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Exam 17: Corporations: Introduction and Operating Rules

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Question 41

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As a general rule, a personal service corporation (PSC) must use a calendar year as its accounting period.

A) True
B) False

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Question 42

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On December 28, 2012, the board of directors of Taupe Corporation, a calendar year, accrual method C corporation, authorized a contribution of land to a qualified charitable organization. The land (basis of $75,000, fair market value of $125,000) was acquired five years ago and held as an investment. For purposes of the taxable income limitation applicable to charitable deductions, Taupe has taxable income of $800,000 and $950,000 for 2012 and 2013, respectively. Describe the tax consequences to Taupe Corporation under the following independent situations.

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In general, charitable contributions are...

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Question 43

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Emerald Corporation, a calendar year C corporation, was formed and began operations on April 1, 2012. The following expenses were incurred during the first tax year (April 1 through December 31, 2012) of operations: Assuming a § 248 election, what is the Emerald's deduction for organizational expenditures for 2012?

Black Corporation, an accrual basis taxpayer, was formed and began operations on February 1, 2012. During its first year of operations (February 1 - December 31, 2012), Black incurred the following expenses: fee paid to state of incorporation of $2,000, accounting and legal services incident to organization of $9,000, and expenses related to the printing and sale of stock certificates of $10,000. Black has $11,000 of qualified organizational expenditures that it may elect to amortize.

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

Eagle Corporation owns stock in Hawk Corporation and has taxable income of $100,000 for the year before considering the dividends received deduction.Hawk Corporation pays Eagle a dividend of $130,000, which was considered in calculating the $100,000.What amount of dividends received deduction may Eagle claim if it owns 25% of Hawk's stock?

Copper Corporation owns stock in Bronze Corporation and has net operating income of $900,000 for the year.Bronze Corporation pays Copper a dividend of $150,000.What amount of dividends received deduction may Copper claim if it owns 85% of Bronze stock (assuming Copper's dividends received deduction is not limited by its taxable income) ?

Ostrich, a C corporation, has a net short-term capital gain of $20,000 and a net long-term capital loss of $90,000 during 2012.Ostrich also has taxable income from other sources of $1 million.Prior years' transactions included the following:

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

On December 31, 2012, Peregrine Corporation, an accrual method, calendar year taxpayer, accrued a performance bonus of $100,000 to Charles, a cash basis, calendar year taxpayer. Charles is president and sole shareholder of the corporation. When can Peregrine deduct the bonus?

Jade Corporation, a C corporation, had $100,000 operating income and $40,000 operating expenses during the year. In addition, Jade had a $2,000 long-term capital gain and a $10,000 short-term capital loss. Compute Jade's taxable income for the year.

During the current year, Owl Corporation (a C corporation) , a retailer of children's apparel, made the following donations to qualified charitable organizations. How much qualifies for the charitable contribution deduction?

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).

Warbler Corporation, an accrual method regular corporation, was formed and began operations on March 1, 2012. The following expenses were incurred during its first year of operations (March 1 - December 31, 2012):

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, 2012, Canary has accrued a $75,000 bonus to Leticia. Describe the tax consequences of the bonus to Canary and to Leticia under the following independent situations.

Double taxation of corporate income results because dividend distributions are included in a shareholder's gross income but are not deductible by the corporation.

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.

Ed, an individual, incorporates two separate businesses that he owns by establishing two new corporations.Each corporation generates taxable income of $50,000.Each corporation will have a tax liability of $7,500.

Employment taxes apply to all entity forms of operating a business. As a result, employment taxes are a neutral factor in selecting the most tax effective form of operating a business.

During the current year, Thrasher, Inc., a closely held personal service corporation, has $67,500 of active business income, $52,500 of portfolio income, and $120,000 of passive loss.How much of the passive loss can Thrasher deduct in the current year?