Taxation For Decision Makers 2012 Edition Shirley Dennis Escoffier - Solutions

5. Explain how an increase or decrease in partnership liabilities can affect the basis of a general partner and a limited partner.
4. Compare an owner’s personal liability for debts of a business organized as a sole proprietorship, general partnership, limited partnership, LLP, LLC, and S corporation.
3. The Gem Company, a sole proprietorship, provides health insurance for its owner and two employees. The cost per person is $200 per month. Explain how the Gem Company and its sole proprietor will treat this expense.
2. Explain the principal difference between an LLP and an LLC.
1. Which entities discussed in this chapter insulate the owners from the general liabilities of the entity?
5. William and Joan form an S corporation with William owning 30 percent of the stock and Joan the remaining 70 percent. Joan contributed $80,000 cash and services valued at $4,000. William contributed $6,000 cash and property valued at $30,000 that has a basis of $20,000. At the end of the year,
4. Using the information in question 3, what is Joan’s basis in her partnership interest at year-end?a. $140,100b. $120,600c. $110,100d. $99,600
3. William and Joan form a partnership with William having a 30 percent interest and Joan the remaining 70 percent. Joan contributed $80,000 cash and services valued at $4,000. William contributed $6,000 cash and property valued at $30,000 that has a basis of $20,000. At the end of the year, the
2. Refer to the information in question 1 and assume the entity is an S corporation.What is the corporation’s net income excluding separately stated items?a. $22,600b. $22,300c. $21,800d. $21,600
1. Lauren Cooper had a beauty shop in the basement of her home. During the current year, she had gross receipts of $32,000. She spent $3,500 for supplies, paid an assistant $4,200, incurred allocated utility expenses of$800, depreciation expense of $1,200, a Section 1231 gain of $800, and a
65. The Overseas Corporation has taxable income of $250,000 before either a deduction for foreign taxes paid or the foreign tax credit. It paid foreign taxes of $75,000 on foreign income of $300,000. Assuming the corporation cannot carry the foreign tax credit back to any prior year, and the
64. The Barnard Corporation needs additional cash to improve its facilities. It can borrow $2,000,000 from a bank at 9 percent interest for 10 years, with a balloon payment of the entire principal at the end of the 10-year period. It can issue $2,000,000 in 10-year corporate bonds paying 7.5
63. One of Corbett Corporation’s shareholders, Gene, is having severe financial problems due to extensive medical expenses. He has approached the company for a loan, but the other shareholders on the board of directors refuse to approve it. Gene owns 25 percent of the corporate stock with a basis
62. The Cooper Corporation is trying to do some year-end tax planning due to a large bond issue that is coming due. To meet this debt payment, Cooper already has sold $4,000,000 of business assets at a gain of $2,000,000. It is considering the sale of one of two assets: land valued at $3,000,000
61. Go to the IRS Web site (www.irs.gov) and locate Publication 538:Accounting Periods and Methods. How does a corporation make an election to use a 52-53-week tax year?
60. Go to the IRS Web site (www.irs.gov) and print the first page of Form 1120.Using the following information, determine Chelsea Corporation’s tax owed or refund due using this form if it made estimated tax payments of $15,000.Chelsea Corporation (34 Chelsea Drive, Sarasota, Florida, 33456) is a
59. Go to the IRS Web site (www.irs.gov) and locate instructions for Form 1120.If a corporation has less than $250,000 of total receipts and total assets at the end of the tax year, which schedules included with Form 1120 can it omit?
58. June owned all the stock of Corporation A. Over the year, the corporation had been very successful but had never paid any dividends, although it had substantial earnings and profits. June wanted to expand into another line of business as a sole proprietor but did not have the cash to do so.June
57. Locate and read Internal Revenue Code Sections 267, 318, and 544.Compare the definition of family in each of these sections.
