The Corporate Taxpayer Exam Questions Jones Ch.11 - Taxation Principles 23e Complete Test Bank by Sally Jones. DOCX document preview.
Principles of Taxation for Business and Investment Planning, 23e (Jones)
Chapter 11 The Corporate Taxpayer
1) In terms of dispersal of ownership, corporations are classified as either closely held or publicly held.
Difficulty: 1 Easy
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
2) The corporate characteristic of limited liability is generally more important to the shareholders than the characteristic of centralized management.
Difficulty: 1 Easy
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
3) The stock of closely held corporations is typically restricted as to transferability by some type of buy-sell agreement and cannot be sold on the open market.
Difficulty: 2 Medium
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
4) The federal tax law considers the member corporations of an affiliated group to be a single entity for federal tax purposes.
Difficulty: 2 Medium
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
5) At least three corporations are required to form an affiliated group.
Difficulty: 1 Easy
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
6) An affiliated group consists of a parent company that directly owns 80% of at least one subsidiary corporation plus all other subsidiaries that are 80% owned within the group.
Difficulty: 2 Medium
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
7) The corporate characteristic of free transferability exists if the corporate stock is subject to a buy-sell agreement.
Difficulty: 1 Easy
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
8) A nonprofit corporation may incur a federal income tax if it has unrelated business income.
Difficulty: 2 Medium
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
9) After 2017, a 1.4% excise tax applies to the net investment income of all colleges and universities.
Difficulty: 1 Easy
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
10) After 2017, a 37% excise tax applies to compensation in excess of $1 million paid to executives of tax-exempt organizations.
Difficulty: 1 Easy
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
11) After 2017, a 100% dividends-received deduction is permitted for any dividends received from a foreign corporation.
Difficulty: 1 Easy
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
12) Eagle, Inc. made a contribution to the Boy Scouts of $25,000 during its current tax year. The corporation's taxable income before any charitable contribution deduction was $200,000. The corporation has a current charitable contribution deduction of $25,000.
Difficulty: 2 Medium
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
13) Bisou Inc. made a $48,200 contribution to charity this year. Only $39,000 of the contribution was deductible. Bisou can carry the $9,200 nondeductible contribution back three years and forward five years.
Difficulty: 2 Medium
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
14) The four primary legal characteristics of a corporation are unlimited liability, limited life, free transferability of interests, and centralized management.
Difficulty: 2 Medium
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
15) A nondeductible charitable contribution is a permanent book/tax difference.
Difficulty: 1 Easy
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
16) Corporations are allowed a deduction for charitable contributions, limited to 10 percent of taxable income before the deduction.
Difficulty: 1 Easy
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
17) For distributions prior to 2018, dividends-received deductions generally are not allowed for dividends from foreign corporations.
Difficulty: 1 Easy
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
18) The dividends-received deduction is equal to 65% of any dividends-received by a corporate taxpayer.
Difficulty: 1 Easy
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
19) Donatoni Corporation owns 40% of Market, Inc. voting common stock. During the current year, Donatoni received a $30,000 dividend from Market. Donatoni must report the dividend as gross income, and is allowed a $15,000 dividends-received deduction.
Explanation: Given 40% ownership, the DRD is 65% × $30,000 = $19,500.
Difficulty: 2 Medium
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
20) Rogers, Inc. owns 12% of Lampe Corporation's voting common stock. During the current year, Rogers generated $50,000 operating income and received $8,000 dividends from Lampe. Only $2,800 of the dividend is taxable.
Explanation: Rogers owns 12%, thus the DRD = 50% of $8,000. The DRD would be $8,000 − $4,000, or $4,000.
Difficulty: 2 Medium
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
21) A corporation is required to report differences between book and taxable income on either Schedule M-1 or Schedule M-3 of the corporate income tax return.
Difficulty: 1 Easy
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
22) The purpose of Schedule M-1 is to explain the differences between financial statement income and taxable income.
Difficulty: 1 Easy
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
23) The Schedule M-3 reconciliation requires less detailed information than the Schedule M-1 reconciliation.
Difficulty: 2 Medium
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
24) Hearth, Inc. reported $30,000 of depreciation expense on its financial statements. For federal income tax purposes, it deducted depreciation of $35,000. This book/tax difference would result in an increase to net income per books on the Schedule M-1 or M-3.
Difficulty: 2 Medium
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
25) For a consolidated group of corporations, Schedule M-3 reconciles worldwide financial statement net income to the financial statement net income of those corporations permitted to be included in the U.S. consolidated tax return group.
Difficulty: 2 Medium
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
26) Corporate taxable income after December 31, 2017 is taxed at a flat rate of 21%.
Difficulty: 1 Easy
Topic: Computing the Regular Corporate Tax
Learning Objective: 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
27) Corporate taxable income after December 31, 2017 is taxed using a progressive rate schedule with a top marginal rate of 21%.
