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Name: Home work-Chapter 13. Assume the current tax year is calendar year 2011 unless otherwise indicated.) 1 Which of the following is not a feature of corporations? a. Shareholder Limited liability b. Limited life of the corporation. 2 Which of the following is an advantage of corporations? a. Ease of raising capital b. Tax-free fringe benefits for employees c. c. Centralized management Both a. and b. B C
3 The Concord Corporation has federal taxable income of $500,000 for the year. What is the federal income tax due for the year? a. $75,000 b. $150,000 c. $170,000 d. $195,000 e.
Other Amount
C C
4 What is AB Corp's income tax on taxable income of $825,000 if it is a personal service corp? a. $250,000 b. $280,500 c. $288,750 d. $301,000 e. $320,000 5 Marianna Corporation operates a theatrical costume shop. Taxable income for the current year is $1,000,000. What is Marianna's income tax liability? a. $ - 0 b. $340,000 c. $373,250 d. $390,000 6 Maxwell Corporation operates a women's clothing boutique. Taxable income for the current year is $50,000. What is Maxwell's income tax liability? a. $ - 0 b. $ 5,000 c. $ 7,500 d. $12,500 e. $17,000 7 Patrick and Patricia own Pats' Legal Services Corporation equally. The two owners are practicing attorneys employed by the corp. The only business activity of the entity is the provision of legal services. This year, the corporation's taxable income is $100,000. What is the corporation's income tax liability? a. $22,250 b. $34,000 c. $35,000 d. $26,150 8 Santana Corp. operates a golf shop. It properly elected Subchapter S status on March 1 of the current year. Taxable income for the current year is $120,000. What is Santana Corp's income tax liability? a. $ - 0 b. $ 3,000 c. $ 18,000 d. $ 30,050 e. $ 40,800
B
C
C
A
9 Mary owns Local Corp. and serves as its CEO. Local Corp. has taxable income of $180,000, before payment of a salary to Mary. Mary receives a reasonable salary of $80,000, leaving corporate taxable income of $100,000. Mary has no deductions on her federal income tax return other than her personal exemption and the standard deduction. The corporation pays its federal income tax (no state income tax) and distributes its after-tax net income to Mary as a dividend. What is the amount of federal income taxes paid on corporate taxable income of $100,000, counting the taxes paid at both the corporate and individual level? (Do not include taxes on Mary's salary.) a. $14,250.0 b. $33,912.50 c. $22,912.50 d. $15,000.00 e. Other B 0 10 Frank owns 27% of the Baxter Corporation, whose ordinary income is $100,000. His salary for the year is $50,000. What amount must Frank pay in Social Security taxes if Baxter is a (an) C Corporation S Corporation a. $ -0$ 3,825 b. $ 3,825 $ -0c. $ 3,825 $ 3,825 d. $ 3,825 $ 7,650 e. $ 3,825 $11,475 11 Zeppo and Harpo are equal owners of the Marx Corporation. During the current year, they agree to admit Groucho as a shareholder. Groucho will contribute $35,000 in cash and property worth $75,000 (adjusted basis of $55,000). Groucho will receive 40% of Marx Corporation's stock. How much gain will Groucho recognize from the transfer of the assets to the corporation? a. $ -0b. $20,000 c. $35,000 d. $55,000 e. $75,000
C
B
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12 Jan started two corporations on January 1, 2011: (1) Computer Repair Corporation and (2) a Web Consulting Corporation. She elected S status for the web consulting corporation. The income statements for these two corporations are shown below for 2011. Computer Repair Web Consulting [C Corp] [S Corp] Revenue Salary to Jan (owner) Rent expenses Other expenses Net income before taxes Dividends paid to Jan $100,000 (30,000) (20,000) (10,000) $40,000 $10,000 $200,000 (80,000) (70,000) (10,000) $40,000 $10,000 $210,000 e. Other B
How much total income does Jan report from these two entities? a. $110,000 b. $160,000 c. $170,000 d.
13 Ben incorporated his sole proprietorship by transferring his building with a basis of $800,000 to the Good Corp. in exchange for all its stock. The stock was worth $1,180,000. The building had a value of $1,200,000 and was subject to a $20,000 mortgage which was assumed by Good Corp. What was the gain realized by Ben? a. $0 b. $380,000 c. $400,000 d. $1,200,000 e. Other C 14 Repeat the preceding question. What is the gain to be recognized by Ben? a. $0 b. $380,000 c. $400,000 d. $1,200,000 15 Repeat the preceding question. What is Ben's basis in the stock received? a. $780,000 b. $800,000 c. $840,000 d. $1,200,000 16 Repeat the preceding question. What is Good Corporation's basis in the building? a. $780,000 b. $800,000 c. $840,000 d. $1,200,000 e. e. e. Other Other Other A A B
17 Peggy contributed property to a new partnership in return for a 40% interest in capital and profits. The property had a fair market value of $10,000, an adjusted basis of $6,000, and was subject to a $9,000 mortgage which was assumed by the partnership. What was Peggy's recognized gain? a. $0 b. $2,000 c. $4,000 d. $6,000 e. Other A 18 Repeat the preceding question. What was Peggy's basis in the partnership as a result of this contribution? a. $0 b. $200 c. $600 d. $6,000
e.
Other
C
19 Local Corporation was organized and began operations on October 1, 2011. It incurs $4,100 in legal fees to obtain the corporate charter. The corporation elects to expense its organizational costs over the shortest allowable period. What amount will Local Corp. report for organizational expenses for 2011? a. $ 2,050 b. $ 4,100 c. $ 5,000 d. $ 5,600 e. $41,000 B 20 Gulf Exploration Corporation was organized and began operations on October 1, 2011. It incurs $41,000 in legal fees to obtain the corporate charter. The corporation elects to expense its organizational costs over the shortest allowable period. What amount will Gulf report for organizational expenses for 2011? a. $ 2,050 b. $ 4,100 c. $ 5,000 d. $ 5,600 e. $41,000 D 21 A consulting corporation collected consulting service revenue in 2011 in the amount of $8,000,000. Cash payments for expenses amounted to $6,000,000. The company does not have prepaid expenses, and does not have payables for expenses. At the beginning of the year, the accounts receivable balance was $900,000. At the end of the year, the accounts receivable balance was $1,000,000. The company wrote off uncollectible receivables of $40,000 during the year. Depreciation expense for the year is $400,000. The corporation is required to use the accrual method for the tax return. What is the corporation's taxable income for 2011? a. $1,600,00 b. $1,700,000 c. $2,000,000 d. Other B 0