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Wiley CPA Exam Review Problems And Solutions Vol 2 2011-2012 38th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
Two unrelated individuals, Mark and David, each own 50% of the stock of Pike Corporation, which has accumulated earnings and profits of $250,000. Because of his inactivity in the business in recent years, Mark has decided to retire from the business and wishes to sell his stock. Accordingly, Pike
On December 1, 2010, Gelt Corporation declared a dividend and distributed to its sole shareholder a parcel of land that was not an inventory asset. On the date of the distribution, the following data were available:Adjusted basis of land $ 6,500 Fair market value of land 14,000 Mortgage on land
On June 30, 2010, Ral Corporation had retained earnings of $100,000. On that date, it sold a plot of land to a noncorporate stockholder for $50,000. Ral had paid $40,000 for the land in 2002, and it had a fair market value of$80,000 when the stockholder bought it. The amount of dividend income
Dahl Corp. was organized and commenced operations in 2000. At December 31, 2010, Dahl had accumulated earnings and profits of $9,000 before dividend declaration and distribution. On December 31, 2010, Dahl distributed cash of $9,000 and a vacant parcel of land to Green, Dahl’s only stockholder.
On January 1, 2010, Kee Corp., a C corporation, had a$50,000 deficit in earnings and profits. For 2010 Kee had current earnings and profits of $10,000 and made a $30,000 cash distribution to its stockholders. What amount of the distribution is taxable as dividend income to Kee’s stockholders?a.
Tour Corp., which had earnings and profits of$400,000, made a nonliquidating distribution of property to its shareholders in 2011. This property, which had an adjusted basis of $30,000 and a fair market value of $20,000 at date of distribution, did not constitute assets used in the active conduct
Ridge Corp., a calendar-year C corporation, made a nonliquidating cash distribution to its shareholders of$1,000,000 with respect to its stock. At that time, Ridge’s current and accumulated earnings and profits totaled$750,000 and its total paid-in capital for tax purposes was$10,000,000. Ridge
Kent Corp. is a calendar-year, accrual-basis C corporation.In 2010, Kent made a nonliquidating distribution of property with an adjusted basis of $150,000 and a fair market value of $200,000 to Reed, its sole shareholder. The following information pertains to Kent:Reed’s basis in Kent stock at
Salon, Inc. distributed cash and personal property to its sole shareholder. Using the following facts, determine the amount of gain that would be recognized by Salon, Inc. as the result of making the distribution to its shareholder?Item Amount Cash $20,000 Personal property:Fair market value 6,000
Chicago Corp., a calendar-year C corporation, had accumulated earnings and profits of $100,000 as of January 1, 2010 and had a deficit in its current earnings and profits for the entire 2010 tax year in the amount of $140,000. Chicago Corp. distributed $30,000 cash to its shareholders on December
On January 1, 2010, Locke Corp., an accrual-basis, calendar-year C corporation, had $30,000 in accumulated earnings and profits. For 2010, Locke had current earnings and profits of $20,000 and made two $40,000 cash distributions to its shareholders, one in April and one in September of 2010. What
At the beginning of the year, Cable, a C corporation, had accumulated earnings and profits of $100,000. Cable reported the following items on its current year tax return:Taxable income $50,000 Federal income taxes paid 5,000 Current year charitable contributions in excess of 10% limitation 1,000
At the beginning of the year, Westwind, a C corporation, had a deficit of $45,000 in accumulated earnings and profits. For the current year, Westwind reported earnings and profits of $15,000. Westwind distributed $12,000 during the year. What was the amount of Westwind’s accumulated earnings and
Parent Corporation and Subsidiary Corporation file consolidated returns on a calendar-year basis. In January 2010, Subsidiary sold land, which it had used in its business, to Parent for $50,000. Immediately before this sale, Subsidiary’s basis for the land was $30,000. Parent held the land
Consolidated returns may be fileda. Either by parent-subsidiary corporations or by brother-sister corporations.b. Only by corporations that formally request advance permission from the IRS.c. Only by parent-subsidiary affiliated groups.d. Only by corporations that issue their financial statements
Dana Corp. owns stock in Seco Corp. For Dana and Seco to qualify for the filing of consolidated returns, at least what percentage of Seco’s total voting power and total value of stock must be directly owned by Dana?Total voting power Total value of stocka. 51% 51%b. 51% 80%c. 80% 51%d. 80% 80%
When a consolidated return is filed by an affiliated group of includible corporations connected from inception through the requisite stock ownership with a common parenta. Intercompany dividends are excludable to the extent of 80%.b. Operating losses of one member of the group offset operating
Potter Corp. and Sly Corp. file consolidated tax returns.In January 2010, Potter sold land, with a basis of $60,000 and a fair value of $100,000, to Sly for $100,000. Sly sold the land in June 2011 for $125,000. In its 2011 and 2010 tax returns, what amount of gain should be reported for these
