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63. Wow Corporation manufactures an exercise machine at a cost of $700 and sells the machine to Kite Corporation for $1,000 in 2014. Kite incurs TV advertising expenses of $300 and sells the machine by phone order for $1,600. If Wow and Kite corporations are members of an expanded affiliated group (EAG), their DPAD is:a. $30.b. $45.c. $54.d. $500.e. None of the above.ANSWER:cRATIONALE:DPAD is $54 ($1,600 – $700 – $300 = $600 ×9% = $54).
64. Which of the following statements does not reflect the rules regarding pass-through entities and DPAD?65. Which statement is false?66. Kim’s sole proprietorship consists of a bakery and retail food sales. The bakery’s DPGR is $700,000, but afterCGS, direct expenses, and a ratable portion of indirect expenses are deducted, QPAI is $100,000. W-2 wages related to DPGR are significant. The retail food sales have a loss of $900,000. If Kim files a joint return and her modified AGI is $119,500, what is her allowable DPAD, if any, for 2014?
67. Rose, Inc., an S corporation, has taxable income of $14 million in 2014. Assume there are two shareholders, each in the 35% tax bracket. What is the maximum total DPAD tax savings for the S corporation shareholders?a. Noneb. $168,000c. $285,600d. $441,000e. None of the aboveANSWER:dRATIONALE:$14 million ×9% ×35% =$441,000.68. Which reason is unlikely to cause a regular corporation to have to pay AMT?