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Exam 17: Corporations: Introduction and Operating Rules

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Question 21

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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?

A) Book depreciation in excess of tax depreciation.
B) Excess of capital losses over capital gains.
C) Proceeds on key employee life insurance.
D) Income subject to tax but not recorded on the books.
E) None of the above.

F) C) and E)
G) B) and E)

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Question 22

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The corporate marginal income tax rates range from 15% to 39%,while the individual marginal income tax rates range from 10% to 39.6%.

A) True
B) False

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Question 23

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During the current year,Violet,Inc.,a closely held corporation (not a PSC) ,has $55,000 of passive activity loss,$80,000 of net active income,and $20,000 of portfolio income.How much is Violet's taxable income for the current year?

Quail Corporation is a C corporation with net income of $125,000 during the current year.If Quail paid dividends of $25,000 to its shareholders,the corporation must pay tax on $100,000 of net income.Shareholders must report the $25,000 of dividends as income.

Carol and Candace are equal partners in Peach Partnership.In the current year,Peach had a net profit of $75,000 ($250,000 gross income - $175,000 operating expenses) and distributed $25,000 to each partner.Peach must pay tax on $75,000 of income.

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in the current year.Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year.The corporation distributed $45,000 to Juanita,and the partnership distributed $45,000 to Carlos.With respect to this information,which of the following statements is incorrect?

Lucinda is a 60% shareholder in Rhea Corporation,a calendar year S corporation.During the current year,Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition,the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year,Rhea Corporation distributed $50,000 to Lucinda.With respect to this information,which of the following statements is correct?

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

Nancy Smith is the sole shareholder and employee of White Corporation,a C corporation that is engaged exclusively in accounting services.During the current year,White has operating income of $320,000 and operating expenses (excluding salary) of $150,000.Further,White Corporation pays Nancy a salary of $100,000.The salary is reasonable in amount and Nancy is in the 33% marginal tax bracket irrespective of any income from White.Assuming that White Corporation distributes all after-tax income as dividends,how much total combined income tax do White and Nancy pay in the current year? (Ignore any employment tax considerations.)

What is the annual required estimated tax payment for a C corporation? What are the rules regarding payment of the estimated tax?

Flycatcher Corporation,a C corporation,has two equal individual shareholders,Nancy and Pasqual.In the current year,Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder.Regardless of any tax consequences resulting from their interests in Flycatcher,Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket.With respect to the current year,which of the following statements is incorrect?

Bjorn owns a 60% interest in an S corporation that earned $150,000 in the current year.He also owns 60% of the stock in a C corporation that earned $150,000 during the year.The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn.How much income must Bjorn report from these businesses?

On December 31,2017,Lavender,Inc.,an accrual basis C corporation,accrues a $50,000 bonus to Barry,its vice president and a 40% shareholder.Lavender pays the bonus to Barry,who is a cash basis taxpayer,on March 14,2018.Lavender can deduct the bonus in 2018,the year in which it is included in Barry's gross 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 2017.Ostrich also has taxable income from other sources of $1 million.Prior years' transactions included the following: ​ a.How are the capital gains and losses treated on Ostrich's 2017 tax return? b.​Determine the amount of the 2017 net capital loss that is carried back to each of the previous years. c.​Compute the amount of capital loss carryover, if any, and indicate the years to which the loss may be carried. d.​If Ostrich were a proprietorship, how would Ellen, the owner, report these transactions on her 2017 tax return?

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

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) ?

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.

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.

Almond Corporation,a calendar year C corporation,had taxable income of $900,000,$1.1 million,and $1.2 million for 2014,2015,and 2016,respectively.Almond's taxable income is $2 million for 2017.Compute the minimum estimated tax payments for 2017 for Almond Corporation.

A corporation with $5 million or more in assets must file Schedule M-3 (instead of Schedule M-1).