In 2011, Portal Corp. received $100,000 in dividends from Sal Corp., its 80%-owned subsidiary. What net amount of dividend income should Portal include in its 2011 consolidated tax return?a. $100,000b. $ 80,000c. $ 70,000d. $0
Bank Corp. owns 80% of Shore Corp.’s outstanding capital stock. Shore’s capital stock consists of 50,000 shares of common stock issued and outstanding. Shore’s 2010 net income was $140,000. During 2010, Shore declared and paid dividends of $60,000. In conformity with generally accepted
Olex Corporation’s books disclosed the following data for the calendar year 2010:Retained earnings at beginning of year $50,000 Net income for year 70,000 Contingency reserve established at end of year 10,000 Cash dividends paid during year 8,000 What amount should appear on the last line of
Barbaro Corporation’s retained earnings at January 1, 2010, was $600,000. During 2010 Barbaro paid cash dividends of $150,000 and received a federal income tax refund of $26,000 as a result of an IRS audit of Barbaro’s 2007 tax return. Barbaro’s net income per books for the year ended
Media Corp. is an accrual-basis, calendar-year C corporation.Its 2010 reported book income included $6,000 in municipal bond interest income. Its expenses included$1,500 of interest incurred on indebtedness used to carry municipal bonds and $8,000 in advertising expense. What is Media’s net M-1
In the reconciliation of income per books with income per return in Schedule M-1 of Form 1120a. Only temporary differences are considered.b. Only permanent differences are considered.c. Both temporary and permanent differences are considered.d. Neither temporary nor permanent differences are
Would the following expense items be reported on Schedule M-1 of the corporation income tax return (Form 1120) showing the reconciliation of income per books with income per return?Lodging expenses for executive out-of-town travel Deduction for a net capital lossa. Yes Yesb. No Noc. Yes Nod. No Yes
In 2010, Starke Corp., an accrual-basis calendar-year corporation, reported book income of $380,000. Included in that amount was $50,000 municipal bond interest income,$170,000 for federal income tax expense, and $2,000 interest expense on the debt incurred to carry the municipal bonds. What amount
For its taxable year 2010, Farve Corp. had net income per books of $80,000, which included municipal bond interest of $5,000, dividend income of $10,000, a deduction for a net capital loss of $6,000, a deduction for business meals of$4,000, and a deduction for federal income taxes of $18,000.What
For the year ended December 31, 2010, Ajax Corporation had net income per books of $1,200,000. Included in the determination of net income were the following items:Interest income on municipal bonds $ 40,000 Damages received from settlement of patent infringement lawsuit 200,000 Interest paid on
Bishop Corporation reported taxable income of$700,000 on its federal income tax return for calendar year 2010. Selected information for 2010 is available from Bishop’s records as follows:Provision for federal income tax per books $280,000 Depreciation claimed on the tax return 130,000
Dewey Corporation’s book income before federal income taxes was $520,000 for the year ended December 31, 2010. Dewey was incorporated during 2010 and began business in June. Organization costs of $257,400 were expensed for financial statement purposes during 2010. For tax purposes these costs are
For the year ended December 31, 2010, Bard Corp.’s income per accounting records, before federal income taxes, was $450,000 and included the following:State corporate income tax refunds $ 4,000 Life insurance proceeds on officer’s death 15,000 Net loss on sale of securities bought for
For the year ended December 31, 2010, Dodd Corp. had net income per books of $100,000. Included in the computation of net income were the following items:Provision for federal income tax $27,000 Net long-term capital loss 5,000 Keyman life insurance premiums(corporation is beneficiary) 3,000
For the year ended December 31, 2010, Maple Corp.’s book income, before federal income tax, was $100,000.Included in this $100,000 were the following:Provision for state income tax $1,000 Interest earned on US Treasury Bonds 6,000 Interest expense on bank loan to purchase US Treasury Bonds 2,000
For the year ended December 31, 2010, Kelly Corp. had net income per books of $300,000 before the provision for federal income taxes. Included in the net income were the following items:Dividend income from a 5%-owned domestic taxable corporation (taxable income limitation does not apply and there
For the first taxable year in which a corporation has qualifying research and experimental expenditures, the corporationa. Has a choice of either deducting such expenditures as current business expenses, or capitalizing these expenditures.b. Has to treat such expenditures in the same manner as they
Ram Corp.’s operating income for the year ended December 31, 2010, amounted to $100,000. Also in 2010, a machine owned by Ram was completely destroyed in an accident. This machine’s adjusted basis immediately before the casualty was $15,000. The machine was not insured and had no salvage
Dorsett Corporation’s income tax return for 2010 shows deductions exceeding gross income by $56,800. Included in the tax return are the following items:Net operating loss deduction (carryover from 2010) $15,000 Dividends received deduction 6,800 What is Dorsett’s net operating loss for 2010?a.