56. Several years ago, Congress repealed the General Utilities Doctrine. Locate and read General Utilities & Operating Co. v. Helvering, 296 US 200(1935). Summarize this case. What was the General Utilities Doctrine, and how did its repeal affect current transactions?
55. Locate and read Section 385 of the Internal Revenue Code and develop a comprehensive list of factors that indicate legitimate debt. What is the status of the regulations that are to expand on this Code section?
54. Sweeney was the chairman of Sweeney, Inc., a large hardware and lumber store. When Sweeney became ill, his son took over the business but sold the property and all the inventory of lumber valued at $2,000,000 within a year. Shortly thereafter, Sweeney recovered and took control of the
53. The owner of a corporation used corporate funds to pay for his home, all the home’s expenses, and numerous other personal expenses. This went on for a number of years until the corporation was audited. The IRS asserted that the use of the corporate funds for personal purposes was a
52. Seven years ago, the Bonnet Corporation redeemed all of Joe Bonnet’s stock as a complete termination of interest. At the time, Joe signed a waiver of family attribution rules because his three sons retained all their stock. As part of this arrangement, Joe agreed to notify the IRS if he
51. The Cabot Corporation has had financial problems for several years. The two shareholders have discussed liquidating the corporation, but they are concerned that they will have to pay a large tax bill because of the corporation’s low basis in its assets and their high fair market value due to
50. Seth and Jacob are brothers who own all of Marboro Corporation’s 2,000 shares of outstanding common stock. Seth owns 1,100 shares to Jacob’s 900 shares, and this has caused many problems over the years. They have not spoken to each other except through their secretaries for more than 10
49. Waltjohn Corporation has $5,000 in CE&P and $10,000 in AE&P. It has two shareholders, Walter and John. On April 1 of the current year, Walter received a $10,000 distribution from the corporation on his Class A common stock. On July 1, John received a $10,000 distribution on his Class B common
48. Explain how a parent–subsidiary controlled group differs from an affiliated controlled group. Develop examples of each to illustrate the differences.
47. Why do you think Congress requires the recognition of gain on the distribution of appreciated property but does not allow the recognition of loss on depreciated property in a nonliquidating distribution? Why do you think both gain and loss are recognized on liquidating distributions?
46. The Blanton Corporation had a deficit in its current earnings and profits of $36,500 for the current year. It has $75,000 in accumulated earnings and profits. It made two distributions to its shareholders. On April 30, it distributed $40,000, and on November 30, it distributed $20,000. When the
45. Bob and Jane, brother and sister, are equal partners in a family partnership that owns 400 shares of the Sibling Corporation. Their grandfather owns the remaining 100 shares of Sibling Corporation. How many shares of stock are owned directly and indirectly by Bob?
44. List at least 10 differences between taxable income and accounting income.
43. Identify the brother–sister corporations given the following ownership percentages by four individuals:Individual/Corporation A B C D James 20% 40% 15% 15%Carol 25% 10% 20% 20%Joan 20% 40% 40% 20%Wallace 10% 10% 20% 25%
42. General Corporation has $900,000 of service revenue, a $15,000 capital loss, a $20,000 casualty loss, operating expenses of $685,000, and a charitable contribution of $25,000.a. Determine General’s separate taxable income.b. What items must be determined on a consolidated basis?
41. The Prosperity Corporation has accumulated $200,000 of earnings beyond the reasonable needs of the business. The corporation’s regular taxable income is $165,000. Its adjusted taxable income for determining the accumulated earnings tax is $178,000. What is the total amount of taxes that the
40. The Green Corporation has only six shareholders. In the current year, it has AOGI of $540,000 and personal holding company income of $390,000.Its adjusted taxable income is $460,000. What is its personal holding company income tax?
39. A corporation has 10 shareholders. Nine of the shareholders own 9 percent each of the stock. The tenth shareholder owns the remaining stock.Does the corporation meet the shareholder test as a personal holding company? Explain.
