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Questions and Answers
Which factor does not contribute to the limitation on the business interest deduction?
Which factor does not contribute to the limitation on the business interest deduction?
A corporation experiences a net capital loss (NCL) in 2023. How many years can the NCL be carried back and forward, respectively?
A corporation experiences a net capital loss (NCL) in 2023. How many years can the NCL be carried back and forward, respectively?
What is the income classification when gain is recognized on the transfer of depreciable asset to a related party?
What is the income classification when gain is recognized on the transfer of depreciable asset to a related party?
Parent sells a building to their Subsidiary at a loss of $50,000. Later, the Subsidiary sells the building to an unrelated third party at a gain of $70,000. How much gain does Subsidiary recognize?
Parent sells a building to their Subsidiary at a loss of $50,000. Later, the Subsidiary sells the building to an unrelated third party at a gain of $70,000. How much gain does Subsidiary recognize?
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An asset is sold to a related party at a loss of $10,000. The related party then sells the asset to an unrelated person at a loss of $15,000. How much loss is recognized on the subsequent sale to the unrelated person?
An asset is sold to a related party at a loss of $10,000. The related party then sells the asset to an unrelated person at a loss of $15,000. How much loss is recognized on the subsequent sale to the unrelated person?
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In a wholly owned corporation, if a 75% shareholder exchanges baseball cards for a corporate motorcycle, how is the gain calculated for tax purposes?
In a wholly owned corporation, if a 75% shareholder exchanges baseball cards for a corporate motorcycle, how is the gain calculated for tax purposes?
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When reconciling income per books with income per tax return, which of the following adjustments should be subtracted from net income per books?
When reconciling income per books with income per tax return, which of the following adjustments should be subtracted from net income per books?
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Which of the following increases the unappropriated retained earnings account?
Which of the following increases the unappropriated retained earnings account?
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A corporation received dividends from another domestic corporation. To be eligible for the dividends-received deduction (DRD), how long must the recipient corporation hold the stock?
A corporation received dividends from another domestic corporation. To be eligible for the dividends-received deduction (DRD), how long must the recipient corporation hold the stock?
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Under what conditions is a dividend received from a foreign corporation eligible for the dividends-received deduction (DRD)?
Under what conditions is a dividend received from a foreign corporation eligible for the dividends-received deduction (DRD)?
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Dividends received from which of the following entities are ineligible for the dividends-received deduction?
Dividends received from which of the following entities are ineligible for the dividends-received deduction?
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In 2023, when calculating the charitable contribution deduction for a corporation, what is the limitation based on?
In 2023, when calculating the charitable contribution deduction for a corporation, what is the limitation based on?
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If a corporation's charitable contribution exceeds the deductible limit in 2023, how is the excess treated for tax purposes?
If a corporation's charitable contribution exceeds the deductible limit in 2023, how is the excess treated for tax purposes?
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During the current year, Chris Corporation, a domestic corporation, had gross receipts of $125,000, net capital gains of $10,000, expenses (not including cash contributions) of $75,000, contributions to qualified charities of $20,000, and a net operating loss carryover from last year of $20,000. What is the amount of Chris Corporation's allowable charitable contribution deduction for the current tax year?
During the current year, Chris Corporation, a domestic corporation, had gross receipts of $125,000, net capital gains of $10,000, expenses (not including cash contributions) of $75,000, contributions to qualified charities of $20,000, and a net operating loss carryover from last year of $20,000. What is the amount of Chris Corporation's allowable charitable contribution deduction for the current tax year?
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In the current year, Little Company sold land, which had been held strictly for investment purposes, for $70,000. The original cost of the land when purchased 2 years ago was $80,000. During the year, Little also had a capital gain of $6,000 and received dividends from investments of $3,000. What is the amount of the loss that is deductible by Little in the current year from the sale of the land?
In the current year, Little Company sold land, which had been held strictly for investment purposes, for $70,000. The original cost of the land when purchased 2 years ago was $80,000. During the year, Little also had a capital gain of $6,000 and received dividends from investments of $3,000. What is the amount of the loss that is deductible by Little in the current year from the sale of the land?
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Mitchell sold his Saratoga Bombers Corporation stock to his brother Sheldon for $7,000. Mitchell's cost basis in the stock was $10,000. Sheldon later sold this stock to Morey, an unrelated party, for $10,500. What is Sheldon's recognized gain?
