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Exam 17: Corporations: Introduction and Operating Rules

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Question 31

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Robin Corporation,a calendar year C corporation,had taxable income of $1.9 million,$1.2 million,and $900,000 for 2014,2015,and 2016,respectively.Robin has taxable income of $1.5 million for 2017.The minimum 2017 estimated tax installment payments for Robin are:

A) April 17, 2017, $76,500; June 15, 2017, $76,500; September 15, 2017, $76,500; December 15, 2017, $76,500.
B) April 17, 2017, $110,500; June 15, 2017, $127,500; September 15, 2017, $127,500; December 15, 2017, $127,500.
C) April 17, 2017, $127,500; June 15, 2017, $127,500; September 15, 2017, $127,500; December 15, 2017, $127,500.
D) April 17, 2017, $76,500; June 15, 2017, $178,500; September 15, 2017, $127,500; December 15, 2017, $127,500.
E) None of the above.

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

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Question 32

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In 2017,Bluebird Corporation had net income from operations of $100,000.Further,Bluebird recognized a long-term capital gain of $30,000,and a short-term capital loss of $45,000.Which of the following statements is correct?

A) Bluebird Corporation will have taxable income in 2017 of $100,000 and will have a net capital loss of $15,000 that can be carried back 3 years and forward 5 years.
B) Bluebird Corporation may use the capital loss to offset the capital gain and must carry the net capital loss of $15,000 forward five years as a short-term capital loss.
C) Bluebird Corporation may deduct $33,000 of the capital loss in 2017 and may carry forward the remainder of the capital loss indefinitely to offset capital gains.
D) Bluebird Corporation will have taxable income in 2017 of $85,000.
E) None of the above.

F) B) and D)
G) D) and E)

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Question 33

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Gerald,a cash basis taxpayer,owns 70% of the stock of Black Corporation,a calendar year,accrual basis C corporation.On December 31,2017,Black accrued a bonus of $80,000 to Gerald,and paid the bonus to Gerald on January 5,2018.When does Gerald report the bonus,and when does Black Corporation deduct the bonus? Would your answers change if Gerald was a 40% shareholder of Black?

As a general rule,C corporations must use the cash method of accounting.However,under several exceptions to this rule (e.g.,average annual gross receipts of $5 million or less for the most recent 3-year period),a C corporation can use the accrual method.

Copper Corporation,a C corporation,had gross receipts of $5 million in 2014,$6 million in 2015,and $3 million in 2016.Gold Corporation,a personal service corporation (PSC) ,had gross receipts of $4 million in 2014,$7 million in 2015,and $5 million in 2016.Which of the corporations will be allowed to use the cash method of accounting in 2017?

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.

During the current year,Kingbird Corporation (a calendar year C corporation) had the following income and expenses: ​ On October 1,Kingbird Corporation made a contribution to a qualified charitable organization of $9,000 in cash (not included in any of the above items) .Determine Kingbird's charitable contribution deduction for the current year.

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.

In the current year,Sunset Corporation (a C corporation) had operating income of $200,000 and operating expenses of $175,000.In addition,Sunset had a $30,000 long-term capital gain,a $52,000 short-term capital loss,and $5,000 tax-exempt interest income.What is Sunset Corporation's taxable income for the year?

During the current year,Gray Corporation,a C corporation in the financial services business,made charitable contributions to qualified organizations as follows: ​ Gray Corporation's taxable income (before any charitable contribution deduction) is $1.8 million. a.What is the total amount of Gray's charitable contributions for the year? b.​What is the amount of Gray's charitable contribution deduction in the current year, and what happens to any excess charitable contribution, if any?

Warbler Corporation,an accrual method regular corporation,was formed and began operations on March 1,2017.The following expenses were incurred during its first year of operations (March 1 - December 31,2017): ​ ​ a.Assuming a valid election under § 248 to amortize organizational expenditures, what is the amount of Warbler's deduction for 2017?​​ a., except that Warbler also incurred in 2017 legal fees of $15,000 for the drafting of the corporate charter and bylaws. What is the amount of Warbler's 2017 deduction for organizational expenditures?​ b.Same as

Tomas owns a sole proprietorship,and Lucy is the sole shareholder of a C corporation.In the current year both businesses make a net profit of $60,000.Neither business distributes any funds to the owners in the year.For the current year,Tomas must report $60,000 of income on his individual tax return,but Lucy is not required to report any income from the corporation on her individual tax return.

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

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

Beige Corporation,a C corporation,purchases a warehouse on August 1,2001,for $1 million.Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 12,2017,for $1.2 million.What is the amount and character of the gain recognized by Beige on the sale of the realty?

In each of the following independent situations,determine the corporation's income tax liability.Assume that all corporations use a calendar year 2017. ​ ​

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.

A personal service corporation with taxable income of $100,000 in the current year will have a tax liability of $22,250.

If a C corporation uses straight-line depreciation on real estate (§ 1250 property),no portion of a recognized gain on the sale of the property will be recaptured as ordinary income.

Income that is included in net income per books but not included in taxable income is a subtraction item on Schedule M-1.