CHAPTER17SOLUTIONS - CHAPTER 17 CORPORATIONS INTRODUCTION...

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CHAPTER 17 CORPORATIONS: INTRODUCTION AND OPERATING RULES SOLUTIONS TO PROBLEM MATERIALS 7. Al will be subject to a 15% rate on the $20,000 that ABC pays him as a dividend, but ABC will not be allowed to deduct the amount in computing corporate taxable income. Jay will report the additional $20,000 that JKL pays him as salary and will be taxed at his marginal rate of 35%. JKL will be allowed to deduct the salary payment in computing corporate taxable income. p. 17-5 8. The check-the-box rules permit a qualifying LLC to be taxed either as a partnership or as a corporation. The primary tax reason for choosing to operate as an LLC is to avoid the double taxation associated with C corporations. The primary non tax reason for operating as an LLC is to avoid unlimited liability. pp. 17-7 and 17-8 9. Businesses that maintain inventory for sale to customers are required to use the accrual method of accounting for determining sales and cost of goods sold. Therefore, Rose Corporation would be required to use the accrual method, at least for transactions involving inventory. p. 17-10 10. Kathy may use her $25,000 LTCL to offset any capital gains she has during the year. If she has losses in excess of gains, she may deduct up to $3,000 of the losses as a deduction for AGI, and any remaining losses may be carried forward indefinitely. Eagle Corporation may use the capital loss to offset any capital gains realized during the year. Any excess losses may be carried back three years and forward five years. When carried back or forward, a long-term capital loss is treated as a short-term loss. pp. 17-10 and 17-11 11. The reporting rules and applicable tax rates are summarized in the following table. If Alpha is the gain would be reported the tax rate would be a. A proprietorship By Janice on Sch. D, Form 1040 15% b. An S corporation By Alpha on Form 1120S; flow through to Janice 1
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on Schedule K-1 15% c. A C corporation By Alpha on Form 1120 Applicable corporate tax Rate. d. An LLC By Janice or Alpha —a one member LLC can elect to be taxed as a sole proprietorship or as a Corporation — see items a. and c. above See items a. or c. above 14. Individuals cannot deduct contributions until they are actually made. Therefore, Andrea must wait until 2008 to deduct the
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This note was uploaded on 06/11/2008 for the course ACCT 4153 taught by Professor Campbell during the Fall '08 term at The University of Texas at San Antonio- San Antonio.

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CHAPTER17SOLUTIONS - CHAPTER 17 CORPORATIONS INTRODUCTION...

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