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Exam 17: Corporations: Introduction and Operating Rules

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Question 51

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Lilac Corporation incurred $4,700 of legal and accounting fees associated with its incorporation. The $4,700 is deductible as startup expenditures on Lilac's tax return for the year in which it begins business.

A) True
B) False

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Question 52

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In each of the following independent situations, determine the corporation's income tax liability. Assume that all corporations use a calendar year and that the year involved is 2014. $\begin{array}{lr}& \text { Taxable } \\& \text { Income } \\\text { Violet Corporation } & 63,000 \\\text { Indigo Corporation } & 180,000 \\\text { Orange Corporation } & 510,000 \\\text { Blue Corporation } & 11,100,000 \\\text { Green Corporation (personal service } & 225,000 \\\text { corporation) } &\end{array}$

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Violet Corporation:
Tax on $63,000-
\[\ ...

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Question 53

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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?

Briefly describe the accounting methods available for adoption by a C corporation.

In the current year, Plum Corporation, a computer manufacturer, donated 100 laptop computers to a local university (a qualified educational organization) . The computers were constructed by Plum earlier this year, and the university will use the computers for research and research training. Plum's basis in the computers is $35,000, and their fair market value is $120,000. What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation) ?

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.

In connection with the deduction for startup expenditures, comment on the following: a. Qualifying expenditures. b. Election process. c. Amount of deduction.

A personal service corporation must use a calendar year, and is not permitted to use a fiscal year.

Almond Corporation, a calendar year C corporation, had taxable income of $900,000, $1.1 million, and $1.2 million for 2011, 2012, and 2013, respectively. Almond's taxable income is $2 million for 2014. Compute the minimum estimated tax payments for 2014 for Almond Corporation.

A calendar year C corporation can receive an automatic 9-month extension to file its corporate return (Form 1120) by timely filing a Form 7004 for the tax year.

Which of the following statements is incorrect with respect to the treatment of net operating losses by corporations?

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.

Copper Corporation, a C corporation, had gross receipts of $5 million in 2011, $6 million in 2012, and $3 million in 2013. Gold Corporation, a personal service corporation (PSC) , had gross receipts of $4 million in 2011, $7 million in 2012, and $5 million in 2013. Which of the corporations will be allowed to use the cash method of accounting in 2014?

Schedule M-1 is used to reconcile net income as computed for financial accounting purposes with taxable income reported on the corporation's income tax return.

On December 31, 2014, 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?

During the current year, Skylark Company had operating income of $420,000 and operating expenses of $250,000. In addition, Skylark had a long-term capital loss of $20,000, and a charitable contribution of $5,000. How does Toby, the sole owner of Skylark Company, report this information on his individual income tax return under following assumptions? a. Skylark is an LLC, and Toby does not withdraw any funds from the company during the year. b. Skylark is an S corporation, and Toby does not withdraw any funds from the company during the year. c. Skylark is a regular (C) corporation, and Toby does not withdraw any funds from the company during the year.

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.

Ed, an individual, incorporates two separate businesses that he owns by establishing two new C corporations. Each corporation generates taxable income of $50,000. As a general rule, each corporation will have a tax liability of $11,125.

Norma formed Hyacinth Enterprises, a proprietorship, in 2014. In its first year, Hyacinth had operating income of $400,000 and operating expenses of $240,000. In addition, Hyacinth had a long-term capital loss of $10,000. Norma, the proprietor of Hyacinth Enterprises, withdrew $75,000 from Hyacinth during the year. Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2014?

Thrush Corporation files Form 1120, which reports taxable income of $200,000. The corporation's tax is $56,250.