38. P Corporation owns 90 percent of the stock of S1 Corporation. S1 Corporation owns 45 percent of S2 Corporation and 86 percent of S3 Corporation. S3 Corporation owns 40 percent of S2 Corporation and 70 percent of S4. S4 owns 100 percent of S5. Identify the consolidated group of corporations.
37. Loser Corporation decides to liquidate and files a plan of liquidation with the IRS. It is unable to sell its assets, so it distributes them to its sole shareholder, Bummer. There are only three assets: inventory (fair market value = $4,000; basis = $3,500), building (fair market value =
36. Beacon Corporation had operated a chain of restaurants for 15 years and owned a small trucking company for 10 years. It decided to sell all the assets of the trucking company (Section 1231 assets) for $1,500,000. The assets had a basis of $900,000 and the corporation is in the 34 percent
35. Sheri owns 800 of the 1,500 outstanding shares of Carney Corporation, which she bought a number of years ago for $20 each. She needs money for her daughter’s tuition but does not want to sell all of her shares in the corporation. Carney has $200,000 in earnings and profits.a. What are the tax
34. Jo received one stock right for each share of the 10 shares of stock that she owns in Bill Corporation, which she purchased three years ago for $5 a share. Each stock right allows her to purchase one share of stock for$10. The stock is currently selling for $13 per share. What is her basis in
33. Carrie received 10 shares of Collie common stock as a 10 percent dividend on the 100 common shares she currently owns. She paid $4,400 for the original shares. If she sells the 10 shares that she just received for$800, what is her gain or loss on the sale?
32. Vanguard Corporation has excess land that it distributes to its shareholders as a dividend. Each of the four shareholders gets a portion of the land valued at $23,000 ($92,000 total value). The corporation’s basis for the land is $68,000. What are the consequences to the corporation and the
31. The Amble Corporation has $4,000 in current earnings and profits and$23,000 in accumulated earnings and profits. It makes a $6,000 dividend distribution at the end of the year to its shareholders. How is this distribution taxed, and what is the corporation’s balance in CE&P and AE&P at the
30. The Caribe Corporation has $668,000 of taxable income for the current year. In determining this income the accountant listed the following items:$45,000 in dividends from a 30 percent owned corporation$40,000 net operating loss carryover from the prior year$68,000 disallowed loss on a sale to
29. Jenkins Corporation had $675,000 of taxable income last year and$575,000 this year. What is the minimum amount that it must submit for each estimated quarterly tax payment to avoid any penalty for underpayment?
28. The Falcon Corporation has $68,000 in taxable income. Its accountant uncovered $87,000 in net positive adjustments and $2,000 of preference items in determining its alternative minimum taxable income. What are the corporation’s AMTI and AMT?
27. Palmdale Corporation has a regular tax liability of $94,000. It is eligible for a $54,000 general business credit for the current year and has a$30,000 general business credit carryover from the prior year. What is Palmdale’s allowable general business credit for the current year? What is its
26. Mondial Corporation’s financial accounting records show it had gross revenue of $980,000, cost of goods sold of $420,000, operating expenses of$380,000, and $4,000 of dividends received from a 40% owned company.Its operating expenses included the following:$6,000 of life insurance premiums on
25. Donut Corporation has $400,000 of taxable income. What is its net tax liability if it has a $120,000 general business credit available?
24. Gordon Corporation had $102,000 of retained earnings at the beginning of the year. It had $87,000 of financial accounting income and paid$45,000 in dividends. What is the corporation’s ending retained earnings balance?
23. Whitlaw Corporation has $150,000 of gross profit on sales, operating expenses of $60,000 (excluding cost recovery), $4,000 dividend income from a one percent owned corporation, a $10,000 capital gain and$15,000 capital loss, a $15,000 Section 179 deduction, additional tax depreciation of
22. What is the tax on WW Corporation’s taxable income of $825,000 ifa. it is a regular corporation?b. it is a personal service corporation?