Mitchell sold his Saratoga Bombers Corporation stock to his brother Sheldon for $7,000. Mitchell's cost basis in the stock was $10,000. Sheldon later sold this stock to Morey, an unrelated party, for $10,500. What is Sheldon's recognized gain?
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On January 2, Year 1, Tek Corp., an accrual-basis, calendar-year C corporation, purchased all the assets of a sole proprietorship, including $60,000 in goodwill. Tek's reported book income before federal income taxes was $400,000. A $1,500 deduction for annual amortization of goodwill was taken based on a 40-year amortization period. What should be the amount of Tek's taxable income, as reconciled on Tek's Schedule M-1 of Form 1120, U.S. Corporation Income Tax Return?
On January 2, Year 1, Tek Corp., an accrual-basis, calendar-year C corporation, purchased all the assets of a sole proprietorship, including $60,000 in goodwill. Tek's reported book income before federal income taxes was $400,000. A $1,500 deduction for annual amortization of goodwill was taken based on a 40-year amortization period. What should be the amount of Tek's taxable income, as reconciled on Tek's Schedule M-1 of Form 1120, U.S. Corporation Income Tax Return?
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During the current year, ABC Corporation had gross receipts of $233,600, salaries of $175,000, contributions to qualified charitable organizations of $20,000, capital gains of $3,000, a capital loss carryback of $3,000, depreciation expense of $14,000, dividend income of $30,000, and a dividends-received deduction of $15,000. What is ABC's charitable contribution deduction for the year?
During the current year, ABC Corporation had gross receipts of $233,600, salaries of $175,000, contributions to qualified charitable organizations of $20,000, capital gains of $3,000, a capital loss carryback of $3,000, depreciation expense of $14,000, dividend income of $30,000, and a dividends-received deduction of $15,000. What is ABC's charitable contribution deduction for the year?
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Alpha is a U.S. corporation that owns 21% of the stock of Omega, a foreign corporation that is not a foreign personal holding company. Forty percent of Omega's post-1986 undistributed income is from effectively connected business sources in the U.S. Alpha's dividend from Omega is $20,000 in the current year. Alpha has no debt related to its stock holdings. What is Alpha's dividends-received deduction?
Alpha is a U.S. corporation that owns 21% of the stock of Omega, a foreign corporation that is not a foreign personal holding company. Forty percent of Omega's post-1986 undistributed income is from effectively connected business sources in the U.S. Alpha's dividend from Omega is $20,000 in the current year. Alpha has no debt related to its stock holdings. What is Alpha's dividends-received deduction?
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With regard to the treatment of capital losses by a corporation other than an S corporation, which of the following statements is false?
With regard to the treatment of capital losses by a corporation other than an S corporation, which of the following statements is false?
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In its first year of operations, Rowley Corporation, not a dealer in securities, realized taxable income of $128,000 from the operation of its business. In addition to its regular business operations, it realized short-term capital gain of $10,000 short-term capital loss ($4,000) long-term capital gain $12,000 Long-term capital loss ($32,000) What is Rowley's total taxable income?
In its first year of operations, Rowley Corporation, not a dealer in securities, realized taxable income of $128,000 from the operation of its business. In addition to its regular business operations, it realized short-term capital gain of $10,000 short-term capital loss ($4,000) long-term capital gain $12,000 Long-term capital loss ($32,000) What is Rowley's total taxable income?
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During the current year, Dowdy, a C corporation, realized a long-term capital gain of $8,000 from the sale of a tract of land, a short-term capital gain of $6,000 from the sale of stock of Ornery Corporation, and a long-term capital loss of $18,000 from the sale of U.S. government securities. What amount of the long-term capital loss may Dowdy deduct on its current year income tax return?
During the current year, Dowdy, a C corporation, realized a long-term capital gain of $8,000 from the sale of a tract of land, a short-term capital gain of $6,000 from the sale of stock of Ornery Corporation, and a long-term capital loss of $18,000 from the sale of U.S. government securities. What amount of the long-term capital loss may Dowdy deduct on its current year income tax return?
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Which of the following are NOT related persons for purposes of disallowing an accrual deduction for interest payable to a cash-basis person until payment of the interest is made?
Which of the following are NOT related persons for purposes of disallowing an accrual deduction for interest payable to a cash-basis person until payment of the interest is made?
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During the current year, Zack Corporation experienced a $15,000 loss from operations. It received $100,000 in dividends from a domestic corporation of which Zack owns 15% of total stock outstanding. Zack's taxable income before the dividends-received deduction was $85,000. What is the amount of Zack's dividends-received deduction?
