Acct424Week1-3.quiz - Week 1: 1. Question: (TCO 2) Penguin...

Download Document
Showing pages : 1 - 4 of 17
This preview has blurred sections. Sign up to view the full version! View Full Document
Week 1: 1. Question: (TCO 2) Penguin Corporation, a C corporation, has two equal shareholders, Bob and Leo. Penguin earned $100,000 net profit during its first year of operations and paid a dividend of $50,000 to each shareholder. Before considering the dividend, Bob is in the 10% marginal tax bracket and Leo is in the 28% marginal tax bracket. Which of the following statements is incorrect? Your Answer: $100,000 will be subject to double taxation. CORRECT ANSWER Penguin could have avoided paying corporate tax if, instead of paying a dividend, it had paid Bob and Leo a salary of $50,000 each (assuming a $50,000 salary for each is reasonable). A preferential tax rate will apply to the dividend income of both Bob and Leo. If Penguin had paid Bob and Leo a salary of $50,000 each, Bob would have paid less Federal income tax on his salary than Leo would have paid on his salary. None of the above. INCORRECT Instructor Explanation: To the extent Bob's dividend income would otherwise be taxed at 105 and 15%, the preferential rate on his dividend is 0%. thus, bob will not pay tax on some of his dividend income and to that extent not all $100,000 is subject to double taxation. REF: p. 2-4 / p. 2-5 Points Received: 0 of 2 2. Question: (TCO 2) Lilac Corporation, a closely held corporation (not a PSC), had $180,000 of active income, $110,000 of portfolio income, and a $195,000 passive loss during the year. How much of the passive loss is deductible?
Background image of page 1
Your Answer: Instructor Explanation: A closely held corporation may offset passive loss against active income, but not against portfolio income. Lilac may deduct only $180,000 of its $195,000 passive loss. Points Received: 2 of 2 3. Question: (TCO 2) Sage, Inc., a closely held corporation (not a PSC), has a $140,000 passive loss, $85,000 of active business income, and $35,000 of portfolio income. How much of the passive loss can Sage deduct? Your Answer: Instructor Explanation: As a closely held corporation, Sage may offset $85,000 of the $140,000 passive loss against the $85,000 of active business income, but may not offset the remaining $55,000 against portfolio income. REF: Example 15 Points Received: 0 of 2 4. Question: (TCO 2) Star Corporation, a cash basis and calendar year taxpayer, was formed and began operations on July 1, of the current year. Star incurred the following expenses during its first year of operations (July 1-December 31, 20xx): Expenses of temporary directors and of organizational meetings $15,000 Fee paid to the state of incorporation 3,000 Expenses in printing and sale of stock certificates 5,000 Legal services for drafting the corporate charter and bylaws 6,000
Background image of page 2
Total $29,000 If Star Corporation makes a timely election under § 248 to amortize qualifying organizational expenses, how much may the corporation deduct for tax year 20xx? Your Answer:
Background image of page 3
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.
Ask a homework question - tutors are online