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Yvonne Corporation manufactures and sells ceramic...

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Yvonne Corporation manufactures and sells ceramic dinnerware. The company also sells dinnerware that is purchased from unrelated foreign producers. During tax year 2008, Yvonne had a U. S. profit of $1.2 million (QPAI) and a loss from the imported merchandise of $100,000. What is Yvonne?s DPAD? a. None. b. $33,000. c. $66,000. d. $72,000. e. None of the above. 2. Heron Corporation, a calendar year, accrual basis taxpayer, provides the following information for this year and asks you to prepare Schedule M-1: Net income per books (after-tax) $257,950 Taxable income 150,000 Federal income tax liability 41,750 Interest income from tax-exempt bonds 15,000 Interest paid on loan incurred to purchase tax-exempt bonds 1,500 Life insurance proceeds received as a result of death of Heron?s president 150,000 Premiums paid on policy on life of Heron?s president 7,800 Excess of capital losses over capital gains 6,000 Retained earnings at beginning of year 375,000 Cash dividends paid 90,000 I. There are exactly four items that must be added to Net Income to reconcile it with Taxable Income. II. There are more than two items that must be subtracted from Net Income to reconcile it with Taxable Income. a. Only Statement I is correct. b. Only Statement II is correct. c. Both statements are correct. d. Neither statement is correct. 3. Bjorn owns a 40% interest in an S corporation that earned $150,000 in 2008. He also owns 30% of the stock in a C corporation that earned $150,000 during the year. The S corporation distributed $35,000 to Bjorn and the C corporation paid dividends of $35,000 to Bjorn. How much income must Bjorn report from these businesses? a. $0 income from the S corporation and $0 income from the C corporation. b. $35,000 income from the S corporation and $35,000 income from the C corporation. c. $60,000 income from the S corporation and $35,000 of dividend income from the C corporation. d. $60,000 income from the S corporation and $0 income from the C corporation. e. None of the above. 4. Chev Corporation, a calendar year corporation, has alternative minimum taxable income (before any exemption) of $1.28 million for 2008. The company is not a small corporation. If the regular corporate tax is $209,000, Chev?s alternative minimum tax for 2008 is: a. $47,000. b. $209,000. c. $256,000. d. $1,280,000. e. None of the above. 5. In the current year, Plum Corporation, a computer manufacturer, donated 100 laptop computers to a local school district (a qualified educational organization). The computers were constructed by Plum earlier this year, and the school district allocated the computers among its various schools where they will be used for educational purposes. Plum?s basis in the computers is $70,000, and their fair market value is $250,000. What is Plum?s deduction for the contribution of the computers (ignoring the taxable income limitation)? a. $70,000. b. $140,000. c. $160,000. d. $250,000. e. None of the above. 6. During the current year, Kingbird Corporation (a calendar year C corporation) had the following income and expenses: Income from operations $135,000 Expenses from operations 99,000 Dividends received (40% ownership) 9,000 Domestic production activities deduction 2,700 On October 1, Kingbird Corporation made a contribution to a qualified charitable organization of $6,300 in cash (not included in any of the above items). Determine Kingbird?s charitable contribution deduction for the current year. a. $0. b. $4,230. c. $4,500. d. $6,300. e. None of the above. 7. Hippo, Inc., a calendar year C corporation, manufactures golf gloves. For 2010, Hippo had taxable income (before DPAD) of $800,000, qualified domestic production activities income of $950,000, and W-2 wages related to qualified production activities income of $130,000. Hippo?s domestic production activities deduction for 2010 is: a. $0. b. $65,000. c. $72,000. d. $85,500. e. None of the above. 8. Grocer Services Corporation (a calendar year taxpayer), a wholesale distributor of food, made the following donations to qualified charitable organizations during the year: Adjusted Basis Fair Market Value Food (held as inventory) donated to the Ohio Children?s Shelter $6,500 $7,800 Passenger van to Ohio Children?s Shelter, to be used to transport children to school 8,500 6,100 Stock in Acme Corporation acquired two years ago and held as an investment, donated to Southwest University 5,000 9,200 How much qualifies for the charitable contribution deduction? a. $21,800. b. $24,840. c. $24,100. d. $22,450. e. None of the above. 9. Emerald Corporation, a calendar year C corporation, was formed and began operations on July 1, 2010. The following expenses were incurred during the first tax year (July 1 through December 31, 2010) of operations: Expenses of temporary directors and of organizational meetings $9,000 Fee paid to the state of incorporation 1,000 Accounting services incident to organization 2,500 Legal services for drafting the corporate charter and bylaws 3,500 Expenses incident to the printing and sale of stock certificates 4,000 Assuming a ? 248 election, what is the Emerald?s deduction for organizational expenditures for 2010? a. $0. b. $533. c. $5,367. d. $5,500. e. None of the above. 