During the current year, Zack Corporation experienced a $15,000 loss from operations. It received $100,000 in dividends from a domestic corporation of which Zack owns 15% of total stock outstanding. Zack's taxable income before the dividends-received deduction was $85,000. What is the amount of Zack's dividends-received deduction?
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Daynite Corporation, a domestic corporation, acquired a 90% interest in KDN Corporation 10 years ago for $50,000. During the current year, the stock of KDN was declared worthless. KDN's income for all taxable years was from sources other than passive income. What are the character and the amount of the deduction Daynite should take in the current year?
Daynite Corporation, a domestic corporation, acquired a 90% interest in KDN Corporation 10 years ago for $50,000. During the current year, the stock of KDN was declared worthless. KDN's income for all taxable years was from sources other than passive income. What are the character and the amount of the deduction Daynite should take in the current year?
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Net income per books of Pat's psychology clinic was $140,825 for the year ended September 30, Year 1. Select from the following account information those items that would be necessary to reconcile book income to the income to be reported on the return, and compute taxable income per return.
Net income per books of Pat's psychology clinic was $140,825 for the year ended September 30, Year 1. Select from the following account information those items that would be necessary to reconcile book income to the income to be reported on the return, and compute taxable income per return.
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For the current year, Roberts Corporation had a beginning balance of unappropriated retained earnings of $100,000 and net income per books of $125,000. During the year, it paid cash dividends of $60,000, had a loss on sale of securities of $3,600, and received a refund of the previous year's income taxes of $6,000. What is its ending balance of unappropriated retained earnings for the year?
For the current year, Roberts Corporation had a beginning balance of unappropriated retained earnings of $100,000 and net income per books of $125,000. During the year, it paid cash dividends of $60,000, had a loss on sale of securities of $3,600, and received a refund of the previous year's income taxes of $6,000. What is its ending balance of unappropriated retained earnings for the year?
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Corporation T's records reflect the following information: Net income per books $50,000 Refund of prior year's income tax 1,000 Contributions carryover from prior year 300 Increase in reserve for contingencies 1,200 Cash dividends paid 2,000 Stock dividends paid 1,500 Tax-exempt interest 3,500 Based on this information and using generally accepted accounting principles, what is T's unappropriated retained earnings balance at the end of the year?
Corporation T's records reflect the following information: Net income per books $50,000 Refund of prior year's income tax 1,000 Contributions carryover from prior year 300 Increase in reserve for contingencies 1,200 Cash dividends paid 2,000 Stock dividends paid 1,500 Tax-exempt interest 3,500 Based on this information and using generally accepted accounting principles, what is T's unappropriated retained earnings balance at the end of the year?
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Newport, Inc., a small business investment company, had income from operations of $55,000, dividend income from Strauss, Inc. (a domestic corporation) $15,000, and expenses of operations of $20,000 for the year. What is Newport, Inc.'s dividends-received deduction?
Newport, Inc., a small business investment company, had income from operations of $55,000, dividend income from Strauss, Inc. (a domestic corporation) $15,000, and expenses of operations of $20,000 for the year. What is Newport, Inc.'s dividends-received deduction?
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Which of the following statements about the dividends-received deduction (DRD) is true? The taxable income limit does not apply if a current NOL exists or an NOL results from the DRD.
Which of the following statements about the dividends-received deduction (DRD) is true? The taxable income limit does not apply if a current NOL exists or an NOL results from the DRD.
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During the year, HOOS Corporation had gross receipts of $436,600, salaries of $300,000, contributions to qualified charitable organizations of $60,000, capital gains of $7,000, depreciation expense of $28,000, dividend income of $60,000, and a dividends-received deduction of $42,000. What is the amount of HOOS Corporation's charitable contribution deduction for the year?
During the year, HOOS Corporation had gross receipts of $436,600, salaries of $300,000, contributions to qualified charitable organizations of $60,000, capital gains of $7,000, depreciation expense of $28,000, dividend income of $60,000, and a dividends-received deduction of $42,000. What is the amount of HOOS Corporation's charitable contribution deduction for the year?
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Which of the following contributions made by Natvale Corporation, a domestic corporation, is NOT deductible for federal income tax purposes?
Which of the following contributions made by Natvale Corporation, a domestic corporation, is NOT deductible for federal income tax purposes?
