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Exam 2: Corporations: Introduction and Operating Rules

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Question 51

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Patrick,an attorney,is the sole shareholder of Gander Corporation.Gander is a personal service corporation with a fiscal year ending November 30.The corporation paid Patrick a salary of $180,000 during its fiscal year ending November 30,2012.How much salary must Gander pay Patrick during the period December 1 through December 31,2012,to permit the corporation to continue to use its fiscal year without negative tax effects?

A) $0.
B) $30,000.
C) $165,000.
D) $180,000.
E) None of the above.

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

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Question 52

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As a general rule,a personal service corporation (PSC)must use a calendar year as its accounting period.

A) True
B) False

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Question 53

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No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.

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?

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

On December 31,2012,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?

Under the "check-the-box" Regulations,a two-owner LLC that fails to elect to be to treated as a corporation will be taxed as a sole proprietorship.

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.

During the current year,Coyote Corporation (a calendar year C corporation)has the following transactions:

What is a limited liability company? What favorable nontax and tax attributes does the LLC entity form offer taxpayers?

Francisco is the sole owner of Rose Company.For 2012,the only income of Rose was a long-term capital gain of $25,000.The business made no distributions during the year to Francisco.Irrespective of Rose Company,Francisco's marginal tax rate is 35% and he has no capital asset transactions.Which of the following statements is incorrect?

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

During the current year,Thrasher,Inc. ,a closely held personal service corporation,has $67,500 of active business income,$52,500 of portfolio income,and $120,000 of passive loss.How much of the passive loss can Thrasher deduct in the current year?

Eagle Corporation owns stock in Hawk Corporation and has taxable income of $100,000 for the year before considering the dividends received deduction.Hawk Corporation pays Eagle a dividend of $130,000,which was considered in calculating the $100,000.What amount of dividends received deduction may Eagle claim if it owns 25% of Hawk's stock?

During the current year,Lavender Corporation,a C corporation in the business of manufacturing tangible research equipment,made charitable contributions to qualified organizations as follows: Lavender Corporation's taxable income (before any charitable contribution deduction)is $2.5 million.

Nancy is a 40% shareholder and president of Robin Corporation,a regular corporation.The board of directors of Robin has decided to pay Nancy a $175,000 bonus for the year based on her outstanding performance.The directors want to pay the $175,000 as salary,but Nancy would prefer to have it paid as a dividend.If both Robin Corporation and Nancy are in a 35% marginal tax bracket irrespective of the treatment of the bonus,discuss which form of payment would be most beneficial for each party.(Ignore any employment tax considerations. )

During the current year,Shrike Company had $220,000 net profit from operations.Carlos,the sole owner of Shrike,is in the 35% marginal tax bracket.Determine the combined tax burden for Shrike and Carlos under the following two independent situations.(Ignore any employment taxes. )

A calendar year C corporation can receive an automatic 6-month extension to file its 2012 corporate return (Form 1120)by filing Form 7004 by March 15,2013.

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.

During the current year,Waterthrush Company had operating income of $510,000 and operating expenses of $400,000.In addition,Waterthrush had a long-term capital gain of $30,000.How does Lucinda,the sole owner of Waterthrush Company,report this information on her individual income tax return under following assumptions?