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Quiz 1 Question: (TCO 2) Luann is the owner of Pet Grooming Service (a C corporation). During the year, the company had gross income of $150,000 and operating expenses of $97,500, including Luanns salary of $46,500. In July, Pet sold a capital asset that had been held by the business for two years for a $7,500 loss. During the year, Pet paid Luann a dividend of $10,000. What is Pets taxable income for the year? Your Answer: $52,500. CORRECT $48,000. $46,500. $45,000. None of the above. ( ) Instructor Explanation: Pet reports the income and expenses of the business on Form 1120, resulting in net profit (ordinary income) of $52,500 ($150,000 $97,500). Pet also reports a $7,500 LTCL on Schedule D of its Form 1120, but is not allowed to deduct any of the capital loss this year. The LTCL may be carried back three years or forward five years to be offset against capital gains. The corporation cannot deduct the dividend paid to Luann. Question: (TCO 2) Grocer Services Corporation (a calendar year taxpayer), a wholesale distributor of food, made the following donations to qualified charitable organizations during the year: Food (held as inventory) donated to the OhioChildrens Shelter Passenger van to Ohio Childrens Shelter, to be used to transport children to school Stock in Acme Corporation acquired two years ago and held as an investment, donated to Southwest Unive How much qualifies for the charitable contribution deduction? Your Answer: Instructor Explanation: Since Grocer Services is a corporation and the inventory exception is met, one-half of the appreciation on the food may be claimed, or $300 [1/2 of ($8,100 $7,500)]. Therefore, $7,800 ($7,500 + $300 appreciation) is allowed as a deduction. Because the Acme stock is long-term capital gain property and not tangible personalty, the deduction is based on fair market value ($6,750). The deduction for the delivery van, which is not a capital asset, is limited to the lesser of adjusted basis or fair market value ($5,700). Thus, $7,800 + $6,750 + $5,700 = $20,250. Question: (TCO 2) Red Corporation, which owns stock in Blue Corporation, had net operating income of $500,000 for the year. Blue pays Red a dividend of $50,000. Red takes a dividends received deduction of $35,000. Which of the following statements is correct? Your Answer: Instructor Explanation: Reds dividends received deduction is 70% of the dividend received ($35,000 $50,000). The 70% dividends received deduction applies if ownership is less than 20%. Question: (TCO 2) Orange Corporation owns stock in White Corporation and has net operating income of $800,000 for the year. White Corporation pays Orange a dividend of $300,000. What amount of dividends received deduction may Orange claim if it owns 18% of White stock (assuming Oranges dividends received deduction is not limited by its taxable income)?... View Full Document

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