Difficulty: 1 Easy
Topic: Computing the Regular Corporate Tax
Learning Objective: 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
28) Corporate taxable income earned before December 31, 2017 is taxed using a rate schedule that includes rates ranging from 15% to 39%.
Difficulty: 1 Easy
Topic: Computing the Regular Corporate Tax
Learning Objective: 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
29) A corporation with a June 30 fiscal year earns $1 million for its tax year ended June 30, 2018. Regular tax liability on this income is $210,000.
Difficulty: 1 Easy
Topic: Computing the Regular Corporate Tax
Learning Objective: 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
30) Generally, the corporate income tax is computed using a regressive rate schedule.
Difficulty: 2 Medium
Topic: Computing the Regular Corporate Tax
Learning Objective: 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
31) Under normal circumstances, a corporate taxpayer would prefer a $50,000 deduction to a $50,000 credit.
Difficulty: 1 Easy
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
32) For a corporate taxpayer in the 21% marginal tax bracket, a $20,000 tax credit is equivalent to a $95,238 tax deduction.
Explanation: $20,000 divided by 21% = $95,238.
Difficulty: 2 Medium
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
33) Most tax credits for which a corporate taxpayer would be eligible are nonrefundable.
Difficulty: 2 Medium
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
34) Angel Corporation's current-year regular tax liability is $40,000. Angel is eligible for a general business credit of $45,000. The corporation will receive a $5,000 refund of federal income tax.
Difficulty: 1 Easy
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
35) The corporate alternative minimum tax was designed to insure that corporations with substantial economic income paid their fair share of the federal tax burden.
Explanation: The Tax Cuts and Jobs Act of 2017 repealed the corporate alternative minimum tax (AMT) beginning in 2018.
Difficulty: 1 Easy
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
36) The minimum tax credit is an example of a nonrefundable credit.
Difficulty: 2 Medium
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
37) If a corporation has accumulated minimum tax credits from tax years prior to 2018, 100 percent of such credits are refundable on their 2018 tax return.
Difficulty: 2 Medium
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
38) A corporation that is unable to meet its original filing deadline may obtain an automatic twelve-month extension of the time to file its federal income tax return.
Difficulty: 2 Medium
Topic: Payment and Filing Requirements
Learning Objective: 11-06 Describe the corporate tax payment and return filing requirements.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
39) Corporations with more than $1 million taxable income must pay 100% of their current federal income tax liability in the form of quarterly estimate payments to avoid an underpayment penalty.
Difficulty: 1 Easy
Topic: Payment and Filing Requirements
Learning Objective: 11-06 Describe the corporate tax payment and return filing requirements.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
40) Corporations report their taxable income and calculate the federal income tax on Form 1040.
Difficulty: 1 Easy
Topic: Payment and Filing Requirements
Learning Objective: 11-06 Describe the corporate tax payment and return filing requirements.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
41) Corporations with less than $1 million of taxable income are not required to make quarterly estimated tax payments.
Difficulty: 1 Easy
Topic: Payment and Filing Requirements
Learning Objective: 11-06 Describe the corporate tax payment and return filing requirements.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
42) Frazier, Inc. paid a $150,000 cash dividend to its shareholders. The corporation cannot deduct this payment on its corporate income tax return.
Difficulty: 1 Easy
Topic: Distributions of Profits to Investors
Learning Objective: 11-07 Explain why corporate profits distributed as dividends are double-taxed.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
43) A significant advantage of issuing stock instead of debt financing is that payment of dividends is discretionary.
Difficulty: 1 Easy
Topic: Distributions of Profits to Investors
Learning Objective: 11-07 Explain why corporate profits distributed as dividends are double-taxed.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
44) The double taxation of corporate earnings is one of the dominant characteristics of the federal income tax system.
Difficulty: 1 Easy
Topic: Distributions of Profits to Investors
Learning Objective: 11-07 Explain why corporate profits distributed as dividends are double-taxed.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
45) The only alternative to double taxation of corporate earnings is to treat corporations as passthrough entities, similar to partnerships.
Difficulty: 2 Medium
Topic: Distributions of Profits to Investors
Learning Objective: 11-07 Explain why corporate profits distributed as dividends are double-taxed.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
46) When price competition is fierce, companies easily shift the burden of a tax increase to their customers via higher prices.
Difficulty: 1 Easy
Topic: Incidence of the Corporate Tax
Learning Objective: 11-08 Discuss the incidence of the corporate income tax.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
47) The burden of corporate taxation is often borne by corporate shareholders, customers, employees, and suppliers.
Difficulty: 1 Easy
Topic: Incidence of the Corporate Tax
Learning Objective: 11-08 Discuss the incidence of the corporate income tax.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
48) Corporations are rarely targeted in political debates over taxation.
