This preview has intentionally blurred parts. Sign up to view the full document

View Full Document

Unformatted Document Excerpt

Becker Professional Review 2K5 Exported Questions 1 2K5 Exported QuestionsRegulation 3 Export Date: 7/11/2005 2K5 Exported Questions Becker Professional Review 2 C Corporations, Depreciation, and MACRS CPA-01659 Type1 M/C A-D Corr Ans: B PM R 3-01 1. CPA-01659 ARE Nov 95 #3 Page 19 A C corporation's net capital losses are: a. Carried forward indefinitely until fully utilized. b. Carried back 3 years and forward 5 years. c. Deductible in full from the corporation's ordinary income. d. Deductible from the corporation's ordinary income only to the extent of $3,000. CPA-01659 Explanation Choice "b" is correct. A C corporation's net capital losses are carried back 3 years and forward 5 years; they expire after 5 years. In addition, a C corporation can not deduct net capital losses from ordinary income. Choice "a" is incorrect. A C corporation's net capital losses can not be carried forward indefinitely. They expire after 5 years. Choices "c" and "d" are incorrect. A C corporation cannot deduct net capital losses from ordinary income. CPA-01665 Type1 M/C A-D Corr Ans: D PM R 3-01 2. CPA-01665 ARE Nov 95 #7 Page 19 Baker Corp., a calendar year C corporation, realized taxable income of $36,000 from its regular business operations for calendar year 1994. In addition, Baker had the following capital gains and losses during 1994: Short-term capital gain $8,500 Short-term capital loss (4,000) Long-term capital gain 1,500 Long-term capital loss (3,500) Baker did not realize any other capital gains or losses since it began operations. What is Baker's total taxable income for 1994? a. $46,000 b. $42,000 c. $40,500 d. $38,500 CPA-01665 Explanation Choice "d" is correct. Capital losses offset capital gains. If a corporation has net capital gains, they are taxed at ordinary (corporate) income tax rates. Taxable income from business operations $36,000 Short-term capital gain $8,500 Short-term capital loss (4,000 ) $4,500 Long-term capital gain 1,500 Long-term capital loss (3,500 ) (2,000 ) Net capital gain 2,500 Taxable income $38,500 CPA-01807 Type1 M/C A-D Corr Ans: B PM R 3-01 3. CPA-01807 ARE R03 #5 Page 34 At the beginning of the year, Westwind, a C corporation, had a deficit of $45,000 in accumulated earnings and profits. For the current year, Westwind reported earnings and profits of $15,000. Becker Professional Review 2K5 Exported Questions 3 Westwind distributed $12,000 during the year. What was the amount of Westwind's accumulated earnings and profits at year-end? a. $30,000 b. $42,000 c. $45,000 d. $57,000 CPA-01807 Explanation Choice "b" is correct. Accumulated earnings and profits include all prior and current year earnings and profits at year-end. The key here is recognizing that the beginning accumulated earnings and profits is a deficit . Thus the calculation would be as follows: Beginning deficit in Accumulated E&P ($45,000) Plus: Current year E&P 15,000 Less: Amounts distributed ( 12,000 ) End of year Accumulated E&P ($42,000 ) Note: The examiners did not ask whether or not the accumulated earnings and profits at year-end ... View Full Document

End of Preview

Sign up now to access the rest of the document