For the year ended December 31, 2010, Haya Corp. had gross business income of $600,000 and expenses of$800,000. Contributions of $5,000 to qualified charities were included in expenses. In addition to the expenses, Haya had a net operating loss carryover of $9,000. What was Haya’s net operating
When a corporation has an unused net capital loss that is carried back or carried forward to another tax year,a. It retains its original identity as short-term or longterm.b. It is treated as a short-term capital loss whether or not it was short-term when sustained.c. It is treated as a long-term
For the year ended December 31, 2010, Taylor Corp.had a net operating loss of $200,000. Taxable income for the earlier years of corporate existence, computed without reference to the net operating loss, was as follows:Taxable income 2005 $ 5,000 2006 $10,000 2007 $20,000 2008 $30,000 2009 $40,000
A C corporation’s net capital losses area. Carried forward indefinitely until fully utilized.b. Carried back three years and forward five years.c. Deductible in full from the corporation’s ordinary income.d. Deductible from the corporation’s ordinary income only to the extent of $3,000.
During 2010, Stark Corp. reported gross income from operations of $350,000 and operating expenses of $400,000.Stark also received dividend income of $100,000 (not included in gross income from operations) from an investment in a taxable domestic corporation in which it owns 10% of the stock.
Cava Corp., which has no portfolio indebtedness, received the following dividends in 2010:From a mutual savings bank $1,500 From a 20%-owned unaffiliated domestic taxable corporation 7,500 How much of these dividends qualifies for the 80% dividends received deduction?a. $9,000b. $7,500c. $1,500d. $0
In 2010, Daly Corp. had the following income:Profit from operations $100,000 Dividends from 20%-owned taxable domestic corporation 1,000 In Daly’s 2010 taxable income, how much should be included for the dividends received?a. $0b. $ 200c. $ 800d. $1,000
In 2010, Ryan Corp. had the following income:Income from operations $300,000 Dividends from unrelated taxable domestic corporations less than 20% owned 2,000 Ryan had no portfolio indebtedness. In Ryan’s 2010 taxable income, what amount should be included for the dividends received?a. $ 400b. $
The corporate dividends received deductiona. Must exceed the applicable percentage of the recipient shareholder’s taxable income.b. Is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period.c. Is unaffected by the percentage
In 2010, Acorn, Inc. had the following items of income and expense:Sales $500,000 Cost of sales 250,000 Dividends received 25,000 The dividends were received from a corporation of which Acorn owns 30%. In Acorn’s 2010 corporate income tax return, what amount should be reported as income before
In 2010, Best Corp., an accrual-basis calendar-year C corporation, received $100,000 in dividend income from the common stock that it held in a 15%-owned domestic corporation.The stock was not debt-financed, and was held for over a year. Best recorded the following information for 2010:Loss from
Norwood Corporation is an accrual-basis taxpayer. For the year ended December 31, 2010, it had book income before tax of $500,000 after deducting a charitable contribution of $100,000. The contribution was authorized by the Board of Directors in December 2010, but was not actually paid until March
Gero Corp. had operating income of $160,000, after deducting $10,000 for contributions to State University, but not including dividends of $2,000 received from nonaffiliated taxable domestic corporations.In computing the maximum allowable deduction for contributions, Gero should apply the
During 2010, Nale Corp. received dividends of $1,000 from a 10%-owned taxable domestic corporation. When Nale computes the maximum allowable deduction for contributions in its 2010 return, the amount of dividends to be included in the computation of taxable income isa. $0b. $ 200c. $ 300d. $1,000
Lyle Corp. is a distributor of pharmaceuticals and sells only to retail drug stores. During 2010, Lyle received unsolicited samples of nonprescription drugs from a manufacturer.Lyle donated these drugs in 2010 to a qualified exempt organization and deducted their fair market value as a charitable
