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Exam 17: Corporations: Introduction and Operating Rules

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Question 1

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

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The correct answers are shaded. ​ ​ 11ea87ef_757c_d44e_9939_01b86bc3cdab_TB4136_00 ​

Question 2

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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.

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Question 3

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During the current year,Sparrow Corporation,a calendar year C corporation,had operating income of $425,000,operating expenses of $280,000,a short-term capital loss of $10,000,and a long-term capital gain of $25,000.How much is Sparrow's income tax liability for the year?

Which of the following statements is correct regarding the taxation of C corporations?

Don,the sole shareholder of Pastel Corporation (a C corporation),has the corporation pay him a salary of $600,000 in the current year.The Tax Court has held that $200,000 represents unreasonable compensation.Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.

During the current year,Woodchuck,Inc.,a closely held personal service corporation,has $115,000 of net active income,$40,000 of portfolio income,and $135,000 of passive activity loss.What is Woodchuck's taxable income for the current year?

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

Azul Corporation,a calendar year C corporation,received a dividend of $30,000 from Naranja Corporation.Azul owns 25% of the Naranja Corporation stock.Assuming it is not subject to the taxable income limitation,Azul's dividends received deduction is $21,000.

Donald owns a 45% interest in a partnership that earned $130,000 in the current year.He also owns 45% of the stock in a C corporation that earned $130,000 during the year.Donald received $20,000 in distributions from each of the two entities during the year.With respect to this information,Donald must report $78,500 of income on his individual income tax return for the year.

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

Rachel is the sole member of an LLC,and Jordan is the sole shareholder of a C corporation.Both businesses were started in the current year,and each business has a long-term capital gain of $10,000 for the year.Neither business made any distributions during the year.With respect to this information,which of the following statements is correct?

Contrast the tax treatment of capital gains and losses of C corporations with that of individual taxpayers.

Pink,Inc.,a calendar year C corporation,manufactures golf gloves.For the current year,Pink had taxable income (before DPAD) of $900,000,qualified domestic production activities income of $750,000,and W-2 wages related to qualified production activities income of $140,000.Pink's domestic production activities deduction for the current year is:

Jake,the sole shareholder of Peach Corporation,a C corporation,has the corporation pay him $100,000.For income tax purposes,Jake would prefer to have the payment treated as dividend instead of salary.

Briefly discuss the requirements for the dividends received deduction.

Azure Corporation,a C corporation,had a long-term capital gain of $50,000 in the current year.The maximum amount of tax applicable to the capital gain is $7,500 ($50,000 × 15%).

Briefly describe the charitable contribution deduction rules applicable to C corporations.

Which of the following statements is incorrect regarding the taxation of C corporations?

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 (ignoring the taxable income limitation) ?

Norma formed Hyacinth Enterprises,a proprietorship,in the current year.During the 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 withdrew $75,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses,and ignoring any self-employment taxes,how does this information affect her adjusted gross income for the year?