Difficulty: 1 Easy
Topic: Incidence of the Corporate Tax
Learning Objective: 11-08 Discuss the incidence of the corporate income tax.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
49) Which of the following is a primary legal characteristic of the corporate form of business?
A) The management of the business is centered in a Board of Directors elected by the shareholders.
B) A shareholder must seek permission to sell his stock.
C) The life of the corporation will terminate when a majority of the shareholders die or cease to exist.
D) A shareholder is personally liable for the debts of the corporation.
Difficulty: 2 Medium
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
50) Fleet, Inc. owns 85% of the stock of Pete, Inc. and 35% of the stock of Zete, Inc. The remaining stock of Pete and Zete is owned by unrelated individuals. Which of the following statements is correct?
A) Fleet, Pete, and Zete are an affiliated group.
B) Fleet and Zete are an affiliated group.
C) Fleet and Pete are an affiliated group.
D) There is no affiliated group here.
Difficulty: 1 Easy
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
51) Fleet, Inc. owns 85% of the stock of Pete, Inc. and 35% of the stock of Zete, Inc. and 90% of the stock of Stock ownership of Bete, Inc. Bete owns 5% of the stock of Pete and 5% of the stock of Zete. Zete owns 10% of the stock of Bete. The remaining stock of Pete and Zete is owned by unrelated individuals. Which of the following statements is correct?
A) Fleet, Zete, Pete, and Bete are an affiliated group.
B) Fleet and Zete are an affiliated group.
C) Fleet and Pete are an affiliated group.
D) Fleet, Pete, and Bete are an affiliated group.
Difficulty: 3 Hard
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
52) The stock of Wheel Corporation, a U.S. company, is publicly traded, with no single shareholder owning more than 5 percent of its outstanding stock. Wheel owns 90 percent of the outstanding stock of Axle, Inc, also a U.S. company. Axle owns 100% of the outstanding stock of Tire Corporation, a German company. Wheel and Tire each own 50 percent of the outstanding stock of Bumper, Inc., a U.S. company. Wheel and Axle each own 50 percent of the outstanding stock of Trunk Corporation, a U.S. company. Which of these corporations form an affiliated group eligible to file a consolidated tax return?
A) Wheel, Axle, Tire, Bumper, and Trunk are an affiliated group.
B) Wheel, Axle, and Tire are an affiliated group.
C) Wheel and Axle are an affiliated group.
D) Wheel, Axle, and Trunk are an affiliated group.
Difficulty: 3 Hard
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
53) New York, Inc. owns 100% of Brooklyn, Inc. and Queens, Inc. Taxable income for the three corporations for their first year was as follows:
|
|
|
|
New York | $ | 628,000 |
|
Brooklyn |
| 246,000 |
|
Queens |
| (105,000 | ) |
Which of the following statements is false?
A) Consolidated taxable income is $769,000.
B) If a consolidated return is filed, Queens, Inc. will receive immediate tax benefit from its operating loss.
C) If Brooklyn, Inc. is a foreign corporation, it can be part of a consolidated return.
D) The corporations are not required to file a consolidated tax return if they are an affiliated group; however, they may elect to do so.
Difficulty: 3 Hard
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
54) Wave Corporation owns 90% of the stock of Surf, Inc. Each corporation reports the following separate items for the current tax year:
| Wave | Surf | ||||||
Ordinary operating income (loss) | $ | 500,000 |
| $ | (100,000 | ) | ||
Capital gain (loss) |
| (5,000 | ) |
| 7,000 |
| ||
Section 1231 gain (loss) |
| 3,000 |
|
| (10,000 | ) | ||
Compute consolidated taxable income if Wave and Surf file a consolidated federal income tax return:
A) $400,000.
B) $395,000.
C) $410,000.
D) $500,000.
Explanation: $500,000 − $100,000 + ($7,000 − $5,000) + ($3,000 − $10,000)
Wave's capital loss can be deducted against Surf's capital gain. The consolidated Section 1231 loss is fully deductible.
Difficulty: 2 Medium
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
55) Aaron, Inc. is a nonprofit corporation that collects and distributes food for needy families. Aaron, Inc. also operates a small grocery store for profit. Which of the following statements is true?
A) The income from the collection and distribution of food and the income from grocery store are taxable.
B) No income from either of the activities is taxable.
C) Only the income from the collection and distribution of food is taxable.
D) Only the income from the grocery store is taxable.
Difficulty: 2 Medium
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
56) In its first taxable year, Platform, Inc. generated a $100,000 net operating loss and made a $10,000 cash donation to a local charity. In its second year, Platform generated $350,000 operating income and made a $20,000 donation to the same charity. Compute Platform's taxable income for its second year.