Tapper Corp., an accrual-basis calendar-year corporation, was organized on January 2, 2010. During 2010, revenue was exclusively from sales proceeds and interest income.The following information pertains to Tapper:Taxable income before charitable contributions for the year ended December 31, 2010
In 2010, Cable Corp., a calendar-year C corporation, contributed $80,000 to a qualified charitable organization.Cable’s 2010 taxable income before the deduction for charitable contributions was $820,000 after a $40,000 dividends received deduction. Cable also had carryover contributions of
During 2010, Jackson Corp. had the following income and expenses:Gross income from operations $100,000 Dividend income from taxable domestic 20%-owned corporations 10,000 Operating expenses 35,000 Officers’ salaries 20,000 Contributions to qualified charitable organizations 8,000 Net operating
Silo Corp. was organized on March 1, 2010, began doing business on September 1, 2010, and elected to file its income tax return on a calendar-year basis. The following qualifying organizational expenditures were incurred in organizing the corporation:July 1, 2010 $3,000 September 3, 2010 5,600 The
The costs of organizing a corporation during 2011a. May be deducted in full in the year in which these costs are incurred if they do not exceed $5,000.b. May be deducted only in the year in which these costs are paid.c. May be amortized over a period of 120 months even if these costs are
Brown Corp., a calendar-year taxpayer, was organized and actively began operations on July 1, 2010, and incurred the following costs:Legal fees to obtain corporate charter $40,000 Commission paid to underwriter 25,000 Temporary directors’ meetings 15,000 State incorporation fees 4,400 For 2010,
Which of the following costs are deductible organizational expenditures?a. Professional fees to issue the corporation’s stock.b. Commissions paid by the corporation to underwriters for stock issue.c. Printing costs to issue the corporation’s stock.d. Expenses of temporary directors meetings.
Pym, Inc., which had earnings and profits of $100,000, distributed land to Kile Corporation, a shareholder. Pym’s adjusted basis for this land was $3,000. The land had a fair market value of $12,000 and was subject to a mortgage liability of $5,000, which was assumed by Kile Corporation.The
During 2011, Ral Corp. exchanged 5,000 shares of its own $10 par common stock for land with a fair market value of $75,000. As a result of this exchange, Ral should report in its 2011 tax returna. $25,000 Section 1245 gain.b. $25,000 Section 1231 gain.c. $25,000 ordinary income.d. No gain.
The following information pertains to treasury stock sold by Lee Corp. to an unrelated broker in 2011:Proceeds received $50,000 Cost 30,000 Par value 9,000 What amount of capital gain should Lee recognize in 2011 on the sale of this treasury stock?a. $0b. $ 8,000c. $20,000d. $30,500
Andi Corp. issued $1,000,000 face amount of bonds in 2002 and established a sinking fund to pay the debt at maturity.The bondholders appointed an independent trustee to invest the sinking fund contributions and to administer the trust. In 2010, the sinking fund earned $60,000 in interest on bank
Which of the following entities must include in gross income 100% of dividends received from unrelated taxable domestic corporations in computing regular taxable income?Personal service corporations Personal holding companiesa. Yes Yesb. No Noc. Yes Nod. No Yes
Bradbury Corp., a calendar-year corporation, was formed on January 2, 2007, and had gross receipts for its first four taxable years as follows:Year Gross receipts 2007 $4,500,000 2008 9,000,000 2009 9,500,000 2010 6,500,000 What is the first taxable year that Bradbury Corp. is not exempt from the
A corporation will not be subject to the alternative minimum tax for calendar year 2011 ifa. The corporation’s net assets do not exceed $7.5 million.b. The corporation’s average annual gross receipts do not exceed $10 million.c. The corporation has less than ten shareholders.d. 2011 is the
In computing its 2011 alternative minimum tax, a corporation must include as an adjustmenta. The dividends received deduction.b. The difference between regular tax depreciation and straight-line depreciation over forty years for real property placed in service in 1998.c. Charitable contributions.d.
