Chapter 11, The Corporate Income Tax Video Solutions, Income Tax Fundamentals

Problem 1

________ Ironwood Corporation has ordinary taxable income of $$\$ 40,000$$ for calendar year 2010 , and a long-term capital loss of $$\$ 20,000$$. What is the corporation's tax liability for 2010 ?
a. $$\$ 4,500$$
b. $$\$ 6,000$$
c. $$\$ 7,500$$
d. $$\$ 10,000$$
e. None of the above

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Problem 2

________ Walnut Corporation owns 60 percent of Teak Corporation, a domestic corporation. During 2010, Walnut Corporation received $$\$20,000$$ in dividends from Teak Corporation. Assuming that Walnut's taxable income for 2010 before the dividends received deduction is $$\$ 500,000$$, what is the amount of Walnut's dividends received deduction for 2010 ?
a. $$\$ 0$$
b. $$\$ 14,000$$
c. $$\$ 16,000$$
d. $$\$ 20,000$$
e. None of the above

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Problem 3

________ Which of the following is not a corporate organizational expenditure that may be amortized?
a. The cost of organizational meetings
b. Fees paid to the state for incorporation
c. Accounting fees incident to organization
d. Legal fees incident to organization
e. All of the above are organizational expenditures

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Problem 4

________ Which of the following is not required for a corporation to be classified as a small business corporation and be eligible to make an S corporation election in 2010?
a. The corporation must have 100 or fewer shareholders.
b. The corporation must be a domestic corporation.
c. The corporation must have both common and preferred stock.
d. The shareholders of the corporation must not be nonresident aliens.
e. All shareholders must be either individuals, estates, certain trusts, or financial institutions.

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Problem 5

________ Which of the following items retains its character when passed through to shareholders of an $S$ corporation?
a. Wages paid
b. Accelerated depreciation
c. Net long-term capital gains
d. Advertising expense
e. All of the above retain their character when passed through

Oluwadamilola Ameobi

Numerade Educator

Problem 6

________ Which of the following is true about $\mathrm{S}$ corporations?
a. S corporations pay corporate taxes like other corporations.
b. $\mathrm{S}$ corporations pay the alternative minimum tax for all income.
c. $\mathrm{S}$ corporations cannot issue corporate stock.
d. The $\mathrm{S}$ corporation status may be elected by stockholders only for corporations that meet certain qualifications.
e. None of the above.

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Problem 7

________ Travis transfers land with a fair market value of $$\$ 125,000$$, basis of $$\$ 25,000$$, to a corporation in exchange for 100 percent of the corporation's stock. What amount of gain must Travis recognize as a result of this transaction?
a. $$\$ 0$$
b. $$\$ 25,000$$
c. $$\$ 100,000$$
d. $$\$ 125,000$$
e. None of the above

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Problem 8

________ Carl transfers land with a fair market value of $$\$ 120,000$$, basis of $$\$ 30,000$$, to a new corporation in exchange for 85 percent of the corporation's stock. The land is subject to a $$\$ 40,000$$ liability, which the corporation assumes. What amount of gain must Carl recognize as a result of this transaction?
a. $$\$ 0$$
b. $$\$ 40,000$$
c. $$\$ 30,000$$
d. $$\$ 10,000$$
e. None of the above

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Problem 9

________ What is the shareholder's basis in stock of a corporation received as a result of the transfer of property to the corporation and as a result of which gain was recognized by the stockholder?
a. The shareholder's basis is equal to the basis of the property transferred less the gain.
b. The shareholder's basis is equal to the fair market value of the stock received, less any liabilities transferred by the stockholder.
c. The shareholder's basis is equal to the basis of the property transferred to the corporation, minus any liabilities transferred by the shareholder plus the gain.
d. The shareholder's basis is equal to the basis of the property transferred to the corporation, plus any liabilities transferred by the shareholder.
e. None of the above.

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