10. Red Corporation, which owns stock in Blue Corporation, had net operating income of $400,000 for the year. Blue pays Red a dividend of $60,000. Red takes a dividends received deduction of $48,000. Which of the following statements is correct? a. Red owns less than 20% of Blue Corporation. b. Red owns 20% or more, but less than 80% of Blue Corporation. c. Red owns 80% of Blue Corporation. d. Red owns 80% or more of Blue Corporation. e. None of the above. 11. 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. Additions or subtractions on Schedule M-1 include the following: a. Charitable contributions carryover from previous year. b. Travel and entertainment expenses in excess of deductible limits. c. Book depreciation in excess of allowable tax depreciation. d. Federal income tax per books. e. Charitable contributions in excess of deductible limits. f. Premiums paid on life insurance policy on key employee. g. Proceeds of life insurance paid on death of key employee. h. Tax-exempt interest. i. Interest incurred to carry tax-exempt bonds. Which of the above items are subtractions on Schedule M-1? a. Items a., b., c., e., and f. only. b. Items a., g., and h. only. c. Items a., d., e., g., and h. only. d. Items b., c., d., e., f., and i. only. e. None of the above. 12. During 2008, Sparrow Corporation, a calendar year C corporation, had operating income of $425,000, operating expenses of $210,000, a short-term capital loss of $45,000, and a long-term capital gain of $125,000. How much is Sparrow?s tax liability for 2008? a. $67,100. b. $79,100. c. $98,300. d. $103,250. e. None of the above. 13. George Judson is the sole shareholder and employee of Black Corporation, a C corporation that is engaged exclusively in engineering services. During the year, Black has gross revenues of $300,000 and operating expenses (excluding salary) of $100,000. Further, Black Corporation pays George a salary of $150,000. The salary is reasonable in amount and George is in the 35% marginal tax bracket irrespective of any income from Black. Assuming that Black Corporation distributes all after-tax income as dividends, how much total combined income tax do Black and George pay in the current year? (Ignore any employment tax considerations.) a. $64,875. b. $70,000. c. $74,875. d. $81,375. e. None of the above. 14. Saguaro Corporation, a cash basis and calendar year taxpayer, was formed and began operations on August 1, 2008. Saguaro incurred the following expenses during its first year of operations (August 1-December 31, 2008): Expenses of temporary directors and of organizational meetings $22,500 Fee paid to the state of incorporation 8,000 Expenses in printing and sale of stock certificates 5,200 Legal services for drafting the corporate charter and bylaws 21,800 Total $57,500 If Saguaro Corporation makes a timely election under ? 248 to amortize qualifying organizational expenses, how much may the corporation deduct for tax year 2008? a. $4,078. b. $5,000. c. $6,314. d. $6,458. e. None of the above. 15. Sage, Inc., a closely held corporation that is not a PSC, has a $140,000 passive loss, $85,000 of active business income, and $35,000 of portfolio income. How much of the passive loss can Sage deduct? a. $0. b. $85,000. c. $120,000. d. $140,000. e. None of the above. 16. Patrick, an attorney, is the sole shareholder of Gander Corporation. Gander is a PSC with a fiscal year ending October 31. The corporation paid Patrick a salary of $360,000 during its fiscal year ending October 31, 2008. How much salary must Gander pay Patrick during the period November 1 through December 31, 2008, to permit the corporation to continue to use its fiscal year without negative tax effects? a. $0. b. $30,000. c. $60,000. d. $120,000. e. None of the above. 17. Under the ?check-the-box? Regulations, a single-member LLC that fails to elect to be to treated as a corporation will be taxed as a partnership. (True or False?) 18. 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. Additions or subtractions on Schedule M-1 include the following: a. Charitable contributions carryover from previous year. b. Travel and entertainment expenses in excess of deductible limits. c. Book depreciation in excess of allowable tax depreciation. d. Federal income tax per books. e. Charitable contributions in excess of deductible limits. f. Premiums paid on life insurance policy on key employee. g. Proceeds of life insurance paid on death of key employee. h. Tax-exempt interest. i. Interest incurred to carry tax-exempt bonds. Which of the above items are additions on Schedule M-1? a. Items b., d., e., and f. b. Items a., b., c., d., f., and g. c. Items a., g., and h. d. Items b., c., d., e., f., and i. e. None of the above. 19. The Supreme Court must hear all cases appealed from the U.S. Court of Appeals for the Federal Circuit. (True or False?) 20. Zircon Corporation donated scientific property worth $350,000 to City University (a qualified charitable organization) to be used in research. The basis of the property was $100,000, and Zircon had held it for ten months as inventory. Zircon Corporation may deduct $225,000 as a charitable contribution (ignoring the taxable income limitation). (True or False?)

 

Paper#5126 | Written in 18-Jul-2015

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