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Question;75;Olga?s proprietorship earned a net profit of $95,000 during the year and she;withdrew $70,000 of this profit. Olga must report $70,000 net income from the;proprietorship on her individual income tax return (Form 1040).;a.;True;b. False;76. 2;Rose is a 50% partner in Wren Partnership. During the year, Wren earned net;profit of $100,000 ($210,000 gross income ? $110,000 operating expenses) and;distributed $20,000 to each partner. Rose must report Wren Partnership profit;of $20,000 on her Federal income tax return.;a.;True;b. False;77. 3;Rajib is the sole shareholder of Robin Corporation, a calendar year S;corporation. Robin earned net profit of $350,000 ($520,000 gross income ?;$170,000 operating expenses) and distributed $80,000 to Rajib. Rajib must;report Robin Corporation profit of $350,000 on his Federal income tax return.;a.;True;b. False;78. 4;Donald owns a 60% interest in a partnership that earned $230,000 in the current;year. He also owns 60% of the stock in a C corporation that earned $230,000;during the year. Donald received $50,000 in distributions from each of the two;entities during the year. With respect to this information, Donald must report;$188,000 of income on his individual income tax return for the year.;a.;True;b. False;79. 5;Quail Corporation is a C corporation with net income of $300,000 during 2011.;If Quail paid dividends of $50,000 to its shareholders, the corporation must;pay tax on $300,000 of net income. Shareholders must report the $50,000 of;dividends as income.;a.;True;b. False;80. 6;Eagle Company, a partnership, had a short-term capital loss of $10,000 during;the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle?s;short-term capital loss on his individual tax return.;a.;True;b. False;81. 7;Katherine, the sole shareholder of Purple Corporation, a calendar year C;corporation, has the corporation pay her a salary of $450,000 in the current;year. The Tax Court has held that $150,000 represents unreasonable;compensation. Purple Corporation?s taxable income is unaffected by the Tax;Court?s determination.;a.;True;b. False;82. 8;Double taxation of corporate income results because dividend distributions are;included in a shareholder?s gross income but are not deductible by the;corporation.;a.;True;b. False;83. 9;Jake, the sole shareholder of Peach Corporation, a C corporation, has the;corporation pay him $100,000. For tax purposes, Jake would prefer to have the;payment treated as salary instead of dividend.;a.;True;b. False;84. 10;Thrush Corporation files Form 1120, which reports taxable income of $110,000.;The corporation?s tax is $26,150.;a.;True;b. False;85. 11;The corporate marginal tax rates range from 10% to 39%, while the individual;marginal tax rates range from 15% to 35%.;a.;True;b. False;86. 12;There is no Federal income tax assessed on partnerships (including those formed;as LLCs) or S corporations. Since all states follow the Federal approach as to;entity taxation, state income taxation is a neutral factor in the selection of;an entity form.;a.;True;b. False;87. 13;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 sole proprietorship.;a.;True;b. False;88. 14;As a general rule, a personal service corporation (PSC) must use a calendar;year as its accounting period.;a.;True;b. False;89. 15;A calendar year C corporation with average annual gross receipts of $5 million;or less must use the cash method of accounting.;a.;True;b. False;90. 16;On December 31, 2011, Lavender, Inc., an accrual basis C corporation, accrues a;$90,000 bonus to Barry, its vice president and a 70% shareholder. Lavender pays;the bonus to Barry, who is a cash basis taxpayer, on March 15, 2012. Lavender;can deduct the bonus in 2012, the year in which it is included in Barry?s gross;income.;a.;True;b. False;91. 17;Unlike individual taxpayers, corporate taxpayers do not receive a preferential;tax rate with respect to long-term capital gains.;a.;True;b. False;92. 18;Albatross, a C corporation, had $125,000 net income from operations and a;$10,000 short-term capital loss in 2011. Albatross Corporation?s taxable income;is $115,000.;a.;True;b. False;93. 19;Owl Corporation, a C corporation, recognizes a gain on the sale of a ? 1250;asset in the current year. Owl had used the straight-line method for;depreciating the realty. Some of Owl?s gain on the sale of the realty will be;treated as depreciation recapture (ordinary income).;a.;True;b. False;94. 20;The passive loss rules apply to closely held C corporations and to personal;service corporations but not to S corporations.;a.;True;b. False;95. 