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49. Tom owns 60 percent of CDF Corporation. CDF rents a building from Tom for $4,500 per month. Fair rental value for the building is only $3,000 per month. In addition, CDF employs Tom’s son as the general manager at a salary of $350,000 annually. Similar positions in similar businesses pay $200,000 annually. How much rental and dividend income should Tom report on his tax return for theyear?a. $54,000 rental incomeb. $54,000 rental income; $150,000 dividend incomec. $36,000 rental income; $18,000 dividend incomed. $36,000 rental income; $168,000 dividend incomeANSWER d; ($4,500 - $3,000) x 12 + ($350,000 – $200,000) dividend incomeLO 10.5DIFFICULTY: Moderate50. A corporation owns 90 percent of the voting power of a second corporation but only 70 percent of its total stock value. The corporations are:DIFFICULTY: Moderate51. What is the minimum number of individuals who must own a corporation for it to avoid meeting the personal holding company designation?
Chapter 10: Taxation of Corporations 25ANSWER dLO 10.5DIFFICULTY: Easy52.Which of the following is an indication of the accumulation of earnings and profits beyond the reasonable needs of the business?DIFFICULTY: Moderate53. A corporation is subject to both the personal holding company tax and the accumulated earnings tax. Its regular taxable income is $200,000. Its adjusted taxable income for imposing the personal holding company tax is $170,000 and its taxable income for determining the accumulated earnings tax is $230,000. What is the corporation’s total tax liability?a. $73,250b. $95,250c. $120,250d. $141,250ANSWER b; $100,000 x .39 + $22,250 = $61,250 reg. tax; $170,000 x .20 = $34,000 PHC Tax; $61,250 + $34,000 = $95,250. (Only the PHC tax is imposed in addition to the regular tax.)LO 10.5REFERENCE TABLES REQUIREDDIFFICULTY: Hard54. A corporation that owns 72 percent of all the outstanding stock of another corporation:ANSWER aLO 10.6DIFFICULTY: Easy55. Corporation A owns 50 percent of the voting stock of Corporation B. What is the minimum amount ofstock that Corporation A must acquire in Corporation B to allow the two corporations to file a consolidated return.ANSWER dLO 10.6DIFFICULTY: Easy