A) $220,000
B) $235,000
C) $320,000
D) $230,000
Explanation: Charitable contribution limitation is 10% of taxable income before NOL carryforward, $350,000 × 10% = $35,000; therefore, no limit. Taxable income = $350,000 − $200,000 − $10,000 − $20,000.
Difficulty: 2 Medium
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
57) Loda Inc. made an $8,300 nondeductible charitable contribution and a $2,000 nondeductible political contribution this year. Which of the following statements is true?
A) Both nondeductible contributions are permanent book/tax differences.
B) Both nondeductible contributions are temporary book/tax differences.
C) The nondeductible charitable contribution is a temporary book/tax difference. The nondeductible political contribution is a permanent book/tax difference.
D) The nondeductible charitable contribution is a permanent book/tax difference. The nondeductible political contribution is a temporary book/tax difference.
Difficulty: 1 Easy
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
58) Brace, Inc. owns 90% of West common stock. This year, Brace generated $50,000 operating income and received $10,000 dividends from West. Brace's taxable income is:
A) $53,000
B) $58,000
C) $50,000
D) $52,000
Explanation: Brace is entitled to a 100% DRD.
Difficulty: 2 Medium
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
59) Westside, Inc. owns 15% of Innsbrook's common stock. This year, Westside generated $50,000 operating income and received $20,000 dividends from Innsbrook. Westside's taxable income is:
A) $60,000
B) $70,000
C) $50,000
D) $40,000
Explanation: Westside is entitled to a 70% DRD, so income is $70,000 − $14,000 DRD.
Difficulty: 2 Medium
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
60) Thunder, Inc. has invested in the stock of several corporations and has $500,000 current year operating income before dividends:
Corporation | Dividend | Ownership % | Incorporated | |||||||
Hail, Inc. | $ | 52,000 |
| 14 |
| Delaware |
| |||
Hurricane Company |
| 17,500 |
| 62 |
| France |
| |||
Lightening, Inc. |
| 2,800 |
| 41 |
| Utah |
| |||
Tornado Corporation |
| 131,000 |
| 92 |
| New Jersey |
| |||
Calculate Thunder's dividends-received deduction and taxable income:
A) DRD, $152,920; taxable income, $347,080.
B) DRD, $135,420; taxable income, $533,660.
C) DRD, $176,320; taxable income $526,980.
D) DRD $169,640; taxable income, $330,360.
Explanation: $500,000 + ($52,000 – $26,000 DRD) + ($17,500 – $17,500 DRD) + ($2,800 – $1,820 DRD) + ($131,000 – $131,000 DRD) = $526,980.
Difficulty: 2 Medium
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
61) Which of the following statements regarding the current year tax treatment of corporate dividends is true?
A) All shareholders receiving dividend payments from U.S. corporations are entitled to a dividends-received deduction.
B) Dividends-received from foreign corporations are not eligible for the dividends-received deduction.
C) Corporations are entitled to deduct dividend payments to shareholders in calculating corporate taxable income.
D) Dividend payments between members of an affiliated group of corporations filing a consolidated return are tax exempt.
Difficulty: 2 Medium
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
62) Sonic Corporation has a 21% marginal tax rate and received $10,000 of dividends from Roller, Inc., a U.S. corporation in which Sonic owns less than 2% of the outstanding stock. Sonic's effective tax rate on the Roller dividend is:
A) 21%
B) 0%
C) 10.5%
D) None of the above
Explanation: Because of the 50% DRD, Sonic's taxable income includes only $5,000 of the $10,000 Roller dividend. The tax on $5,000 is $1,050, and $1,050/$10,000 equals a 10.5% effective tax rate.
Difficulty: 3 Hard
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
63) A corporation that owns more than $10 million of total assets uses which schedule to reconcile book income to taxable income?
A) Schedule M-1
B) Schedule M-2
C) Schedule M-3
D) Schedule M-4
Difficulty: 1 Easy
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
64) Poppy's book income of $739,300 includes a net long-term capital loss of $42,000 and federal income tax expense of $170,000. Based only on these items, Poppy's taxable income is:
A) $739,300
B) $951,300
C) $909,300
D) $781,300
Explanation: $739,300 + $42,000 + $170,000.
Difficulty: 2 Medium
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
65) Mandrake, Inc. has book income of $569,300. Its income includes a $50,700 bad debt expense, determined by the allowance method. Actual write offs this year were $48,000. Based only on this information, compute Mandrake's taxable income.
A) $569,300
B) $572,000
C) $566,600
D) $528,600
Explanation: $569,300 + $50,700 − $48,000.
Difficulty: 2 Medium
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
66) Palm Corporation has book income of $424,000. Book income reflects $130,000 federal income tax expense and $55,000 depreciation expense. Tax depreciation expense computed under MACRS is $65,000. Palm received $25,000 of prepaid rent not included in book income. Based only on these items, compute Palm's taxable income.