21;Peach Corporation had $210,000 of active income, $45,000 of portfolio income;and a $230,000 passive loss during the year. If Peach is a closely held C;corporation that is not a PSC, it can deduct $230,000 of the passive loss in;the year.;a.;True;b. False;96. 22;On December 20, 2011, 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 March 15;2012, may be claimed as a deduction for tax year 2011.;a.;True;b. False;97. 23;In the current year, Oriole Corporation donated a painting worth $75,000 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 $25,000. Oriole?s charitable contribution deduction is $25,000 (ignoring;the taxable income limitation).;a.;True;b. False;98. 24;In the current year, Zircon Corporation donated scientific property worth;$300,000 to City University (a qualified charitable organization) to be used in;research. The basis of the property was $140,000, and Zircon had held it for;ten months as inventory. Zircon Corporation may deduct $220,000 as a charitable;contribution (ignoring the taxable income limitation).;a.;True;b. False;99. 25;Heron Corporation, a calendar year C corporation, had an excess charitable;contribution for 2010 of $5,000. In 2011, Heron made a further charitable;contribution of $20,000. Heron?s 2011 deduction is limited to $15,000 (10% of;taxable income). The current year?s contribution must be applied first against;the $15,000 limitation.;a.;True;b. False;100. 26;For a corporation in 2011, the domestic production activities deduction is;equal to 9% of the higher 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.;a.;True;b. False;101. 27;Generally, corporate net operating loss can be carried back 3 years and forward;5 years to offset taxable income for those years.;a.;True;b. False;102. 28;Azul Corporation, a calendar year C corporation, received a dividend of $50,000;from Naranja Corporation. Azul owns 10% of the Naranja Corporation stock.;Assuming it is not subject to the taxable income limitation, Azul?s dividends;received deduction is $35,000.;a.;True;b. False;103. 29;The dividends received deduction may be subject to a limitation based on a;percentage of taxable income computed without regard to the NOL deduction, the;domestic production activities deduction, the dividends received deduction, and;any capital loss carryback to the current tax year.;a.;True;b. False;104. 30;No dividends received deduction is allowed unless the corporation has held the;stock for more than 45 days.;a.;True;b. False;105. 31;Black Corporation, an accrual basis taxpayer, was formed and began operations;on February 1, 2011. During its first year of operations (February 1 ? December;31, 2011), 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.;a.;True;b. False;106. 32;A corporation may elect to amortize startup expenditures over the 60-month;period beginning with the month in which the corporation begins business.;a.;True;b. False;107. 33;A personal service corporation with taxable income of $100,000 will have a tax;liability of $22,250.;a.;True;b. False;108. 34;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.;a.;True;b. False;109. 35;Generally, corporations with no taxable income must file a Form 1120.;a.;True;b. False;110. 36;The due date (not including extensions) for filing a 2010 Federal income tax return;for a calendar year C corporation (Form 1120) is April 15, 2011.;a.;True;b. False;111. 37;For purposes of the estimated tax payment rules, a ?large corporation? is;defined as a corporation that had an average taxable income of $1 million or;more over the preceding three-year period.;a.;True;b. False;112. 38;Income that is included in net income per books but not included in taxable;income is an addition item on Schedule M-1.;a.;True;b. False;113. 39;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.;a.;True;b. False;114. 40;On December 31, 2011, 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 1, 2012. For Flamingo?s 2011 Form;1120, the $50,000 bonus will be a subtraction item on Schedule M-1.;a.;True;b. False;115. 41;Canary Corporation, which sustained a $5,000 net capital loss during the year;will enter $5,000 as a addition item on Schedule M-1.;a.;True;b. False;116. 42;Schedule M-2 is used to reconcile unappropriated retained earnings at the;beginning of the year with unappropriated retained earnings at the end of the;year.;a.;True;b. False;117. 43;A corporation with $10 million or more in assets must file Schedule M-3;(instead of Schedule M-1).;a.;True;b. False;118. 44;Schedule M-3;is similar to Schedule M-1 in that the form is designed to reconcile net income;per books with taxable income. However, an objective of Schedule M-3 is more;transparency between financial statements and tax returns than that provided by;Schedule M-1.;a.;True;b. False


Paper#59204 | Written in 18-Jul-2015

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