ch17 - 1. Olgas proprietorship earned a net profit of...

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1. Olga’s proprietorship earned a net profit of $95,000 during the year and she withdrew $70,000 of this profit. Olga must report $70,000 net income from the proprietorship on her individual income tax return (Form 1040). a. True *b. False 2. Rose is a 50% partner in Wren Partnership. During the year, Wren earned net profit of $100,000 ($210,000 gross income – $110,000 operating expenses) and distributed $20,000 to each partner. Rose must report Wren Partnership profit of $20,000 on her Federal income tax return. a. True *b. False 3. Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation. Robin earned net profit of $350,000 ($520,000 gross income – $170,000 operating expenses) and distributed $80,000 to Rajib. Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return. *a. True b. False 4. Donald owns a 60% interest in a partnership that earned $230,000 in the current year. He also owns 60% of the stock in a C corporation that earned $230,000 during the year. Donald received $50,000 in distributions from each of the two entities during the year. With respect to this information, Donald must report $188,000 of income on his individual income tax return for the year. *a. True b. False 5. Quail Corporation is a C corporation with net income of $300,000 during 2011. If Quail paid dividends of $50,000 to its shareholders, the corporation must pay tax on $300,000 of net income. Shareholders must report the $50,000 of dividends as income. *a. True b. False 6. Eagle Company, a partnership, had a short-term capital loss of $10,000 during the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle’s short-term capital loss on his individual tax return. *a. True b. False
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7. Katherine, the sole shareholder of Purple Corporation, a calendar year C corporation, has the corporation pay her a salary of $450,000 in the current year. The Tax Court has held that $150,000 represents unreasonable compensation. Purple Corporation’s taxable income is unaffected by the Tax Court’s determination. a. True *b. False 8. Double taxation of corporate income results because dividend distributions are included in a shareholder’s gross income but are not deductible by the corporation. *a. True b. False 9. Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as salary instead of dividend. a. True *b. False 10. Thrush Corporation files Form 1120, which reports taxable income of $110,000. The corporation’s tax is $26,150. *a. True b. False 11. The corporate marginal tax rates range from 10% to 39%, while the individual marginal tax rates range from 15% to 35%.
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ch17 - 1. Olgas proprietorship earned a net profit of...

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