A) $569,000
B) $539,000
C) $589,000
D) $519,000
Explanation: $424,000 + $200,000 − $10,000 + $25,000.
Difficulty: 3 Hard
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
67) Honu, Inc. has book income of $1,200,000. Book income includes $380,000 income tax expense, $10,000 of municipal bond interest income, and $150,000 of business meals expense. Based only on these items, compute Honu's taxable income.
A) $1,580,000
B) $1,665,000
C) $1,720,000
D) $1,645,000
Explanation: $1,200,000 + $620,000 − $10,000 + 50% × $150,000.
Difficulty: 3 Hard
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
68) Airfreight Corporation has book income of $370,000. Book income includes a $25,000 gain realized on a like-kind nontaxable exchange of realty. Based only on these items, compute Airfreight's taxable income.
A) $370,000
B) $395,000
C) $345,000
D) $420,000
Difficulty: 2 Medium
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
69) Slipper Corporation has book income of $500,000. Book income includes a $50,000 gain on the sale of equipment. The equipment originally cost $110,000 and was sold for $75,000. Accumulated book depreciation was $85,000; accumulated MACRS depreciation was $90,000. Based only on these items, compute Slipper's taxable income.
A) $505,000
B) $495,000
C) $555,000
D) $445,000
Explanation: Tax gain is $55,000 = $75,000 − ($110,000 − $90,000). Tax gain is $5,000 more than book gain, so taxable income = $500,000 + $5,000.
Difficulty: 3 Hard
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
70) Which of the following statements regarding Schedule M-3 is false?
A) The IRS developed Schedule M-3 with the goal of increasing transparency between reported net income for financial accounting purposes and reported net income for tax purposes.
B) Schedule M-3 reports the temporary versus permanent characterization of book-tax differences.
C) Part I of Schedule M-3 reconciles worldwide financial statement net income to the financial statement net income of those corporations permitted to be included in the U.S. consolidated tax return group.
D) Schedule M-3 replaces Schedule M-1 for all tax years beginning after December 31, 2004.
Difficulty: 1 Easy
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
71) Which of the following statements regarding Schedule M-1 is true?
A) The corporate dividends-received deduction is reported on Line 8 of Schedule M-1.
B) A corporation incurring nondeductible fines and penalties would report those amounts on line 5 of Schedule M-1.
C) Line 2 of schedule M-1 should reflect the corporation's actual federal income tax liability for the current year.
D) A corporation realizing a current gain on a like-kind exchange that is deferred for tax purposes would not report that gain on Schedule M-1.
Difficulty: 3 Hard
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
72) Forward Inc.'s book income of $739,000 includes a net long-term capital loss of $42,000 and charitable contribution of $170,000. Taxable income shown on the Schedule M-1 would be:
A) $855,900
B) $951,000
C) $781,000
D) $909,000
Explanation: $855,900 = ($739,000 + $42,000 + $170,000) − 10% × ($739,000 + $42,000 + $170,000).
Difficulty: 3 Hard
Topic: Reconciling Book Income and Taxable Income
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
73) TasteCo, Inc. reported $210,500 of taxable income this year. What is its regular tax liability?
A) $44,205
B) $65,345
C) $54,775
D) $71,570
Difficulty: 1 Easy
Topic: Computing the Regular Corporate Tax
Learning Objective: 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
74) John's, Inc. manufactures and sells fine furniture. What is John's regular tax liability if it had taxable income of $40,000,000 for its fiscal year ended September 30, 2018?
A) $14,000,000
B) $9,800,000
C) $8,400,000
D) $11,200,000
Explanation: Students will need a corporate tax rate schedule. Under the transition rule, tax liability is $9,800,000 = $6,300,000 [($40,000,000 x 21%) x 9/12 + $3,500,000 ($14,000,000 from 2017 rate schedule x 3/12)
Difficulty: 3 Hard
Topic: Computing the Regular Corporate Tax
Learning Objective: 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
75) Maxwell, Inc. had taxable income of $2,500,000 for its fiscal year ended June 30, 2018. Compute Maxwell's regular tax liability.
A) $525,000
B) $850,000
C) $687,500
D) $1,000,000
Explanation: Students will need a corporate tax rate schedule. Under the transition rule, tax liability is $687,500 = $267,500 [($2,500,000 x 21%) x 6/12 + $425,000 ($850,000 from 2017 rate schedule x 6/12)
Difficulty: 3 Hard
Topic: Computing the Regular Corporate Tax
Learning Objective: 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
76) Liston, Inc. had taxable income of $1 million for calendar year 2019. Compute Liston's regular tax liability.
