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Exam 17: Corporations: Introduction and Operating Rules

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Question 41

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Orange Corporation owns stock in White Corporation and has net operating income of $400,000 for the year. White Corporation pays Orange a dividend of $60,000. What amount of dividends received deduction may Orange claim if it owns 45% of White stock (assuming Orange's dividends received deduction is not limited by its taxable income) ?

A) $27,000.
B) $42,000.
C) $48,000.
D) $60,000.
E) None of the above.

F) A) and D)
G) A) and C)

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Question 42

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Robin Corporation, a calendar year C corporation, had taxable income of $1.9 million, $1.2 million, and $900,000 for 2011, 2012, and 2013, respectively. Robin has taxable income of $1.5 million for 2014. The minimum 2014 estimated tax installment payments for Robin are:

A) April 15, 2014, $76,500; June 16, 2014, $76,500; September 15, 2014, $76,500; December 15, 2014, $76,500.
B) April 15, 2014, $110,500; June 16, 2014, $127,500; September 15, 2014, $127,500; December 15, 2014, $127,500.
C) April 15, 2014, $127,500; June 16, 2014, $127,500; September 15, 2014, $127,500; December 15, 2014, $127,500.
D) April 15, 2014, $76,500; June 16, 2014, $178,500; September 15, 2014, $127,500; December 15, 2014, $127,500.
E) None of the above.

F) B) and C)
G) None of the above

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Question 43

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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).

Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year both businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income from the corporation on her individual tax return.

Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the year. In addition, Elk has a $10,000 long­term capital gain and a $17,000 short­term capital loss. Elk's taxable income is:

Under the "check­the­box" Regulations, a two­owner LLC that fails to elect to be to treated as a corporation will be taxed as a sole proprietorship.

During the current year, Gray Corporation, a C corporation in the financial services business, made charitable contributions to qualified organizations as follows: -Stock (basis of $20,000, fair market value of $45,000) in Drab Corporation, held for six months as an investment, to the Salvation Army. (Salvation Army plans on selling the stock.) -Painting (basis of $90,000, fair market value of $250,000), held for four years as an investment, to the Museum of Fine Arts. (The Museum plans on including the painting in its collection.) Gray Corporation's taxable income (before any charitable contribution deduction) is $1.8 million. a. What is the total amount of Gray's charitable contributions for the year? b. What is the amount of Gray's charitable contribution deduction in the current year, and what happens to any excess charitable contribution, if any?

In the current year, Sunset Corporation (a C corporation) had operating income of $200,000 and operating expenses of $175,000. In addition, Sunset had a $30,000 long-term capital gain, a $52,000 short-term capital loss, and $5,000 tax-exempt interest income. What is Sunset Corporation's taxable income for the year?

Pablo, a sole proprietor, sold stock held as an investment for a $40,000 long-term capital gain. Pablo's marginal tax rate is 33%. Loon Corporation, a C corporation, sold stock held as an investment for a $40,000 long-term capital gain. Loon's marginal tax rate is 35%. What tax rates are applicable to these capital gains?

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.

The passive loss rules apply to closely held C corporations and to personal service corporations but not to S corporations.

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

On December 19, 2014, 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 10, 2015, may be claimed as a deduction for tax year 2014.

Hornbill Corporation, a cash basis and calendar year C corporation, was formed and began operations on May 1, 2014. Hornbill incurred the following expenses during its first year of operations (May 1 - December 31, 2014): 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 current year deduction for organizational expenditures is $5,800.

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.

During the current year, Kingbird Corporation (a calendar year C corporation) had the following income and expenses: $\begin{array}{llr} \text {Income from operations } &\$200,000\\ \text { Expenses from operations } &140,000\\ \text {Dividends received ( 15 \% ownership) } &15,000\\ \text { Domestic production activities deduction } &2,000\\\end{array}$ On October 1, Kingbird Corporation made a contribution to a qualified charitable organization of $9,000 in cash (not included in any of the above items). Determine Kingbird's charitable contribution deduction for the current year. a. $9,000. b. $7,500. c. $6,650. d. $6,450. e. None of the above.

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?

Azure Corporation, a C corporation, had a long-term capital gain of $50,000 in the current year. The maximum amount of tax applicable to the capital gain is $7,500 ($50,000 × 15%).

On December 31, 2014, 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, 2015. For Flamingo's 2014 Form 1120, the $50,000 bonus will be a subtraction item on Schedule M-1.

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