A corporation’s tax preference items that must be taken into account for 2010 alternative minimum tax purposes includea. Use of the percentage-of-completion method of accounting for long-term contracts.b. Casualty losses.c. Tax-exempt interest on private activity bonds issued in 2008.d. Capital
Rona Corp.’s 2010 alternative minimum taxable income was $200,000. The exempt portion of Rona’s 2010 alternative minimum taxable income wasa. $0b. $12,500c. $27,500d. $52,500
If a corporation’s tentative minimum tax exceeds the regular tax, the excess amount isa. Carried back to the first preceding taxable year.b. Carried back to the third preceding taxable year.c. Payable in addition to the regular tax.d. Subtracted from the regular tax.
Eastern Corp., a calendar-year corporation, was formed during 2009. On January 3, 2010, Eastern placed five-year property in service. The property was depreciated under the general MACRS system. Eastern did not elect to use the straight-line method, and elected not to use bonus depreciation.The
Green Corp. was incorporated and began business in 2008. In computing its alternative minimum tax for 2009, it determined that it had adjusted current earnings (ACE) of$400,000 and alternative minimum taxable income (prior to the ACE adjustment) of $300,000. For 2010, it had adjusted current
Kisco Corp.’s taxable income for 2010 before taking the dividends received deduction was $70,000. This includes$10,000 in dividends from a 15%-owned taxable domestic corporation. Given the following tax rates, what would Kisco’s income tax be before any credits?Taxable income partial rate table
Finbury Corporation’s taxable income for the year ended December 31, 2010, was $2,000,000 on which its tax liability was $680,000. In order for Finbury to escape the estimated tax underpayment penalty for the year ending December 31, 2011, Finbury’s 2011 estimated tax payments must equal at
When computing a corporation’s income tax expense for estimated income tax purposes, which of the following should be taken into account?Corporate tax credits Alternative minimum taxa. No Nob. No Yesc. Yes Nod. Yes Yes
A corporation’s penalty for underpaying federal estimated taxes isa. Not deductible.b. Fully deductible in the year paid.c. Fully deductible if reasonable cause can be established for the underpayment.d. Partially deductible.
Edge Corp., a calendar-year C corporation, had a net operating loss and zero tax liability for its 2010 tax year. To avoid the penalty for underpayment of estimated taxes, Edge could compute its first quarter 2011 estimated income tax payment using the Annualized income method Preceding year
Bass Corp., a calendar-year C corporation, made qualifying 2010 estimated tax deposits based on its actual 2009 tax liability. On March 15, 2011, Bass filed a timely automatic extension request for its 2010 corporate income tax return. Estimated tax deposits and the extension payment totaled
A civil fraud penalty can be imposed on a corporation that underpays tax bya. Omitting income as a result of inadequate recordkeeping.b. Failing to report income it erroneously considered not to be part of corporate profits.c. Filing an incomplete return with an appended statement, making clear
Nancy, who is single, formed a corporation during 2006 using a tax-free asset transfer that qualified under Sec. 351.She transferred property having an adjusted basis of $80,000 and a fair market value of $60,000, and in exchange received Sec. 1244 small business corporation stock. During February
During the current year, Dinah sold Sec. 1244 small business corporation stock that she owned for a loss of $125,000. Assuming Dinah is married and files a joint income tax return for 2010, what is the character of Dinah’s recognized loss from the sale of the stock?a. $125,000 capital
Jackson, a single individual, inherited Bean Corp. common stock from Jackson’s parents. Bean is a qualified small business corporation under Code Sec. 1244. The stock cost Jackson’s parents $20,000 and had a fair market value of$25,000 at the parents’ date of death. During the year, Bean
Roberta Warner and Sally Rogers formed the Acme Corporation on October 1, 2010. On the same date Warner paid $75,000 cash to Acme for 750 shares of its common stock. Simultaneously, Rogers received 100 shares of Acme’s common stock for services rendered. How much should Rogers include as taxable
