Multiple Choice Questions
1. Which of the following statements is correct?
a. A calendar year corporation must file its tax return no later than April 15 unless it requests an extension.
b. A corporation is a legal entity that is taxed on its taxable income.
c. Corporations choose their tax year in their first year of operation and can elect to change it in their third year of operation.
d. Large corporations without inventory can choose to use either the cash or accrual method of accounting.
2. A corporation has a fiscal year-end of June. If the corporation does not receive an automatic extension of time to file its return, the return will be due on the 15th of:
a. August.
b. September.
c. October.
d. November.
3. Two individuals form a corporation and own all of its stock. One individual contributes cash, and the other contributes property encumbered by a mortgage. The new corporation assumes the mortgage. Which of the following statements is true with respect to the individual who contributes the property?
a. Because the 80% test is met, no gain or loss will be recognized.
b. Gain is recognized to the extent of relief of liability.
c. Gain is recognized to the extent of relief of liability in excess of the basis of property contributed.
d. Gain is recognized to the extent the fair market value of the stock exceeds the basis of the property contributed.
4. Tameka and Janelle form a corporation in which each will own 50% of the stock. Tameka contributes $50,000 in cash. Janelle contributes property with a basis of $30,000 and a FMV of $60,000. She receives $10,000 of inventory from the corporation. Which of the following statements is true?
a. Janelle will report a gain of $10,000.
b. Janelle will report a gain of $30,000.
c. Tameka will report a gain of $10,000.
d. Neither Tameka nor Janelle will report a gain or loss as a result of these transactions.
5. Svetlana forms a corporation in which she is the sole shareholder. She contributes a vehicle with a basis of $15,000 and a FMV of $8,000 in exchange for stock. She also contributes cash of $2,000. Svetlana will recognize:
a. A $5,000 loss.
b. A $7,000 loss.
c. A $10,000 loss.
d. Neither a gain nor loss.
6. Annabelle forms a corporation in which she is the sole shareholder. She transfers $20,000 cash plus land with a $100,000 adjusted basis and a $160,000 FMV in exchange for all the stock of the corporation. The corporation assumes the $140,000 mortgage on the land. What is her basis in the stock, and what is the gain she must report (if any)?
a. No gain; stock basis is $120,000.
b. Gain of $20,000; stock basis is $120,000.
c. No gain; stock basis is $100,000.
d. Gain of $20,000; stock basis is zero.
7. Mountain Company owns 10% of Valley Company. Both are domestic corporations. Valley pays a $60,000 dividend to Mountain. What amount of dividend income will be included in the taxable income of Mountain Company?
a. $6,000.
b. $12,000.
c. $18,000.
d. $60,000.
8. For Subchapter C corporations, which of the following statements is true?
a. Capital losses can be carried back 3 years and then carried forward 5 years.
b. Corporations can elect to forego the carryback period for capital losses and only carry the losses forward.
c. Capital losses can be carried back 2 years and then carried forward 20 years.
d. Capital losses are permitted up to $3,000 per year.
9. Which of the following statements is false?
a. A corporation with average sales in excess of $5,000,000 must use the accrual method of accounting.
b. The charitable contributions of a corporation may be limited.
c. A corporation may be entitled to a deduction for dividends received from other domestic corporations.
d. Passive loss rules apply to corporations.
10. A calendar year corporate taxpayer must make its final estimated tax payment on the 15th of which month?
a. November.
b. December.
c. January.
d. February.