ACC 4250

Corporate Assignment

Part 1

True or False

________ 1. It is possible for a trust managed by a trustee to be treated as a corporation for income
tax purposes.

________ 2. If the taxpayer creates a legal corporation under state law, the government cannot
disregard the entity and tax the taxpayer on the income.

________ 3. Generally, corporate taxable income is more closely related to accounting income than
individual taxable income is related to accounting income.

________ 4. Corporations should try to reclassify initial expenditures as expenses other than
organization costs because organization costs do not give rise to any tax benefit.

________ 5. A corporation is not allowed a dividends-received deduction in computing its net
operating loss for any given year.

________ 6. A corporation's annual charitable contribution deduction is limited to 10 percent of its
taxable income without reduction for charitable contributions, the dividends-received
deduction, net operating loss carrybacks, and capital loss carrybacks.

________ 7. Capital losses are more advantageous to corporations than individuals because there is a
three-year carryback for corporations but no carry-back for individuals.

________ 8. Corporations compute gains and losses on the sale of depreciable property in the same
way as individuals.

________ 9. An accrual basis corporation must use the cash method in claiming deductions for
amounts paid to its sole shareholder, who is an individual on the cash method.

________ 10. Generally, corporations pay a lower marginal tax rate than individuals pay.

________ 11. Corporations are required to pay an alternative minimum tax at the same rate as
individuals.

________ 12. A corporation with alternative minimum taxable income of $20,000 will be subject to
an alternative minimum tax of $4,000.

________ 13. Form 1120 for a calendar year corporation is due April 15.

________ 14. An individual who transfers property in return for all of the common stock of a
corporation will not recognize gain under ¡± 351, even though he acquires no preferred
stock, which is also outstanding to the corporation.

________ 15. An individual receiving both stock and short-term notes for appreciated property has no
recognized gain because of ¡± 351.

________ 16. Section 351 encompasses non-simultaneous transfers provided they are part of one
transaction.

________ 17. Assumption of all debt by a corporation is included under the non-recognition provision
of ¡± 351.

________ 18. A corporation does not recognize gain on the transfer of its own stock in exchange for
money or other property.

________ 19. In any ¡± 351 transfer, the corporation's basis in the property is the same as the
transferor's basis.

________ 20. A corporation does not recognize income as the result of a contribution to capital, even
though it does not issue any stock.

Multiple Choice

________ 21. Which one of the following is not a corporate characteristic provided in the
Regulations?

a. Profit motive

b. Unlimited liability

c. Continuity of life

d. Centralized management

________ 22. Which one of the following is a false statement concerning corporations and
deductions?

a. Corporations cannot have non-business bad debts.

b. Corporations have no deductions from AGI.

c. Corporations have itemized deductions.

d. Corporations do not have to reduce their casualty losses by 10 percent of AGI.

________ 23. R Corporation had gross income of $200,000 including $100,000 of dividends received
from a less-than-20-percent-owned taxable domestic corporation. R had deductible
business expense of $110,000 before considering its dividends-received deduction.
What is R Corporation's dividends-received deduction for, assuming no restrictions
other than the taxable income limitation may apply?

a. $63,000

b. $68,000

c. $70,000

d. $80,000

e. $100,000

________ 24. For its taxable year, T Corporation has the following taxable income and deductible
expenses

Gross income from operations $205,000

Deductible expenses of operations 218,000

Dividends received 35,000

The dividends were received from a taxable domestic corporation in which T owns 15
percent of the stock (not debt-financed). What is T Corporation's dividends-received
deduction?

a. $0

b. $15,540

c. $21,000

d. $24,500

e. $35,000

________ 25. F Corporation has an operating loss of $40,000 before dividend income plus gross
qualifying dividends from unrelated corporations of $100,000. F is entitled to a
dividend received deduction of

a. $0

b. $42,000

c. $70,000

d. $100,000

________ 26. New Corporation was organized and began doing active business on January 7 of the
current year. New incurred the following expenses in connection with opening the
business:

Legal fees for drafting the charter and bylaws $ 750

Legal fees for transferring the ownership titles of assets from shareholders to the
corporation 100

State incorporation fees 250

Printing cost for stock certificates 175

Fees paid to temporary directors for the first two organization meetings 300

Accounting fees to set up initial recordkeeping system 400

Total $1,975

For tax purposes, New Corporation uses the accrual basis and adopts a calendar year.
What is the maximum amount of organizational expenses that may be deducted on the
corporation's initial tax return?