A) $340,000
B) $350,000
C) $210,000
D) $200,000
Difficulty: 1 Easy
Topic: Computing the Regular Corporate Tax
Learning Objective: 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
77) Borough, Inc. is entitled to a rehabilitation credit of $500,000 for its current tax year. The corporation's regular tax liability is $450,000. No estimated tax payments have been made. Which of the following statements is true?
A) The corporation should receive a tax refund for the current year.
B) The portion of the rehabilitation credit that cannot be used this year will be lost.
C) The current year credit equals 20 percent of the total credit allowed for rehabilitation of a certified historic structure.
D) The credit is available for restoration of a building that is at least ten years old.
Difficulty: 3 Hard
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
78) Weston Corporation has accumulated minimum tax credits of $134,000 from tax years prior to 2018. If 2018 regular tax before credits is $47,000 and Jackson qualifies for general business credits of $14,000, its allowable minimum tax credit for 2018 is:
A) $134,000
B) $47,000
C) $83,500
D) $100,000
Explanation: $2,100,000 − $180,000 domestic production activities deduction.
Difficulty: 2 Medium
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
79) Cranston Corporation has accumulated minimum tax credits of $924,000 from tax years prior to 2018. If 2018 regular tax before credits is $152,000, Cranston's allowable minimum tax credit for 2018 is:
A) $0
B) $152,000
C) $924,000
D) $538,000
Explanation: Deduction = $500,000 × 9%; taxable income = $500,000 − $45,000.
Difficulty: 2 Medium
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
80) Which of the following statements regarding the rehabilitation credit is false?
A) After 2017, the credit is available only for costs incurred to rehabilitate certified historic structures.
B) The credit is intended to encourage businesses to undertake urban renewal projects.
C) The credit is claimed only in the year in which the rehabilitated property is placed in service.
D) The credit equals 20 percent of qualified rehabilitation costs.
Difficulty: 2 Medium
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
81) What is the extended due date of the federal income tax return of a corporation with a tax year ended June 30, 2019?
A) October 15, 2019
B) May 15, 2020
C) April 15, 2020
D) March 15, 2020
Difficulty: 2 Medium
Topic: Payment and Filing Requirements
Learning Objective: 11-06 Describe the corporate tax payment and return filing requirements.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
82) Harmon, Inc. was incorporated and began business on January 1, 2018. Its tax liability for 2018 was $36,000. Its tax liability for 2019 was $50,000. Which of the following is a correct statement concerning the payment of estimated taxes for 2019?
A) Harmon must pay $12,500 on the 15th day of April, June, September, and December.
B) Harmon must pay $9,000 on the 15th day of April, June, September and December. The $14,000 balance is payable by April 15, 2020.
C) Harmon may pay the $50,000 tax no later than April 15, 2020.
D) None of the above statements is correct.
Difficulty: 2 Medium
Topic: Payment and Filing Requirements
Learning Objective: 11-06 Describe the corporate tax payment and return filing requirements.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
83) Torquay Inc.'s (a calendar-year taxpayer) 2018 taxable income was $15,837,850, and its tax liability was $3,325,948. Torquay's director of tax estimates that the corporation's 2019 taxable income will be $13,350,000. Compute Torquay's 2019 estimated tax payment due on April 15, 2019.
A) $3,337,500
B) $513,566
C) $831,487
D) $700,875
Explanation: Torquay must pay 25% of the $2,803,500 tax on its 2019 estimated taxable income.
Difficulty: 2 Medium
Topic: Payment and Filing Requirements
Learning Objective: 11-06 Describe the corporate tax payment and return filing requirements.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
84) With the exception of corporations whose fiscal year ends on June 30 and for tax years beginning after December 31, 2015, which of the following statements regarding corporate tax filing requirements is false?
A) Corporations must file their annual federal income tax returns by the 15th day of the fourth month following the close of the taxable year.
B) Most corporations may request an automatic six-month extension of time to file their federal income tax returns.
C) An extension of the income tax filing deadline does not extend the payment deadline for any balance of tax due for the taxable year.
D) Corporations must file their annual federal income tax returns by 15th day of the third month following the close of the taxable year.
Difficulty: 1 Easy
Topic: Payment and Filing Requirements
Learning Objective: 11-06 Describe the corporate tax payment and return filing requirements.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
85) Assuming that the corporation has a 21% marginal tax rate, which of the following statements is true?
A) Jacky, Inc. borrowed $500,000 and paid interest of $48,000; the after-tax cost of the interest was $37,920.
B) Jacky, Inc issued 1,000 shares of 7%, $100 par preferred stock for $100,000. The after-tax cost of the $7,000 dividend paid was $5,530.
C) Jacky, Inc issued 1,000 shares of 7%, $100 par preferred stock for $100,000. The after-tax cost of the $7,000 dividend paid was $1,470.