21. What is a corporation’s income tax if its income isa. $70,000?b. $280,000?c. $900,000?d. $2,250,000?e. $14,000,000?
20. Velvet Corporation has revenues of $340,000 and deductible expenses of$350,000. It also received a $40,000 dividend from a corporation in which it owns 10 percent. What is the corporation’s taxable income?
19. The Jingle Corporation has income from operations of $459,000. It has dividend income of $68,000 from a corporation in which it owns 5 percent.a. What is the corporation’s taxable income?b. How would your answer change if Jingle owns 35 percent of the corporation paying the dividend?
18. A corporation has gross revenue from sales of $289,000, cost of sales of$98,000, a Section 179 deduction of $20,000 (financial depreciation $5,000), operating expenses of $122,000, and a Section 1231 gain of$21,000 on the sale of some machinery (the gain is only $14,000 for financial
17. The Crane Corporation issues $1,500,000 in bonds with a 7.5 percent interest rate. If its marginal tax rate is 35 percent, what is its after-tax cost of the debt?
16. A corporation’s taxable income is $1,500,000. If it distributes its after-tax income to its shareholders whose dividend tax rate is 15 percent, what are the total tax and the combined effective tax rate on corporate income?
15. What are five positive and five negative adjustments to taxable income to determine current earnings and profits?
14. What are the two types of controlled groups?
13. What is a corporate liquidation? What are the tax consequences for a corporation that distributes property as part of a complete liquidation? What are the tax consequences to the shareholders?
12. What is a corporate redemption? What are the tax consequences to the shareholder in a qualifying redemption? What are they if it is not a qualifying redemption?
11. What are the ownership requirements for a group of corporations to file a consolidated return? Illustrate.
10. Why are corporations permitted to file consolidated returns?
9. What is the purpose of corporate earnings and profits? Why isn’t taxable income used to determine if a distribution is a dividend?
8. What is the unextended due date for the income tax return of a corporation whose fiscal year ends on February 28? What is its extended due date?In what months must it make estimated payments for the next tax year?
7. What is the purpose of the alternative minimum tax? What is the alternative minimum tax rate for corporations?
6. List three items that increase book income and three items that reduce book income when reconciling book to taxable income.
5. What are the carryover periods for corporate net operating losses?
4. What is a corporation’s overall charitable contribution deduction limitation?
2. List five desirable characteristics of the corporate form of business.
1. Explain how a corporation’s income is subject to double taxation.
13. Explain the difference between cost depletion and percentage depletion.
14. What are IDCs and how are they treated for tax purposes?
15. What are research and experimentation expenditures and how are they usually treated for tax purposes?
16. Two years ago, Warren purchased a computer for $4,000. Until this year, he used it exclusively for personal purposes. At the beginning of the current year, Warren opened a consulting business and began using the computer solely for business purposes. At the time he began his business,
17. Last year, Anne purchased a condo unit for $125,000. She used the condo as her personal residence. In the current year, when the condo unit appraises at $132,000, Anne moves out and converts the condo to rental property. What basis can Anne use when computing her depreciation on the rental
18. In 2007, Sharon purchased her principal residence for $500,000. In 2011, she converts the property to rental use because she has been unable to sell it due to the depressed real estate market. The property’s current fair market value is $400,000 (of which $100,000 is for the land). What basis
21. Blanco Corporation (a calendar-year taxpayer) purchased $10,000,000 of new equipment in July 2011. Compute Blanco’s depreciation deduction for 2011.
22. Azona Corporation (a calendar-year taxpayer) purchased only one business asset during 2011, used 7-year property that cost $2,600,000.Compute Azona’s depreciation assuming thata. the asset was purchased and placed in service on September 30, 2011.b. the asset was purchased and placed in
23. In July 2010, Lenux Corporation purchased $2,100,000 of new office furniture.Lenux claimed the maximum allowable depreciation deduction(including having made any allowable elections). Calculate Lenux’s total depreciation deduction for 2010 and 2011.
