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Posted on Aug 06, 2024

7. Grand River Corporation reported pretax book income of $510,000. Included in the computation were favorable temporary differences of $105,000, unfavorable temporary differences of $18,000,

7. Grand River Corporation reported pretax book income of $510,000. Included in the computation were favorable temporary differences of $105,000, unfavorable temporary differences of $18,000, and favorable permanent differences of $86,000. The corporation's current income tax expense or benefit would be:

$107,100 tax benefit.
$92,610 tax expense.
$88,830 tax benefit.
$70,770 tax expense.

Pretax book income $510000

$105,000

+ 18000

86000

__________ = 337000/

8. Costello Corporation reported pretax book income of $500,600. During the current year, the reserve for bad debts increased by $6,200. In addition, tax depreciation exceeded book depreciation by $40,600. Finally, Costello received $3,300 of tax-exempt life insurance proceeds from the death of one of its officers. Costello's deferred income tax expense or benefit would be:

$7,224 net deferred tax expense.
$7,224 net deferred tax benefit.
$7,884 net deferred tax benefit.
$7,917 net deferred tax expense.

9. Green Corporation reported pretax book income of $1,022,000. During the current year, the net reserve for warranties increased by $51,100. In addition, tax depreciation exceeded book depreciation by $105,500. Finally, Green subtracted a dividends received deduction of $25,550 in computing its current year taxable income. Green's cash tax rate is:

21%.

20.48%.
19.95%.
19.36%.

10. Angel Corporation reported pretax book income of $1,028,000. During the current year, the net reserve for warranties increased by $29,200. In addition, tax depreciation exceeded book depreciation by $107,000. Finally, Angel subtracted a dividends received deduction of $30,600 in computing its current year taxable income. Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

$215,880.
$209,748.
$199,542.
$193,410.

11. Sam owns 80 percent of the stock of Club Corporation. Unrelated individuals own the remaining 20 percent. For a stock redemption of Sam's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Club stock must Sam own after the redemption?

Any percentage less than 80 percent.
Any percentage less than 64 percent.
Any percentage less than 50 percent.
All stock redemptions involving individuals are treated as exchanges.

12. Grand River Corporation reported taxable income of $600,000 in 20X3 and paid federal income taxes of $204,000. Not included in the computation was a disallowed meals and entertainment expense of $2,200, tax-exempt income of $1,200, and deferred gain on a current year transaction treated as an installment sale of $26,000. The corporation's current earnings and profits for 20X3 would be:

$624,800.
$600,000.
$421,000.
$397,200.

13. Beltway Company is owned equally by George, his brother Thomas, and a partnership owned 50 percent by George and his father Abe. Each of the three shareholders holds 180 shares in the company. Under the 318 stock attribution rules, how many shares of Beltway stock is George deemed to own?

14. Comet Company is owned equally by Pat and his sister Pam, each of whom hold 110 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 55 of her shares for $1,100 per share on December 31, 20X3. Pam's income tax basis in each share is $550. Comet has total E&P of $255,000. What are the tax consequences to Pam because of the stock redemption?

$30,250 capital gain and a tax basis in each of her remaining shares of $550.

$30,250 capital gain and a tax basis in each of her remaining shares of $110.
$60,500 dividend and a tax basis in each of her remaining shares of $110.
$60,500 dividend and a tax basis in each of her remaining shares of $55.

15. Viking Corporation is owned equally by Sven and his wife Olga, each of whom hold 120 shares in the company. Viking redeemed 60 shares of Sven's stock for $2,000 per share on December 31, 20X3. Viking has total E&P of $590,000. What are the tax consequences to Viking because of the stock redemption?

No reduction in E&P because of the exchange.
A reduction of $120,000 in E&P because of the exchange.
A reduction of $147,500 in E&P because of the exchange.
A reduction of $295,000 in E&P because of the exchange.

16. Bruin Company reports current E&P of $350,000 in 20X3 and accumulated E&P at the beginning of the year of $175,000. Bruin distributed $550,000 to its sole shareholder on January 1, 20X3. How much of the distribution is treated as a dividend in 20X3?

$550,000.
$525,000.
$350,000.
$175,000.

17. Lansing Company is owned equally by Jennifer, her husband Dan, and DeWitt Corporation, which is owned 50 percent by Jennifer and her sister Jane. Each of the three shareholders holds 210 shares in the company. Under the 318 stock attribution rules, how many shares of Lansing stock is DeWitt Corporation deemed to own?

18. El Toro Corporation declared a common stock distribution to all shareholders of record on June 30, 20X3. Shareholders will receive 1 share of El Toro stock for each 2 shares of stock they already own. Raoul owns 260 shares of El Toro stock with a tax basis of $54 per share. The fair market value of the El Toro stock was $94 per share on June 30, 20X3. What are the tax consequences of the stock distribution to Raoul?

$0 dividend income and a tax basis in the new stock of $94 per share.
$0 dividend income and a tax basis in the new stock of $54 per share.
$0 dividend income and a tax basis in the new stock of $36 per share.
$12,220 dividend and a tax basis in the new stock of $94 per share.

19. Longhorn Company reports current E&P of $195,000 in 20X3 and accumulated E&P at the beginning of the year of negative $390,000. Longhorn distributed $585,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in his stock in Longhorn is $195,000. How is the distribution treated by the shareholder in 20X3?

$195,000 dividend.
$195,000 dividend, $195,000 tax-free return of basis, and $195,000 capital gain.
$195,000 dividend and $390,000 tax-free return of basis.
$0 dividend, $195,000 tax-free return of basis, and $390,000 capital gain.

1. Abbot Corporation reported a net operating loss of $520,000 in 20X3, which the corporation elected to carryforward to 20X4. Included in the computation of the taxable loss was regular depreciation of $220,000 (E&P depreciation is $45,000), first year expensing under 179 of $62,000, and a dividends received deduction of $11,200. The corporation's current earnings and profits for 20X3 would be:
($284,200).
($333,800).
($520,000).
($627,000).