D) Jacky, Inc. borrowed $500,000 and paid interest of $48,000; the after-tax cost of the interest was $10,080.
Difficulty: 1 Easy
Topic: Distributions of Profits to Investors
Learning Objective: 11-07 Explain why corporate profits distributed as dividends are double-taxed.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
86) Which of the following is a means to avoid the double taxation burden imposed on the profits of corporations?
A) Treat all corporations as passthrough entities for federal tax purposes.
B) Enact tax legislation that would make dividends nontaxable to all of the corporation's shareholders.
C) Allow corporate shareholders a credit on their tax returns for the taxes paid by the corporation on the profits currently distributed to shareholders as dividends.
D) All of the above would avoid double taxation.
Difficulty: 2 Medium
Topic: Distributions of Profits to Investors
Learning Objective: 11-07 Explain why corporate profits distributed as dividends are double-taxed.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
87) Joanna has a 35% marginal tax rate and owns 100% of the stock of Loman Corporation. This year, Loman generated $400,000 of taxable income, paid $84,000 of corporate income tax, and paid a $50,000 dividend to Joanna. Suppose that the federal income tax system has been amended to allow shareholders to gross up dividend income by the corporate tax paid with respect to the dividend and credit this tax against their individual tax. Further assume that dividends-received by individuals are not eligible for a preferential tax rate. Calculate Joanna's reported dividend income and her tax due on the dividend.
A) Dividend income, $63,291; tax due, $8,861
B) Dividend income, $60,500; tax due, $10,675
C) Dividend income, $50,000; tax due, $17,500
D) Dividend income, $50,000; tax due, $500
Explanation: Dividend income = $50,000 ÷ (1 - 21%). Tax due = $63,291 x 35% - ($63,291 - $50,000).
Difficulty: 3 Hard
Topic: Distributions of Profits to Investors
Learning Objective: 11-07 Explain why corporate profits distributed as dividends are double-taxed.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
88) Which of the following statements regarding the taxation of corporate profits is true?
A) Dividends payments are deductible in computing corporate taxable income.
B) The tax treatment of corporate dividends creates a bias in favor of debt financing.
C) Corporations cannot deduct interest payments in computing corporate taxable income.
D) Corporations with high debt-to-equity ratios have less burdensome cash flow commitments and lower risk of insolvency.
Difficulty: 2 Medium
Topic: Distributions of Profits to Investors
Learning Objective: 11-07 Explain why corporate profits distributed as dividends are double-taxed.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
89) In determining the incidence of the corporate income tax:
A) Corporations may pass the tax burden onto consumers in the form of higher prices
B) Corporate shareholders may bear the burden of the corporate tax in the form of lower return on investment
C) Corporate employees may bear the burden of the corporate tax in the form of lower compensation
D) All of the above parties may bear the indirect burden of the corporate income tax
Difficulty: 2 Medium
Topic: Incidence of the Corporate Tax
Learning Objective: 11-08 Discuss the incidence of the corporate income tax.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
90) When price competition is fierce, the incidence of the corporate income tax
A) Cannot be passed on to customers or suppliers, and must be borne solely by shareholders
B) May be passed on to employees through lower compensation
C) Is borne primarily by customers through higher prices or lower product quality
D) Can be mitigated only with tax reform
Difficulty: 2 Medium
Topic: Incidence of the Corporate Tax
Learning Objective: 11-08 Discuss the incidence of the corporate income tax.
Accessibility: Keyboard Navigation
Type: Static
Gradable: automatic
91) Corporation F owns 95 percent of the outstanding stock of Corporation G. This year, the corporations' records provide the following information:
| Corporation F | Corporation G | |||||||
Ordinary income (loss) | $ | (500,000 | ) |
|
| $ | 800,000 |
|
|
Capital gain (loss) |
| 15,000 |
|
|
|
| (20,000 | ) |
|
Section 1231 gain (loss) |
| 4,000 |
|
|
|
| (3,000 | ) |
|
a. Compute each corporation's taxable income if they file separate tax returns.
b. Compute consolidated taxable income if Corporation F and Corporation G file a consolidated tax return.
a. If they file separately, Corporation F reports a taxable loss of $(481,000) = $(500,000) + $15,000 + $4,000; Corporation G reports taxable income of $797,000 = $800,000 − $3,000 and has a non-deductible capital loss.
b. If they file consolidated, the net Section 1231 gain of $1,000 = $4,000 − $3,000 is treated as a capital gain and the consolidated group can deduct $16,000 = $15,000 + $1,000 of Corporation G's capital loss. Consolidated taxable income is $300,000 = $(500,000) + $800,000 + $15,000 + $4,000 − $3,000 − $16,000 deductible capital loss.
