Questions and Answers of Taxation of Business Entities

Omar is a huge college football fan. In the past, he has always bought football tickets on the street from ticket scalpers. This year, he decided to join the university’s ticket program, which
Benjamin, a self-employed bookkeeper, takes a CPA review course ($3,000 cost) to help prepare for the CPA exam.a) Use an available tax research service to determine if Benjamin may deduct the cost of
Bob’s Lottery Inc. has decided to offer winners a choice of $100,000 in 10 years or some amount currently. Assume that Bob’s Lottery Inc. earns a 10 percent after-tax rate of return. What amount
Hui is currently considering investing in municipal bonds that earn 6 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 8 percent. If Hui’s tax rate is 22 percent,
Are taxpayers allowed to deduct any from AGI deductions that are not itemized deductions? Explain.
Ekiya, who is single, has been offered a position as a city landscape consultant. The position pays $125,000 in wages. Assume Ekiya has no dependents. Ekiya deducts the standard deduction instead of
Mel and Cindy Gibson’s 12-year-old daughter Rachel was abducted on her way home from school on March 15, 2022. Police reports indicated that a stranger had physically dragged Rachel into a waiting
Aishwarya’s husband passed away in 2021. She needs to determine whether Jasmine, her 17-year-old stepdaughter, who is single, qualifies as her dependent in 2022. Jasmine is a resident but not a
Lacy is divorced and the custodial parent of a three-year-old girl named Bailey. Lacy and Bailey live with Lacy’s parents, who pay all the costs of maintaining the household (such as mortgage,
Dax Jones submitted his 2022 tax return on time and elected to file a joint tax return with his wife, Darlene. Dax and Darlene did not request an extension for their 2022 tax return. Dax and Darlene
Marc and Mikkel are married and earned salaries this year of $64,000 and $12,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from
USCo, a U.S. corporation, has decided to set up a headquarters subsidiary in Europe. Management has narrowed its location choice to either Spain, Ireland, or Switzerland. The company has asked you to
Euro Corporation, a U.S. corporation, operates through a branch in Germany. During 2017 the branch reported taxable income of $1,000,000 and paid German income taxes of $300,000. In addition, Euro
Friends Jackie (0.5 percent owner), Jermaine (1 percent owner), Marlon (2 percent owner), Janet (86 percent owner), and Tito (10.5 percent owner) are shareholders in Jackson 5 Inc. (an S
You have been assigned to compute the income tax provision for Tulip City Flowers, Inc. (TCF) as of December 31, 2017. The company’s federal income tax rate is 34%. The company’s Income Statement
In year 1 (the current year), OCC Corp. made a charitable donation of $200,000 to the Jordan Spieth Family Foundation (a qualifying charity). For the year, OCC reported taxable income of $1,500,000
MWC Corp. is currently in the sixth year of its existence (2017). In 2012– 2016, it reported the following income and (losses) (before net operating loss carryovers or carrybacks).2012:
WAR (We Are Rich) has been in business since 1984. WAR is an accrual method sole proprietorship that deals in the manufacturing and wholesaling of various types of golf equipment. Hack & Hack
On November 10 of year 1 Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase was $1,200,000; $300,000 was allocated to the basis
Emily purchased a building to store inventory for her business. The purchase price was $760,000. Beyond this, Emily incurred the following necessary expenses to get the building ready for use: $2,000
Indicate the amount (if any) that Michael can deduct as an ordinary and necessary business deductions in each of the following situations and explain your solution. a. From time to time, Michael
Jack is single and he made his first taxable gift of $1,000,000 in 2008. Jack made additional gifts in 2009, at which time he gave $1,750,000 to each of his three children and an additional
Suppose Vince dies this year with a gross estate of $25 million and no adjusted prior gifts. Calculate the amount of estate tax due (if any) under the following alternative conditions.a. Vince leaves
Harold and Maude are married and live in a common law state. Neither has made any taxable gifts and Maude owns (holds title) all their property. She dies with a taxable estate of $25 million and
Roberta is considering making annual gifts of $15,000 of stock each to each of her four children. She expects to live another five years and to leave a taxable estate worth approximately $18 million.
Roland had a taxable estate of $15.5 million when he died this year. Calculate the amount of estate tax due (if any) under the following alternatives.a. Roland’s prior taxable gifts consist of a
Stephen transferred $17,500 to an irrevocable trust for Graham. The trustee has the discretion to distribute income or corpus for Graham’s benefit, but is required to distribute all assets to
Sam Smith is a citizen and bona fide resident of Great Britain (United Kingdom). During the current year, Sam received the following income:Compensation of $30 million from performing concerts in the
Guido is a citizen and resident of Belgium. He has a full-time job in Belgium and has lived there with his family for the past 10 years. In 20156, Guido came to the United States for the first time.
Why are the income source rules important to a U.S. non-resident?
