15) Identify which of the following statements is true.
A. A corporation that accrues compensation payable to an employee must pay the amount within two and one-half months after the close of the taxable year to deduct the amount in the year of the accrual.
B. Accrued compensation that is deductible in the year of accrual is considered to be part of an IRS deferred compensation plan.
C. Accrued compensation not paid within three and one-half months after the close of the corporation tax year is deducted in the year following the accrual.
D. All are false.
16) Island Corporation has the following income and expense items for the year.
Gross receipts from sales $60,000
Dividends received from 15%-owned domestic corporation 40,000
Expenses connected with sales 30,000
The taxable income of Island Corporation is
20) Which of the following items are adjustments made to arrive at alternative minimum taxable income?
A. Excess of depreciation claimed on personally acquired in the current year for taxable income purposes over that claimed for alternative minimum tax purposes
B. Excess percentage depletion
C. Statutory exemption
D. Tax-exempt interest income earned on private activity bonds
24) Boxer Corporation buys equipment in January of the current year with a 7-year class life for $15,000. The corporation expensed the $15,000 under Sec. 179. The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is
26) Identify which of the following statements is true.
A. Section 179 property must be expensed ratably over a 5-year period when computing E&P.
B. Losses on property sales to related parties are not deductible when computing E&P.
C. Distributions made out of accumulated E&P are allocated ratably between multiple distributions made during the tax year.
D. All are false.
29) A corporation distributes land and the related liability to Meg, its sole shareholder. The land has a FMV of $60,000 and is subject to a liability of $70,000. The corporation has current and accumulated E&P of $80,000. The corporation's adjusted basis for the property is $70,000. What effect does the transaction have on the corporation?
A. A recognized loss of $10,000 and its E&P is unchanged.
B. No recognized gain or loss and its E&P is reduced by $60,000.
C. No recognized gain or loss and its E&P is unchanged by the distribution.
D. A recognized loss of $10,000 and its E&P is reduced by $70,000
30) One consequence of a property distribution by a corporation to a shareholder is
A. the holding period of the distributed property includes the holding period of the distributing corporation
B. the shareholder's basis in the distributed property is the same as the distributing corporation's basis
C. any liabilities assumed by the shareholder do not reduce the shareholder's basis
D. the amount of the distribution is increased by any liability assumed by the shareholder
33) Joshua owns 100% of Steeler Corporation's stock. Joshua's basis in the stock is $8,000. Steeler Corporation has E&P of $40,000. If Steeler Corporation redeems 60% of Joshua's stock for $50,000, Joshua must report dividend income of
34) Identify which of the following statements is true.
A. The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation.
B. A partnership can elect to be taxed as a corporation under the check-the-box regulations. As a corporation, an S election can be made.
C. For C corporations that desire to be taxed like a partnership, the S corporation rules provide a practical alternative for an existing C corporation to obtain many of the tax benefits of being taxed as a partnership.
D. All are true.
35) Identify which of the following statements is true.
A. Shareholders who acquire stock in an S corporation after the election date and prior to the election's effective date must consent to the election.
B. S corporation consent by shareholders is binding on the current tax year and all future tax years.
C. Only shareholders who own stock on the date an S election takes effect must consent to the election.
D. All are false.