AC594_R3_QA - Lucille McElroy: REG 3 10 ? M/C Quiz Page 1...

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Grade for Lucille McElroy: REG 3 10 ? M/C Quiz Numeric grade: 30 Letter grade: Comments: (none) < Close Window Autograde Summary These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below. Date Taken: 2/18/2011 1:05:41 PM Time Spent: 0:59:23 Points Received: 30 / 100 (30%) Question Type: # Questions: # Correct: Multiple choice 10 3 Grade Details 1. Question: On June 1, Year 2, Green Corp. adopted a plan of complete liquidation. On December 1, Year 2, Green distributed to its stockholders installment notes receivable that Green had acquired in connection with the sale of land in Year 1. The following information pertains to these notes: Green's basis $ 90,000 Fair market value $162,000 Face amount $185,000 How much gain must Green recognize in Year 2 as a result of this distribution? Your Answer: $0 $23,000 $72,000 CORRECT ANSWER $95,000 INCORRECT Instructor Explanation: Choice "c" is correct. Distributions in complete liquidation of the corporation are subject to two levels of taxation. First, the corporation must recognize gain or loss as if it sold the assets for the fair market value. The gain on the sale would be the fair market value of $162,000 less $90,000 basis for a gain of $72,000. Secondly, the shareholders would report gain or loss determined by the difference between the fair market value of the assets received and the shareholders' adjusted basis of the stock. Choices "a", "b", and "d" are incorrect per the above explanation. Points Received: 0 of 10 Comments: 2. Question: In Year 4, Superior Corp. an accrual-basis calendar year corporation, reported book income of $500,000. Included in that amount was Page 1 of 8 Lucille McElroy: REG 3 10 ? M/C Quiz 2/18/2011 ..
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$25,000 of municipal bond interest income, $100,000 of federal income tax expense, $10,000 of political party contributions, and $8,000 of tax penalty paid as a result of the audit of the Year 1 tax return which was completed during Year 4. What amount should Superior Corp.'s taxable income be on the Form 1120, U.S. Corporation Income Tax Return for Year 4? Your Answer: $600,000 INCORRECT $618,000 $593,000 CORRECT ANSWER $585,000 Instructor Explanation: Choice "c" is correct. Certain items are treated differently for book and tax purposes. The corporation's book income was $500,000. For tax purposes, the $25,000 of municipal bond interest income is non- taxable, the $100,000 of federal income tax expense is non- deductible, and both the $10,000 of political party contributions and the $8,000 tax penalty are nondeductible. Book income
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AC594_R3_QA - Lucille McElroy: REG 3 10 ? M/C Quiz Page 1...

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