LeMond Incorporated, a Wisconsin corporation, runs bicycle tours in several states. LeMond also has a Wisconsin retail store and an Internet storethat ships to out-of-state customers. The bicycle
Last year, Reggie, a Los Angeles, California resident, began selling autographed footballs through Trojan Victory (TV), Incorporated, a California corporation. TV has never collected sales tax. Last
Kai operates the Surf Shop in Laie, Hawaii, whichdesigns, manufacturers, and customizes surf boards. Hawaii has a hypothetical 4 percent excise tax technically paid by the seller. However, the state
Using the same facts in problem 47, assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $400,000.a. What amount of gain or loss does BLI recognize if the transaction is structured as
On August 28, 2017, Mirna Therapeutics, Inc., completed its business combination with Synlogic, Inc. The Form 8-K for Synlogic(NASDAQ ticker SYBX, cik0001667986) describes the transaction and was
On September 12, 2017, Inotek Pharmaceuticals agreed to acquire Rocket Pharmaceuticals, Ltd., a privately held bio-pharmaceutical company in a tax-deferred acquisition. The Form 8-K for Inotek
Under what circumstances must a corporate shareholder recognize gains in a complete liquidation?
Describe when a corporate shareholder must defer gains on the receipt of distributions of property from the complete liquidation of a subsidiary corporation.
Describe the advantages (if any) of using a reverse triangular form of Type A reorganization in acquiring other corporations.
Explain when an acquiring corporation would prefer to buy the target corporation’s assets directly in an acquisition.
Aggie Corporation made a distribution of $500,000 to Rusty Cedar in partial liquidation of the company on December 31 of this year. Rusty, an individual, owns 100% of Aggie Corporation. The
Beaver Corporation reported taxable income of $500,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Eugenia VanDam. The land’s fair
Illini Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of an automobile to its sole shareholder, Carly Urbana. The
Tiger Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of land to its sole shareholder, Mike Fairway. The land’s fair
Volunteer Corporation reported taxable income of $500,000 from operations for this year. During the year, the company made a distribution of land to its sole shareholder, Rocky Top p. The land’s
Boilermaker, Inc. reported taxable income of $500,000 this year and paid federal income taxes of $105,000. Not included in the company’s computation of taxable income is tax-exempt income of
This year Bobcat Company reports current E&P of negative $300,000 that accrued evenly throughout the year. At the beginning of the year,Bobcat’s accumulated E&P was a $200,000. Bobcat
Bulldog Corporation reported taxable income of $500,000 this year before any deduction for any payment to its sole shareholder and employee, Georgia Brown. Bulldog chose to pay a bonus of $100,000 to
Reveille Corporation experienced a complete loss of its lumber mill as the result of a fire. The company received $2 million from the insurance company. Rather than rebuild, Reveille decided to
When might a shareholder have to rely on the “not essentially equivalent to a dividend” test in arguing a stock redemption should be treated as an exchange for tax purposes?
In general, what causes a stock distribution to be taxable to the recipient?
Why might a corporation issue a stock distribution to its shareholders?
corporation distributes depreciated non-cash property to a shareholder. What impact does the distribution have on the corporation’s earnings and profits?
Assuming adequate amounts of corporate E&P, what is the formula for determining the amount of a non-cash distribution a shareholder must include in gross income?
How does the double taxation of corporate distributions affect whether an individual chooses to operate a business as a C corporation or as flow-through entity??
Spartan Builders Corporation is a builder of high-end housing with locations in major metropolitan areas throughout the Midwest. At June 30, 2018, the company has deferred tax assets totaling $10
Access the 2017 Annual Report for Facebook, Inc., and answer the following questions.a. Using information from the company’s Income Statement and Income Taxes footnote, what was the company’s
Randolph Company reported pretax net income from continuing operations of $800,000 and taxable income of $500,000. The book-tax difference of $300,000 was due to a $200,000 favorable temporary
What was Alphabet Inc.’s (Google) accounting effective tax rate for 2017? What items caused the company’s accounting effective tax rate to differ from the “hypothetical” tax rate of 35
Cadillac Square Corporation determined that $1,000,000 of its research tax on its current year tax return was uncertain, but that it was more likely than not to be sustained on audit. Management made
Access the 2017 Form 10-Ks for General Motors, Inc. and Berkshire Hathaway. What was the impact of the Tax Cuts and Jobs Act on their income tax provision for 2017? Why was the impact in opposite
Burcham Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest.
Ann Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $50,000, and favorable
Harrison Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond
Shaw, Inc. reported pretax book income of $10,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by $200,000.
Shaw Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $50,000, and favorable
Chandler Corporation reported pretax book income of $2,000,000. Tax depreciation exceeded book depreciation by $500,000. During the year the Company capitalized $250,000 into ending inventory under
Grand Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest.
