corporate return (Form 1120) by timely filing a Form 7004 for the tax year.

Accepted Answer

A calendar year C corporation can receive an automatic 6-month extension to file its corporate return (Form 1120) by timely filing a Form 7004 for the tax year.

Question 12

An expense that is deducted in computing net income per books but not deductible in computing taxable income is a subtraction item on Schedule M-1.

Accepted Answer

An expense that is deducted in computing net income per books but not deductible in computing taxable income is an addition item on Schedule M-1, not a subtraction item, because it increases taxable income relative to book income.

Question 13

Schedule M-1 is used to reconcile net income as computed for financial accounting purposes with taxable income reported on the corporation's income tax return.

Accepted Answer

Schedule M-1 is indeed used for reconciling financial accounting net income with taxable income reported on a corporation's income tax return.

Question 14

For purposes of the estimated tax payment rules,a "large corporation" is defined as a corporation that had taxable income of $1 million or more in any of the three preceding years.

Accepted Answer

This is the correct definition of a "large corporation" for purposes of estimated tax payment rules.

Question 15

A personal service corporation with taxable income of $100,000 in the current year will have a tax liability of $22,250.

Accepted Answer

The answer of A personal service corporation with taxable income...

Question 16

In the current year,Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum,a qualified public charity.The museum included the painting in its permanent collection.Oriole Corporation purchased the painting 5 years ago for $10,000.Oriole's charitable contribution deduction is $30,000 (ignoring the taxable income limitation).

Accepted Answer

The charitable contribution deduction is equal to the fair market value of the donated painting, which in this case is $30,000. This is true regardless of the purchase price of the painting.

Question 17

Heron Corporation,a calendar year C corporation,had an excess charitable contribution for 2016 of $5,000.In 2017,Heron made a further charitable contribution of $20,000.Heron's 2017 deduction is limited to $15,000 (10% of taxable income).The 2017 contribution must be applied first against the $15,000 limitation.

Accepted Answer

This is correct. According to the IRS regulations, any excess charitable contributions from a previous year can be carried forward for up to five years and used to offset future charitable contributions. In this case, the $5,000 excess contribution from 2016 can be carried forward to 2017, and combined with the $20,000 contribution to make a total of $25,000. However, the 2017 deduction is limited to $15,000, so the excess $10,000 contribution cannot be deducted. Therefore, the 2017 contribution must be applied first against the $15,000 limitation, leaving a carryforward of $10,000 for future years.

Question 18

Peach Corporation had $210,000 of net active income,$45,000 of portfolio income,and a $230,000 passive loss during the current year.If Peach is a closely held C corporation that is not a PSC,it can deduct $210,000 of the passive loss in the year.

Accepted Answer

According to the passive activity loss rules, a closely held C corporation can deduct up to $25,000 of passive losses in the current year if it actively participates in the activity, and it can deduct all passive losses in the year if it has net active income and is not a personal service corporation (PSC). Since Peach Corporation had $210,000 of net active income and is not a PSC, it can deduct the full $230,000 passive loss in the current year.

Question 19

A corporate net operating loss can be carried back 2 years and forward 20 years to offset taxable income for those years.

Accepted Answer

This statement is true. A corporation can carry back a net operating loss for two years prior to the loss and apply it as a deduction against taxable income for those years. It can also carry the loss forward for up to 20 years to offset future taxable income.

Question 20

Azul Corporation,a calendar year C corporation,received a dividend of $30,000 from Naranja Corporation.Azul owns 25% of the Naranja Corporation stock.Assuming it is not subject to the taxable income limitation,Azul's dividends received deduction is $21,000.

Accepted Answer

The answer of Azul Corporation,a calendar year C corporation,received a...

Quiz 17: Corporations: Introduction and Operating Rules