a. $250

b. $360

c. $400

d. $1,800

e. $1,975

________ 27. A newly formed corporation elected to use a fiscal year ending June 30. On July 10,
2011 the corporation began business and incurred $8,600 of qualified organizational
expenses, which were paid in July of 2012. The corporation properly elected to
amortize these costs over a 180-month period. What is the amount of organization
expenses that it should deduct on its cash basis tax return for the fiscal year ending June
30, 2012?

a. $0

b. $300

c. $573

d. $5,240

e. $8,600

________ 28. Which one of the following is not an organization expense?

a. Legal fees to draft the charter

b. Underwriter's fees for furnishing a definite sum of money in return for a stock issue

c. Expenses of temporary directors

d. Fees paid to the state for incorporation

________ 29. During its first year of operation, K Corporation had a gross profit from operations of
$180,000 and deductions of $250,000 before considering its dividend income or
dividends-received deduction. K received dividends of $50,000 from a taxable U.S.
domestic corporation in which K owned 4.5 percent of the stock. K's ownership of the
dividend-paying corporation's stock is not debt financed. What is K Corporation's net
operating loss for the year?

a. $20,000

b. $49,000

c. $55,000

d. $65,000

e. $70,000

________ 30. Which one of the following is treated the same for individuals and corporations for
regular Federal income tax purposes?

a. Depreciation recapture

b. Charitable contributions

c. Capital losses

d. Depreciation

________ 31. Which one of the following statements is true for a regular corporation?

a. Charitable contributions in excess of the 10 percent limitation may be carried
forward indefinitely.

b. A charitable contribution carryover is allowed as a deduction even if it increases a
net operating loss.

c. Charitable contributions in excess of the 10 percent limitation may, subject to
limitations, be carried back to each of the preceding three years.

d. Charitable contributions in excess of the 10 percent limitation may, until used up,
be carried over to each of the following five years, subject to limitation in these
years.

e. Subject to the 10 percent limitation, a carryover of excess contributions is used
before the contributions made in the carryover year.

________ 32. T Corporation's taxable income is $100,000, computed by erroneously deducting the
corporation's total charitable contributions of $12,000. The correct taxable income for
T Corporation is

a. $106,000

b. $103,200

c. $102,000

d. $100,800

e. $112,000

________ 33. In 2011, Y Corporation's first year, the corporation had a long-term capital loss of
$2,000. For the current year, 2012, the corporation has a long-term capital gain of
$12,000 and a short-term capital loss of $4,000. The amount of taxable capital gain for
the current year is

a. $2,400

b. $3,200

c. $6,000

d. $8,000

________ 34. Z Corporation had taxable income of $600,000 before considering the following:

Gain on the sale of equipment $ 15,000

Loss on the sale of equipment (29,000)

Gain on the sale of land used in the business 70,000

Loss on the sale of investment held five months (5,000)

Loss on the sale of investment held two years (18,000)

The equipment sold at a gain cost $150,000, and $90,000 of depreciation had been
claimed. What is Z Corporation's taxable income?

a. $618,000

b. $633,000

c. $647,000

d. $671,000

e. $685,000

________ 35. D Corporation sells residential rental property for $1 million. The property had been
purchased for $800,000. D Corporation claimed $240,000 of ACRS depreciation.
Straight-line depreciation would have been $130,000. The amount of ¡± 1231 gain to be
reported on the sale is

a. $200,000

b. $304,000

c. $330,000

d. $440,000

________ 36. Z Corporation has adopted the calendar year for filing its tax return. Z Corporation's
calendar year taxable income is $2 million. The corporation's Federal income tax
liability before credits and prepayments is

a. $769,460

b. $899,740

c. $920,000

d. $1,020,000

e. None of the above

________ 37. A regular corporation and a personal service corporation each have taxable income of
$20,000 for the calendar year. Ignoring the alternative minimum tax provisions, which
one of the following statements is true regarding the Federal income tax liabilities of
these two corporations?

a. Both corporations will have the same tax liability before credits or prepayments.

b. The regular corporation will have a slightly lower tax liability before credits or
prepayments.

c. The personal service corporation will have a slightly lower tax liability before
credits or prepayments.

d. The regular corporation's tax liability will be exactly $2,000 less than the tax
liability of the personal service corporation.

e. The regular corporation's tax liability will be less than half that of the personal
service corporation.