Cass Corporation reported pretax book income of $10,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by
XYZ is a calendar-year corporation that began business on January 1, 2017. For 2018, it reported the following information in its current year audited income statement. Notes with important tax
Timpanogos Inc. is an accrual-method calendar-year corporation. For 2018, it reported financial statement income after taxes of $1,152,000. Timpanogos provided the following information relating to
Compute HC Inc.’s current year taxable income given the following information relating to its 2018 activities. Also, compute HC’s Schedule M-1 assuming that HC’s federal income tax expense for
Compute MV, Corp.’s 2018 taxable income given the following information relating to its year 1 activities. Also, compute MV’s Schedule M-1 assuming that MV’s federal income tax expense for book
Last year, Cougar Corp. (CC) reported a net operating loss of $25,000. In the current year, CC expected its current year tax liability to be $260,000 so it made four equal estimated tax payments of
In year 1 (the current year), LAA Inc. made a charitable donation of $100,000 to the American Red Cross (a qualifying charity). For the year, LAA reported taxable income of $550,000 which included a
Cedar Corporation reported a net operating loss in 2018 of $25,000,000. In 2019, Cedar reported taxable income before any NOL carryovers of $20,000,000. What is Cedar’s taxable income in 2019 and
Cedar Corporation reported a net operating loss in 2018 of $25,000,000. In 2019, Cedar reported taxable income before any NOL carryovers of $20,000,000. What is Cedar’s taxable income in 2019 and
Assume that in 2018 Hill Corporation reported a net operating loss of $10,000 that it carried forward to year 2019. In 2018, Hill also reported a net capital loss of $3,000 that it carried forward to
MWC Corp. is currently in the sixth year of its existence (2018). In 2013–2017, it reported the following income and (losses) (before net operating loss carryovers or carry backs).2013: ($
Assume that on January 1, year 1, ABC, Inc. issued 5,000 stock options with an estimated value of $10 per option. Each option entitles the owner to purchase one share of ABC stock for $25 a share
ELS corporation is about to begin its sixth year of existence. Assume that ELS reported gross receipts for each of its first five years of existence for scenarios A, B, and C as follows:Year
ATW corporation currently uses the FIFO method of accounting for its inventory for book and tax purposes. Its beginning inventory for the current year was $8,000,000. Its ending inventory for the
Briefly describe the process of computing a corporation’s minimum tax credit carryover.
How does a corporation determine the minimum amount of estimated tax payments it must make to avoid underpayment penalties? How are these rules differ for large corporations?
What is the due date for a calendar year corporation tax return Form 1120 for 2018? Is it possible to extend the due date? Explain.
Describe how goodwill with a zero basis for tax purposes but not for book purposes leads to a permanent book–tax difference when the book goodwill is written off as impaired.
What role do a corporation’s audited financial statements play in determining its taxable income?
After several years of profitable operations, Javell, the sole shareholder of JBD Inc., a Ccorporation, sold 22 percent of her JBD stock to ZNO Inc., a Ccorporation in a similar industry. During the
In its first year of existence, SMS, anS corporation, reported a business loss of $10,000. Michelle, SMS’s sole shareholder, reports $50,000 of taxable income from sources other than SMS. What must
James and Kate Sawyer were married on New Year’s Eve of 2017.Before their marriage, Kate lived in New York and worked as a hair stylist for one of the city’s top salons.James lives in Atlanta
Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming.Meagan inherited $75,000 from her
Jesse Brimhall is single.In 2018, his itemized deductions were $9,000 before considering any real property taxes he paid during the year. Jesse’s adjusted gross income was $70,000 (also before
Rajiv and Laurie Amin are recent college graduates looking to purchase a new home.They are purchasing a $200,000 home by paying $20,000 down and borrowing the other $180,000 with a 30-year loan
On January 1 of 2018, Jason and Jill Marsh acquired a home for $500,000 by paying $400,000 down and borrowing $100,000 with a 7 percent loan secured by the home.On January 1, 2019, the Marshes needed
On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $1.5 million by paying $200,000 down and borrowing the remaining $1.3 million with a 7 percent loan secured by the home. The
Lewis and Laurie are married and jointly own a home valued at $240,000.They recently paid off the mortgage on their home.The couple borrowed money from the local credit union in January of 2018. How
Javier and AnitaSanchez purchased a home on January 1 of year 1 for $1,000,000 by paying $200,000 down and borrowing the remaining $800,000 with a 6 percent loan secured by the home.The Sanchezes
Javier and Anita Sanchez purchased a home on January 1, 2018 for, $600,000 by paying $200,000 down and borrowing the remaining $400,000 with a 7 percent loan secured by the home.The loan requires
Troy (single) purchased a home in Hopkinton, Massachusetts, on January 1, 2007 for $300,000.He sold the home on January 1, 2018 for $320,000.How much gain must Troy recognize on his home sale in each
Sarah (single) purchased a home on January 1, 2008 for $600,000.She eventually sold the home for $800,000.What amount of the $200,000 gain on the sale does Sarah recognize in each of the following

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