Rela Associates, a partnership, transferred all of its assets, with a basis of $300,000, along with liabilities of$50,000, to a newly formed corporation in return for all of the corporation’s stock. The corporation assumed the liabilities.Rela then distributed the corporation’s stock to its
Jones incorporated a sole proprietorship by exchanging all the proprietorship’s assets for the stock of Nu Co., a new corporation. To qualify for tax-free incorporation, Jones must be in control of Nu immediately after the exchange.What percentage of Nu’s stock must Jones own to qualify
John Albin is a retired partner of Brill & Crum, a personal service partnership. Albin has not rendered any services to Brill & Crum since his retirement in 2008. Under the provisions of Albin’s retirement agreement, Brill &Crum is obligated to pay Albin 10% of the partnership’s net income each
For tax purposes, a retiring partner who receives retirement payments ceases to be regarded as a partnera. On the last day of the taxable year in which the partner retires.b. On the last day of the particular month in which the partner retires.c. The day on which the partner retires.d. Only after
In 2005, Lisa Bara acquired a one-third interest in Dee Associates, a partnership. In 2010, when Lisa’s entire interest in the partnership was liquidated, Dee’s assets consisted of the following: cash, $20,000 and tangible property with a basis of $46,000 and a fair market value of $40,000. Dee
If this distribution were in complete liquidation of Reed’s interest in Post, Reed’s recognized gain or loss resulting from the distribution would bea. $7,500 gain.b. $9,000 lossc. $1,500 loss.d. $0.
If this distribution were nonliquidating, Reed’s basis for the inventory would bea. $14,000b. $12,500c. $ 5,000d. $ 1,500
The basis to a partner of property distributed “in kind”in complete liquidation of the partner’s interest is thea. Adjusted basis of the partner’s interest increased by any cash distributed to the partner in the same transaction.b. Adjusted basis of the partner’s interest reduced by any
On June 30, 2010, Berk, a calendar-year taxpayer, retired from his partnership. At that time, his capital account was $50,000 and his share of the partnership’s liabilities was$30,000. Berk’s retirement payments consisted of being relieved of his share of the partnership liabilities and receipt
What is Jody’s basis in the distributed property?a. $0b. $30,000c. $35,000d. $40,000
What amount of taxable gain must Jody report as a result of this distribution?a. $0b. $ 5,000c. $10,000d. $20,000
Day’s adjusted basis in LMN Partnership interest is$50,000. During the year Day received a nonliquidating distribution of $25,000 cash plus land with an adjusted basis of $15,000 to LMN, and a fair market value of $20,000.How much is Day’s basis in the land?954 MODULE 37 PARTNERSHIPS TAXATIONa.
Hart’s adjusted basis in Best Partnership was $9,000 at the time he received the following nonliquidating distribution of partnership property:Cash $ 5,000 Land Adjusted basis 7,000 Fair market value 10,000 What was the amount of Hart’s basis in the land?a. $0b. $ 4,000c. $ 7,000d. $10,000
Curry’s adjusted basis in Vantage Partnership was$5,000 at the time he received a nonliquidating distribution of land. The land had an adjusted basis of $6,000 and a fair market value of $9,000 to Vantage. What was the amount of Curry’s basis in the land?a. $9,000b. $6,000c. $5,000d. $1,000
On that date, Woodwest’s balance sheet was as follows:Cash $2,000 Land (adjusted basis) 2,000 Capital—Stone 3,000 Capital—Frazier 1,000 The fair market value of the land was $3,000. Frazier’s outside basis in the partnership was $1,200. Upon liquidation, Frazier received $1,500 in cash.
Stone and Frazier decided to terminate the Woodwest Partnership as of December
On June 30, 2010, James Roe sold his interest in the calendar-year partnership of Roe & Doe for $30,000. Roe’s adjusted basis in Roe & Doe at June 30, 2010, was $7,500 before apportionment of any 2010 partnership income.Roe’s distributive share of partnership income up to June 30, 2010, was
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