________ 38. A personal service corporation

a. May rent but not own capital assets

b. Has a flat tax rate of 35 percent on its taxable income

c. Is denied nonrecognition for its shareholders in a transaction otherwise qualifying
under ¡± 351

d. May be engaged exclusively in the active conduct of a beauty salon

________ 39. Which one of the following is not a normal corporate tax preference?

a. Accelerated depreciation on real property

b. Accelerated depreciation on leased personal property

c. Depletion

d. Capital gains

________ 40. A calendar year corporation is required to file its tax return by which of the following
dates after the close of its tax year?

a. March 15

b. April 15

c. August 15

d. September 15

________ 41. Which one of the following does not appear on a corporate tax Form 1120?

a. A balance sheet

b. Schedule of capital gains and losses

c. Schedule of cost of goods sold

d. Schedule of officer's compensation

________ 42. F and G formed a corporation on March 1 this year. F transferred equipment worth
$40,000 (basis $15,000) in exchange for 40 shares of stock and performed services
worth $10,000 in exchange for 10 shares of stock. In exchange for 50 shares of stock, G
contributed land worth $70,000 (basis $9,000) subject to a mortgage of $20,000, which
the corporation assumed. What amount of gross income must F recognize due to the
incorporation transaction?

a. $0

b. $10,000

c. $25,000

d. $35,000

e. None of the above

________ 43. F and G formed a corporation on March 1 this year. F transferred equipment worth
$40,000 (basis $15,000) in exchange for 40 shares of stock and performed services
worth $10,000 in exchange for 10 shares of stock. In exchange for 50 shares of stock, G
contributed land worth $70,000 (basis $9,000) subject to a mortgage of $20,000, which
the corporation assumed. What is F's total basis in the stock that he received?

a. $15,000

b. $40,000

c. $25,000

d. $50,000

e. None of the above

________ 44. F and G formed a corporation on March 1 this year. F transferred equipment worth
$40,000 (basis $15,000) in exchange for 40 shares of stock and performed services
worth $10,000 in exchange for 10 shares of stock. In exchange for 50 shares of stock, G
contributed land worth $70,000 (basis $9,000) subject to a mortgage of $20,000, which
the corporation assumed. What amount of gross income must G recognize due to the
incorporation transaction?

a. $0

b. $20,000

c. $11,000

d. $61,000

e. None of the above

________ 45. F and G formed a corporation on March 1 this year. F transferred equipment worth
$40,000 (basis $15,000) in exchange for 40 shares of stock and performed services
worth $10,000 in exchange for 10 shares of stock. In exchange for 50 shares of stock, G
contributed land worth $70,000 (basis $9,000) subject to a mortgage of $20,000, which
the corporation assumed. Due to the exchange, the corporation will report

a. Neither income nor deduction

b. Some amount of income but no amount of deduction

c. No income but some amount of deduction

d. Some amount of income and some amount of deduction

________ 46. F and G formed a corporation on March 1 this year. F transferred equipment worth
$40,000 (basis $15,000) in exchange for 40 shares of stock and performed services
worth $10,000 in exchange for 10 shares of stock. In exchange for 50 shares of stock, G
contributed land worth $70,000 (basis $9,000) subject to a mortgage of $20,000, which
the corporation assumed. Assume G recognized $27,500 of gain on the exchange. The
corporation's basis for the land received is

a. $9,000

b. $70,000

c. $36,500

d. $50,000

e. None of the above

________ 47. Which one of the following items may not be received in a tax-free incorporation?

a. Demand notes

b. Bonds with a maturity of 15 years

c. Nonvoting cumulative participating preferred stock

d. 30-year bonds convertible into common stock

e. More than one item but less than all of the items

________ 48. S transfers land to a new corporation for stock. The corporation plans to issue 1,000
shares of voting common and 500 shares of nonvoting preferred stock. To establish
"control" under ¡± 351, the minimum number of preferred shares that S must receive is

a. 0

b. 251

c. 500

d. 400

e. not able to be determined from the facts given

________ 49. Which one of the following is a true statement about ¡± 351 transfers?

a. A transferor can receive items other than stock and still qualify for tax-free
treatment.

b. The amount of boot received as a result of the assumption of liabilities by the
corporation is limited to the excess of liabilities over basis of assets transferred.

c. The transferor never recognizes ordinary income if he receives only common stock.

d. The amount of gain recognized is the greater of the realized gain or the boot
received.

e. All the statements are false.

________ 50. In a ¡± 351 transfer, stock includes all of the following except

a. Common and preferred

b. Voting and nonvoting

c. Participating and nonparticipating

d. Stock rights and warrants