24. Kondar Corporation spent $2,050,000 to purchase used machinery during 2011.a. What is the maximum that Kondar may elect to expense under Section 179 for the year?b. What is the basis for calculating regular MACRS depreciation on this machinery?c. What is Kondar’s maximum depreciation
25. Corando Corporation purchased $840,000 of new factory equipment at the beginning of the year. Determine the maximum depreciation deduction for the equipment if it was purchased in (a) 2010 or (b) 2011.
28. At the beginning of 2011, AB Corporation (a calendar-year corporation)owned the following assets:OFFICE FURNITURE COMPUTER EQUIPMENT Date placed in service 11/15/08 4/15/07 Initial cost $20,000 $10,000 Accumulated depreciation $10,160 $8,272 Recovery period 7-year 5-year Averaging convention
11. What additional tests must employee-owned property satisfy before it is eligible for depreciation?
10. Why is the Section 179 expensing election more valuable to a small business than to a large business?
1. Maria received some Mega Corporation stock as a gift from her Uncle Glen two years ago when it had a fair market value of $90,000. Glen paid$60,000 for the stock five years ago, and he paid $3,000 in gift taxes when he made the gift to Maria. What is Maria’s basis for the stock?a. $60,000b.
2. Ricardo purchased a personal computer for $3,000 two years ago. He used the computer exclusively for personal use until this year. In the current year, when the computer is worth $1,000, Ricardo begins using it exclusively in his sole proprietorship. What basis must Ricardo use in calculating
3. Probest Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2011:DATE ASSET COST March 4 Automobile $39,000 May 23 Warehouse $900,000 October 1 Used office furniture $525,000 All assets are used 100 percent for business use. $100,000 of the cost
4. On October 2, 2011, Bedrock Corporation (a calendar-year corporation)acquires and places into service 7-year used business equipment costing$650,000. No other acquisitions are made during the year. The depreciation for 2011 (rounded to the nearest dollar) isa. $92,885b. $264,280c. $505,355d.
5. In May 2011, Jose purchased a used automobile for $12,000 and used it 75 percent for business. No Section 179 election was made for this asset.In 2012, Jose’s business use of the automobile decreases to 45 percent. As a result of this change in business usea. there is no change in the way Jose
1. Linda inherited a car from her Uncle Ted. Ted purchased the car two years ago for $38,000. The car had a value of $30,000 at the date of Ted’s death.What is Linda’s basis for the car?
29. On March 1, 2010, Harry Corporation purchased and placed in service office furniture costing $550,000. Compute the maximum amount Harry Corporation could elect to expense under Section 179 and claim as bonus depreciation for this furniture in 2010 ifa. this is new furniture and it is the only
30. David operates his business as a sole proprietorship. In 2011, he spends$20,000 for a used machine (7-year property). His business income, before consideration of any Section 179 deduction, is $17,000. David elects to expense $20,000 under Section 179. Calculate his total depreciation deduction
50. James Corporation had a net operating loss of $30,000 before claiming any depreciation deductions. James purchased $26,000 in equipment in 2011 but claimed no depreciation on its 2011 tax return.
51. Demark Corporation took delivery of a new machine on December 31, 2011. Due to the high number of employees out for the holidays, the machine was not set up for use until January 3, 2012.
52. Marble Corporation purchased 300-year-old marble statutes that it displays in the entrance hall of its main office building.
53. Monicon Corporation purchased a $24,000 computer in 2008 and elected to expense it under Section 179. In 2011, the IRS audited Monicon and determined that its taxable income was incorrectly calculated and was only $20,000 before considering Section 179 expensing instead of the$24,000 reported

Showing 200 - 300 of 951

Taxation For Decision Makers 2012 Edition Shirley Dennis Escoffier - Solutions

Step by Step Answers