Dividend income from money market fund a 0 b 1000 c

∙ Dividend income from Money Market Fund
A. $0
B. $1,000
C. $1,400
D. $1,800
E. $2,100
F. $2,700
G. $3,000
H. $5,000
I. $8,000
J. $21,570
K. $98,000
L. $200,000
M. $214,000
N. $300,000
O. $700,000

Becker CPA Review, PassMaster Questions
Lecture: Regulation 3
87
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
P. $1,000,000
Q. $(13,430)
R. $(14,550)
CPA-04375 Explanation
Choice "E" is correct. $2,100. Dividends received from a domestic corporation qualify for the dividends
received deduction. A Money Market Fund does not qualify as a domestic corporation. As a result, the
entire $2,100 paid by the Money Market Fund is included in Ral's income.
CPA-04376 Type1 M/C A-R Corr Ans: A PM#54 R 3-99
148. CPA-04376 PII May 92 #5 (Adapted) 13 Page 3
Following is Ral Corp.'s condensed income statement, before federal income tax, for the year ended
December 31, 1993:
Sales $1,000,000
Cost of sales (700,000 )
Gross profit 300,000
Operating expenses (220,000 )
Operating income 80,000
Other income (loss):
Interest $5,200
Dividends 19,200
Net long-term capital loss (6,400 ) 18,000
Income before federal income tax 98,000
Additional information:
Interest arose from the following sources:
U.S. Treasury notes 3,000
Municipal bonds 2,200
Total interest $ 5,200
Dividends arose from the following sources:
Date stock % owned
Taxable domestic corporation acquired by Ral
Clove Corp. 7-1-87 30.0 $ 7,000
Ramo Corp. 9-1-89 10.0 6,000
Sol Corp. (stock sold 1/10/94) 12-1-93 5.0 1,000
Real Estate Investment Trust 6-1-92 1.0 2,700
Mutual Fund Corp. (capital gains
dividends only) 4-1-91 0.1 400
Money Market Fund (invests only in
interest-paying securities) 3-1-90 0.1 2,100
Total dividends $ 19,200
Operating expenses include the following:
• Bonus of $5,000 paid to Ral's sales manager on January 31, 1994. This bonus was based on a
percentage of Ral's 1993 sales and was computed on January 25, 1994, under a formula in effect in
1993.
• Estimate of $10,000 for bad debts. Actual bad debts for the year amounted to $8,000. No pre-1989
bad debt reserve remained on Ral's books since January 1, 1989.
• Keyman life insurance premiums of $4,000. Ral is the beneficiary of the policies.
• State income taxes of $12,000.
During 1993, Ral made estimated federal income tax payments of $35,000. These payments were
debited to prepaid tax expense on Ral's books.

Becker CPA Review, PassMaster Questions
Lecture: Regulation 3
88
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Ral does not exercise significant influence over Clove and accordingly did not use the equity method of
accounting for this investment. Ral declared and paid dividends of $11,000 during 1993.
Corporate income tax rates are as follows:
Taxable income
but not % on Of the
over over Pay + excess amount over
$0 $50,000 $0 15% $0
50,000 75,000 7,500 25% 50,000
75,000 100,000 13,750 34% 75,000
100,000 335,000 22,250 39% 100,000
335,000 _______ 113,900 34% 335,000
Ral was not subject to the alternative minimum tax in 1993.
Determine the following taxable or deductible amounts for Ral Corp. for the year ended December 31,
1993.
∙ Net long-term capital loss
A. $0
B. $1,000
C. $1,400
D. $1,800
E. $2,100
F. $2,700
G. $3,000
H. $5,000
I. $8,000
J. $21,570
K. $98,000
L. $200,000
M. $214,000
N. $300,000
O. $700,000
P. $1,000,000
Q. $(13,430)
R. $(14,550)
CPA-04376 Explanation
Choice "A" is correct. $0. The capital loss of $6,000 (which is the $6,400 capital loss netted against
the $400 capital gain distribution from Mutual Fund Corp.) is not deductible for tax purposes.