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Tapper Corp., an accrual-basis, calendar-year corporation, was organized on January 2, Year 1. During the year, 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, Year 1 $500,000, Tapper's matching contribution to employee-designated qualified universities made during Year 1 10,000, Authorized contribution by board of directors to a qualified charity (authorized December 1, Year 1; made February 1, Year 2) 30,000. What is the maximum allowable deduction (among what has been already contributed) that Tapper may take as a charitable contribution on its tax return for the year ended December 31, Year 1?
Tapper Corp., an accrual-basis, calendar-year corporation, was organized on January 2, Year 1. During the year, 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, Year 1 $500,000, Tapper's matching contribution to employee-designated qualified universities made during Year 1 10,000, Authorized contribution by board of directors to a qualified charity (authorized December 1, Year 1; made February 1, Year 2) 30,000. What is the maximum allowable deduction (among what has been already contributed) that Tapper may take as a charitable contribution on its tax return for the year ended December 31, Year 1?
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During the year, PARD Corporation had gross receipts of $467,200, salaries of $350,000, contributions to qualified charitable organizations $40,000, capital gains $6,000, capital loss carryback $6,000, depreciation expense $28,000, dividend income $60,000, and a dividends-received deduction $30,000. What is PARD's charitable contribution deduction for the year?
During the year, PARD Corporation had gross receipts of $467,200, salaries of $350,000, contributions to qualified charitable organizations $40,000, capital gains $6,000, capital loss carryback $6,000, depreciation expense $28,000, dividend income $60,000, and a dividends-received deduction $30,000. What is PARD's charitable contribution deduction for the year?
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Snow Corporation owns a 20% interest in Hail Corporation, a domestic corporation. For the year, Snow Corporation had gross receipts of $390,000, operating expenses of $400,000, and dividend income of $120,000 from Hail Corporation. What is Snow Corporation's dividends-received deduction for the year?
Snow Corporation owns a 20% interest in Hail Corporation, a domestic corporation. For the year, Snow Corporation had gross receipts of $390,000, operating expenses of $400,000, and dividend income of $120,000 from Hail Corporation. What is Snow Corporation's dividends-received deduction for the year?
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Corporations can take a deduction for dividends received from which of the following?
Corporations can take a deduction for dividends received from which of the following?
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Flashcards
Business Interest Deduction Limitations
Business Interest Deduction Limitations
Deductions are limited to business interest income, 30% of adjusted taxable income, and floor plan financing interest.
Net Capital Loss Carryback and Carryforward
Net Capital Loss Carryback and Carryforward
Corporations can carry NCL back 3 years and forward 5 years.
Gain on Asset Transfer to Related Party
Gain on Asset Transfer to Related Party
If asset gain is recognized and the recipient can depreciate, it is treated as ordinary income.
Realized Gain on Sale to Unrelated Person
Realized Gain on Sale to Unrelated Person
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Realized Loss on Sale to Unrelated Person
Realized Loss on Sale to Unrelated Person
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FMV vs. AB in Shareholder Exchange
FMV vs. AB in Shareholder Exchange
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Unappropriated Retained Earnings Changes
Unappropriated Retained Earnings Changes
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Income Reconciliation Adjustments
Income Reconciliation Adjustments
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Dividends-Received Deduction Eligibility
Dividends-Received Deduction Eligibility
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Foreign Corporation DRD Requirements
Foreign Corporation DRD Requirements
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Restrictions on Dividend Deductions
Restrictions on Dividend Deductions
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Charitable Contribution Limitation
Charitable Contribution Limitation
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Charitable Contribution Carryover
Charitable Contribution Carryover
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Chris Corporation Charitable Deduction
Chris Corporation Charitable Deduction
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Little Company Capital Loss Deduction
Little Company Capital Loss Deduction
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Sheldon Recognized Gain
Sheldon Recognized Gain
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Tek Corporation Goodwill Amortization
Tek Corporation Goodwill Amortization
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ABC Corporation Charitable Contribution Deduction
ABC Corporation Charitable Contribution Deduction
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Alpha’s Dividends-Received Deduction
Alpha’s Dividends-Received Deduction
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Long-term Capital Loss Deduction
Long-term Capital Loss Deduction
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Dividends-Received Deduction (DRD)
Dividends-Received Deduction (DRD)
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Kelli Corporation Charitable Contributions
Kelli Corporation Charitable Contributions
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Tapper Corporation Charitable Contribution Limit
Tapper Corporation Charitable Contribution Limit
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Mitchell-Sheldon Stock Sale Loss
Mitchell-Sheldon Stock Sale Loss
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Rowley Corporation Taxable Income
Rowley Corporation Taxable Income
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HOOS Corporation Charitable Deduction
HOOS Corporation Charitable Deduction
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Maple Corporation Taxable Income Calculation
Maple Corporation Taxable Income Calculation
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Dividends-Received Deduction on Best Corp.
