Acct 424 Quiz 1 and 2

Acct 424 Quiz 1 and 2 - Quiz 1 1. Question:

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Quiz 1 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 Luann’s 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 Pet’s 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.   Points Received: 2 of 2 2. 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: Adjusted Basis Fair Market Value Food (held as inventory) donated to the OhioChildren’s Shelter  $7,500                  $8,100 Passenger van to Ohio Children’s Shelter, to be used to transport children to school   7,500
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Stock in Acme Corporation acquired two years ago and held as an investment, donated to Southwest  University   6,000  6,750 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.  Points Received: 2 of 2 3. 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:
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Acct 424 Quiz 1 and 2 - Quiz 1 1. Question:

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