1. Which of these is not considered an advantage of the corporate business form? a. A shareholder-employees salary is fully deductible from corporate income. b. Shareholders are not taxed on corporate income until it is distributed to them. c. Shareholder-employees can participate in employee fringe benefits d. Corporate shareholders cannot deduct corporate losses from their income. 2. Corporation AB had a net long-term capital loss is 2005 and net operating loss in 2004. What are the earliest year(s) to which these losses can be carried? 3. Cloud corporation has a taxable income of $100,000 in 2005 along with a $30,000 general business credit. What is the amount of its credit carryover and the last year to which the carryover could be used? 4. Margolin corporation has a regular taxable income of $120,000. It has a positive adjustment of $90,000, preference items of $50,000 and negative adjustments of $40,000. What is its alternative minimum tax? 5. The Shepherd Corporation has $40,000 of taxable income, $200,000 of positive adjustments, and a $10,000 preference item. What is its alternative minimum taxable income? 6. Corporation P owns 85 percent of Corporation S1; Corporation S1 owns 60 percent of Corporation S2; Corporation S2 owns 90 percent of S3; Corporation S3 owns 60 percent of Corporation S4 and 15 percent of Corporation S2; Corporation S4 owns 100 percent of Corporation S5. Identify the consolidated group of corporations. 7. Corporation P files a consolidated return with Corporation S. In preparing a consolidated return, their accountant finds the following: *Separate taxable income (loss) P= $500,000 S+ ($200,000) *Capital gain (loss) P= ($25,000) S= $50,000 *Charitable contributions P= $20,000 S=$10,000 *Dividend from S is P=$10,000 What is the consolidated return taxable income? 8. Jude received a $25,000 distributions from BC Corporation that the corporation identified as $15,000 dividend and $10,000 return capital. What effect does this distribution have on Jude's taxable income if his basis in the stock of BC IS $8,000? Increase of $______ 9. Borneo Corporation has $20,000 in current earnings and profits and $5,000 of accumulated earnings and profits. Borneo distributes $15,000 of income to its shareholders on June 15 and another $15,000 on December 15. How much of the December 15 distribution is taxable as a dividend? 10. What is JJ Corporations balance in accumulated earnings and profits at the beginning of year 2 if in year 1 it made a $40,000 distribution to its shareholder, its current earnings and profits were $35,000 and its accumulated earnings and profits were $25,000 at the beginning of year 1? 11. Soledad received one stock right for every two shares of stock she owned. She owned 100 shares that she purchased two years ago for $1000. Each of the 550 rights that she received allows her to purchase one share of stock for $15. The stock is currently selling for $22 per share. What is her basis in the 50 shares of stock? 12. Joes owns 40% of the stock of AD Corporations 2000 outstanding shares. If Joe sells some stock back to the corporation, what is the maximum percentage of ownership that Joe can have of the outstanding stock after the sale to qualify for capital gain treatment rather than having dividend income? 13. Casey Corporation has three assets when it decides to liquidate: *Machine (Sect 1231) Basis: $60,000 FMV: $110,000 *Building (Sect 1231) Basis: $450,000 FMV: $380,000 *Stocks (Capital) Basis: $50,000 FMV $30,000 The corporation sells the stock for its fair market value and distributes the other two assets to its sole shareholder. What is the tax liability on its final tax return if it had $45,000 of income from operations prior to liquidating? 14. Tom owns 60 percent of CDF Corporation. CDF rents a building from Tom for $4,500 per month. Fair rental value for the building is only $3000 per month. In addition, CDF employs Toms son as the general manager at a salary of $350,000 annually. Similar positions in similar businesses pay $200,000 annually. How much rental and dividend income should Tom report on his tax return for the year? 15. A corporation owns 90 percent of the voting power of another corporation but only 70 percent of the total value of the stock of the second corporation. The corporations are_______? 16. What is the minimum number of individuals who must own a corporation to have it avoid meeting the personal holding company designation? 17. Which of the following is an indication of the accumulation of earnings and profits beyond the reasonable needs of the business? a. A $200,000 earnings and profits balance b. $200,000 accumulated to retire debt c. $600,000 accumulated for shareholder loans d. $12,000,000 accumulated to expand operation facilities 18. Moranza Corporation, which has current earnings and profits (CE&P) of $10,000 and accumulated earnings and profits (AE&P) of $30,000, makes a $15,000 distribution to its sole shareholder, Justin, at the end of the current year. Justin has a basis in his Moranza stock of $2,000. What is the amount of taxable income Justin must report from the Moranza distribution? 19. Ponoco Corporation, which has current earnings and profits (CE&P)of $10,000 and accumulated earning and profits (AE&P) OF $30,000, makes a $41,000 distribution to its sole shareholder, Greg, at the end of the current year. Greg has a basis in his Ponoco stock of $2,000. What is the amount of taxable income Greg must report from the Ponoco distribution