What creates a book$-$tax difference that must be reconciled on a Schedule M$-1$ or Schedule M$-3$ for a corporation?

$$ Salaries paid to shareholder employees

$$ Bonuses paid to employees

$$ Meal expenses incurred in a lunch meeting during which business is directly discussed

$$ Bad debt expense when the corporation used the direct write$-$off method for book accounting purposes.

A corporation has taxable income of $$500,000$ including tax$-$exempt interest of $$40,000.$ It has federal income tax liability of $$170,000$ and non$-$deductible penalties paid to the Securities and Exchange Commission of $$300,000$

What are the firm's earnings and profits?

$$ $$70\mathrm{.}000$

$$ $$350,000$

$$ $$850,000$

$$ $$10,000$

A calendar ear corporation has $$300,000$ of current earnings and profits and $$100,000$ of accumulated earnings and profits, as of January $1.$

The corporation distributes $$500,000$ to its sole shareholder.

How much dividend income should this shareholder recognize?

$$ $$0$

$$ $$300,000$

$$ $$400,000$

$$ $$500,000$

A sole individual shareholder in Company A has a stock basis at the beginning of the year of $$25,000.$ Company A has current earnings and profits of $$75,000$ and a $$50,000$ deficit in accumulated earnings and profits. Company A distributes $$120\mathrm{.}000$ to the shareholder on the last day of the year.

How much capital gain should this shareholder recognize from the distribution?

$$ $O

$$ $$20,000$

$$ $$50,000$

$$ $$95,000$

A corporation is giving its shareholders a distribution of $$10$ per share or one additional share of stock for every five shares that the shareholders currently own

Is this a taxable distribution under current tax law, and how does this affect the ownership?

$$ It is not a taxable distribution, and the distribution amount is based on proportional ownership interests.

$$ It is a taxable distribution, and the distribution amount is not based on proportional ownership interests.

$$ It is a taxable distribution and has the potential to change the ownership structure of the corporation.

$$ It is not a taxable distribution and has the potential to change the ownership structure of the corporation.

How are a corporation's earnings and profits $($E&P$)$ adjusted when a redemption is treated as a distribution?

$$ The current E&P is reduced by the cash distributed and the fair market value $($FMV$)$ of the other property distributed.

$$ Then accumulated E&P is reduced by the cash distributed and the greater of the fair market value $($FM$)$ of the adjusted tax basis

$$ The accumulated E&P is reduced by the cash distributed and the fair market value $($FMV$)$ of the other property distributed

$$ The current E&P is reduced by the cash distributed and the greater of the fair market value $($FMV$)$ or adjusted tax basis of the other property distributed.

What is one of the three requirements to be able to treat a distribution as substantially disproportionate?

$$ The shareholder's percentage ownership of voting stock after the redemption is less than $60\%$ of their percentage ownership before the redemption.

$$ Immediately after the exchange, the shareholder owns less than $70\%$ of the total combined voting power of all classes of stock entitled to vote.

$$ The shareholder's percentage ownership of the aggregate fair market value of the corporation's common stock after the redemption is less far $80\%$ of their percentage ownership before the redemption.

$$ Immediately after the exchange, the shareholder owns less than $90\%$ of the total combined voting power of all classes of stock entitled to vote.

When does the complete liquidation of a corporation occur?

$$ When a corporation discontinues to do business due to product failure.

$$ When a corporation declares bankruptcy after a major customer declared bankruptcy.

$$ When a corporation acquires all of its stock, after which it ceases to do business.

$$ When a corporation terminates one of several businesses.

What is an advantage of an S corporation?

$$ The corporation's income is not split among family members.

$$ The corporation is exempt from corporate income tax.

$$ The corporation's earnings are not taxed as net passive income.

$$ The corporation's earnings are taxed to the shareholders.

What is a disadvantage of an S corporation?

$$ The corporation is not exempt from corporate income tax.

$$ The corporation is not treated as a separate tax entity from its shareholders.

$$ The corporation cannot split income among family members

$$ The corporation is subject to the personal holding company tax.

What is a disadvantage of using equity in a corporation's capital structure?

$$ The corporation cannot deduct interest payments on debt.

$$ Dividends cannot be deducted from the corporation's taxable income.

$$ Shareholders will not recognize income in a debt retirement.

$$ Common and preferred stock is distributed to common shareholders.