Ch18TB - 797 Chapter 18 Accumulated Earnings and Personal...

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© 2009 CCH. All Rights Reserved. Chapter 18 797 Chapter 18 Accumulated Earnings and Personal Holding Company Taxes TRUE-FALSE QUESTIONS—CHAPTER 18 The accumulated earnings tax may be imposed on the same corporation every taxable year. 1. The accumulated earnings credit is the lesser of $250,000 or accumulated earnings at the end of the previous year. 2. Net Section 1231 gains in excess of net short-term capital losses may be subject to the accumulated earnings tax. 3. Paying dividends every year does not guarantee that the accumulated earnings tax will not be imposed. 4. Tax-free municipal bond interest is disregarded when computing accumulated taxable income. 5. The personal holding company tax may be imposed on a corporation which has previously been subject to the 6. accumulated earnings tax. A corporation with 37 shareholders may be a personal holding company. 7. Capital gains have no impact on the 60 percent test. 8. Once the taxable year is ended, the personal holding company tax, if any, cannot be avoided. 9. Interest income is excluded from personal holding company income if paid on assets which are an integral part of the 10. business.
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798 CCH Federal Taxation—Comprehensive Topics Chapter 18 © 2009 CCH. All Rights Reserved. MULTIPLE CHOICE QUESTIONS—CHAPTER 18 The 11. Bardahl formula yields 27 percent. The following statements about the use of the formula are false, except: A 27 percent increase in working capital is justi f able as a “reasonable business need.” a. If the inventory turnover goes up and the accounts payable turnover goes down, the effect on the accumulated b. earnings credit is positive. 27 percent of cost of goods sold plus other expenses (other than taxes and depreciation) less current working c. capital constitutes a “reasonable business need.” In the above example the percentage arrived at equals the accounts receivable turnover in days, plus the inventory d. turnover in days, less the accounts payable turnover in days, expressed as a percentage of 365 or 366 days, as the case may be. The accumulated earnings credit is equal to the following: 12. $250,000 plus the reasonable needs of the business a. The greater of (1) the excess of $250,000 over accumulated earnings last year, or (2) the reasonable needs of the b. business this year, less last year’s accumulated earnings The greater of $250,000 or the reasonable needs of the business c. $250,000, less last year’s accumulated earnings, plus funds demonstrably needed in the business in the future d. Which of the following does not qualify as accumulations for a reasonable need of a business? 13. Accumulations for potential product liability a. Liquid funds kept in anticipation of a death tax redemption from a retired shareholder’s estate b. Marketable securities to be sold to raise the down payment on a new plant
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Ch18TB - 797 Chapter 18 Accumulated Earnings and Personal...

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