Difficulty: 2 Medium
Topic: Legal Characteristics of Corporations
Learning Objective: 11-01 Identify the four primary legal characteristics of corporations.
Accessibility: Keyboard Navigation
Type: Static
Gradable: manual
92) This year, Sonoma Corporation received the following dividends:
|
|
|
|
Alpha, Inc. (a taxable Florida corporation in which Sonoma owns a 5% stock interest) | $ | 30,000 |
|
Beta, Inc. (a taxable Mexican corporation in which Sonoma owns a 25% stock interest) |
| 20,000 |
|
Gamma, Inc. (a taxable Texas corporation in which Sonoma owns a 50% stock interest) |
| 50,000 |
|
Before considering the above dividends, Sonoma has taxable income of $550,000. Calculate Sonoma's allowable dividends-received deduction and taxable income.
Difficulty: 2 Medium
Topic: Computing Corporate Taxable Income
Learning Objective: 11-02 Compute the corporate charitable contribution and dividends-received deductions.
Accessibility: Keyboard Navigation
Type: Static
Gradable: manual
93) Gosling, Inc., a calendar year, accrual basis corporation, reported $756,000 net income after tax on its financial statements prepared in accordance with GAAP. The corporation's financial records reveal the following information:
- Gosling earned $3,500 on an investment in tax-exempt municipal bonds.
- Gosling received an advance payment of rent this year for $25,000. This amount was not included in book income.
- Gosling's depreciation expense per books was $72,000, and its MACRS depreciation deduction was $105,000.
- Gosling recorded $58,000 of business meals and $27,000 of entertainment expense for book purposes.
- Gosling's federal income tax expense per books was $220,000.
a. Compute Gosling's taxable income and regular tax liability.
b. Prepare a Schedule M-1, page 5, Form 1120, reconciling Gosling's book and taxable income.
a. Taxable income: $1,020,500 = $756,000 − $3,500 + $25,000 + $72,000 − $105,000 + (50% × $58,000 + $27,000) + $220,000. Regular tax liability: $214,305.
b.
Difficulty: 3 Hard
Topic: Reconciling Book Income and Taxable Income; Computing the Regular Corporate Tax
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.; 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: manual
94) Franton Co., a calendar year, accrual basis corporation, reported $2,076,000 net income after tax on its current year financial statements prepared in accordance with GAAP. The corporation's financial records reveal the following information.
- Federal tax expense per books was $660,000.
- Franton received $22,400 of dividends from its investment in Microsoft and General Motors stock.
- Bad debt expense was $12,900, and write-offs of uncollectible accounts receivable totaled $16,300.
- Book depreciation was $110,890, and MACRS depreciation was $94,700.
- Franton paid a $50,000 fine to the City of Albany for illegal trash dumping.
Compute Franton's taxable income and regular tax liability.
Difficulty: 2 Medium
Topic: Reconciling Book Income and Taxable Income; Computing the Regular Corporate Tax
Learning Objective: 11-03 Prepare a reconciliation of book and taxable income.; 11-04 Compute the regular tax on corporate taxable income.
Accessibility: Keyboard Navigation
Type: Static
Gradable: manual
95) Walker Inc. has accumulated minimum tax credits of $740,000 from tax years prior to 2018. Below are Walker's regular tax before credits for 2018 through 2021.
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| |||||||||||
Regular tax before credits | $ | 50,000 |
| $ | 60,000 |
| $ | 40,000 |
| $ | 30,000 |
| |||||||
Complete the following table to calculate Walker's allowable minimum tax credit each year.
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| ||||||||||||
Nonrefundable portion of minimum tax credit |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Refundable portion of minimum tax credit |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total minimum tax credit used |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| ||||||||
Nonrefundable portion of minimum tax credit | $ | (50,000 | ) |
| $ | (60,000 | ) |
| $ | (40,000 | ) |
| $ | (30,000 | ) |
|
Refundable portion of minimum tax credit | $ | (345,000 | ) |
| $ | (160,500 | ) |
| $ | (75,000 | ) |
| $ | (30,000 | ) |
|
Total minimum tax credit used | $ | (395,000 | ) |
| $ | (220,500 | ) |
| $ | (165,000 | ) |
| $ | (32,250 | ) |
|
2018 refundable portion of minimum tax is $(345,000) = [$(740,000) – $(50,000)]/2
2019 refundable portion of minimum tax is $(240,000) = [$740,000) – $(395,000) –$(321,000)]/2
2020 refundable portion of minimum tax is $(62,250) = [$740,000) – $(395,000) –$(220,500) – (124,500]/2
Difficulty: 2 Medium
Topic: Tax Credits
Learning Objective: 11-05 Explain the effect of tax credits on corporate tax liability.
Accessibility: Keyboard Navigation
Type: Static
Gradable: manual