Dividends-Received Deduction on Best Corp.
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ABC Corporation Taxable Income Components
ABC Corporation Taxable Income Components
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Year 2 Contributions Carryover
Year 2 Contributions Carryover
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Daynite Corporation Worthless Stock
Daynite Corporation Worthless Stock
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Snow Corporation DRD Limit
Snow Corporation DRD Limit
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Unappropriated Retained Earnings Calculation
Unappropriated Retained Earnings Calculation
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Dividends-Received Deduction Cap
Dividends-Received Deduction Cap
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Financial Losses Limitations
Financial Losses Limitations
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Mitchell-Sheldon Gain Recognition Rules
Mitchell-Sheldon Gain Recognition Rules
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Calculating NOL Impact on DRD
Calculating NOL Impact on DRD
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Taxable Income Adjustments for RC
Taxable Income Adjustments for RC
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Study Notes
Shareholder Exchanges (Corporations)
- FMV of property received minus the adjusted basis (AB) of property given up is the gain recognized for wholly owned corporation shareholders exchanging assets.
- If a 75% shareholder receives stock with FMV less than the AB, the loss is not deductible but must be reported.
Unappropriated Retained Earnings
- Calculate changes in unappropriated retained earnings as follows:
- Beginning balance + Net income per books + Other increases (e.g., tax refunds) - Dividends paid - Other decreases (e.g., retained earnings appropriations) = Ending balance.
Reconciling Book and Tax Income
- To reconcile book income with tax income, make adjustments to net income per books:
- Add: Federal income tax, excess capital losses over gains, income subject to tax not recorded on books, expenses recorded on books but not deducted on tax return
- Subtract: Income recorded on books but not subject to tax, deductions on the return not charged against book income.
- The resulting figure is taxable income before NOL and DRD.
Dividends-Received Deduction (DRD)
- To qualify for the DRD, a corporation must hold stock for at least 46 days during the 91-day period before dividend payment.
- The DRD is applicable for dividends from foreign corporations meeting specific conditions:
- At least 10% owned by the recipient.
- Subject to U.S. federal income tax.
- Income effectively connected with a U.S. trade or business.
- Not a foreign personal holding company.
Restrictions on DRD
- Dividends-received deduction isn't allowed or is restricted for dividends from:
- Mutual savings banks
- Real estate investment trusts
- Domestic international sales corporations
- Public utilities on preferred stock
- Corporations exempt from tax (under IRC Secs. 501 or 521) during the distribution year.
- Dividends received from a corporation whose stock has been held for less than 41 days. If stock is acquired immediately before the ex-dividend date and sold immediately thereafter, the DRD is disallowed.
Charitable Contributions (Corporations)
- Corporate charitable contribution deductions are limited to 10% of taxable income before considering:
- Charitable contributions
- Dividends-received deduction
- Capital loss carryback
- Deduction allowed by IRC Sec. 249 (bond premium).
Charitable Contribution Carryover
- Disallowed charitable contribution deductions for corporations can be carried forward for 5 years. No carryback.
Business Interest Deduction
- Business interest deduction is limited to:
- Business interest income
- 30% (50% in 2020) of the business's adjusted taxable income
- Floor plan financing interest
- The limitation doesn't apply to small businesses with average gross receipts of $29 million or less.
Net Capital Loss (NCL) Carryover
- A corporation's NCL can be carried back to the three preceding tax years and forward to the five succeeding tax years.
Related-Party Asset Transfers
- Gain recognized on the transfer of an asset to a related party, where the recipient can depreciate the asset, is treated as ordinary income.
- If property is sold to a related party, gain recognized on a subsequent sale to an unrelated party is only recognized to the extent it exceeds the disallowed loss.
- Loss recognized on a subsequent sale to an unrelated party is not increased by the disallowed loss.
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Description
Test your knowledge on shareholder exchanges, unappropriated retained earnings, and reconciling book and tax income in corporate finance. This quiz covers key concepts and calculations that are crucial for understanding the financial operations within corporations.
