tax problems – questin and answer ,.,. ch 17 26762
38. LO.2, 3 During the current year, Swallow Corporation, a calendar year C corporation, has the following transactions:
Income from operations $660,000
Expenses from operations 720,000
Dividends received from Brown Corporation 240,000
a. Swallow Corporation owns 12% of Brown Corporation’s stock. How much is Swallow’s taxable income or NOL for the year?
b. Assume instead that Swallow Corporation owns 26% of Brown Corporation’s stock.
How much is Swallow’s taxable income or NOL for the year?
39. LO.3 In each of the following independent situations, determine the dividends received deduction. Assume that none of the corporate shareholders owns 20% or more of the stock in the corporations paying the dividends.
Income from operations $ 700,000 $ 800,000 $ 900,000
Expenses from operations (600,000) (850,000) (910,000)
Qualifying dividends 100,000 100,000 100,000
40. LO.3 Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2013. Gull incurred the following expenses during its first year of operations (November 1, 2013–December 31, 2013):
Expenses of temporary directors and organizational meetings $21,000
Fee paid to state of incorporation 3,000
Expenses for printing and sale of stock certificates 11,000
Legal services for drafting the corporate charter and bylaws (not paid until January 2014) 19,000
a. Assuming that Gull Corporation elects under § 248 to expense and amortize organizational expenditures, what amount may be deducted in 2013?
b. Assume the same facts as above, except that the amount paid for the legal services was $28,000 (instead of $19,000). What amount may be deducted as organizational expenditures in 2013?
41. LO.3 Egret Corporation, a calendar year C corporation, was formed on March 7, 2013, and opened for business on July 1, 2013. After its formation but prior to opening for business, Egret incurred the following expenditures:
Accounting $ 7,000
Employee payroll 11,000
What is the maximum amount of these expenditures that Egret can deduct in 2013?
42. LO.4 In each of the following independent situations, determine the corporation’s income tax liability. Assume that all corporations use a calendar year for tax purposes and that the tax year involved is 2013.
Purple Corporation $ 65,000
Azul Corporation 290,000
Pink Corporation 12,350,000
Turquoise Corporation 19,000,000
Teal Corporation (a personal service corporation) 130,000
43. LO.5 Red Corporation and White Corporation, both calendar year C corporations, are members of a controlled group of corporations. For 2013, Red has taxable income of $130,000, and White has taxable income of $200,000. Assuming that the controlled group does not make an election regarding the apportionment of the marginal tax brackets, what is the income tax liability for each of the corporations?
44. LO.5 Apply the controlled and affiliated group rules to determine whether a parentsubsidiary controlled group or an affiliated group exists in each of the following independent situations. Circle Y for yes and N for no.
Controlled Group? Affiliated Group?
a. Throughout the year, Parent owns 65% of the stock of SubCo.
Y N Y N
b. Parent owns 70% of SubCo. The other 30% of SubCo stock is owned by Senior, a wholly owned subsidiary of Parent.
Y N Y N
c. For 11 months, Parent owns 75% of the stock of SubCo. For the last month of the tax year, Parent owns 100% of the
45. LO.6 The following information for 2013 relates to Sparrow Corporation, a calendar year, accrual method taxpayer.
Net income per books (after-tax) $174,100
Federal income tax expense per books 86,600
Tax-exempt interest income 4,500
MACRS depreciation in excess of straight-line depreciation used for financial statement purposes 7,200
Excess of capital loss over capital gains 9,400
Nondeductible meals and entertainment 5,500
Interest on loan to purchase tax-exempt bonds 1,100
Based on the above information, use Schedule M–1 of Form 1120, which is available on the IRS website, to determine Sparrow’s taxable income for 2013.
46. LO.6 Dove Corporation, a calendar year C corporation, had the following information for 2013:
Net income per books (after-tax) $386,250
Taxable income 120,000
Federal income tax per books 30,050
Cash dividend distributions 150,000
Unappropriated retained earnings, as of January 1, 2013 796,010
Based on the above information, use Schedule M–2 of Form 1120 (see Example 42 in the text) to determine Dove’s unappropriated retained earnings balance as of December 31, 2013.
47. LO.6 In the current year, Pelican, Inc., incurs $10,000 of meals and entertainment expenses that it deducts in computing net income per the corporation’s financial statements.
All of the meals and entertainment expenditures are subject to the 50% cutback rule applicable to such expenditures. How is this information reported on Schedule M–3?
48. LO.6 In January 2013, Pelican, Inc., established an allowance for uncollectible accounts (bad debt reserve) of $70,000 on its books and increased the allowance by $120,000 during the year. As a result of a client’s bankruptcy, Pelican, Inc., decreased the allowance by $60,000 in November 2013. Pelican, Inc., expensed the $190,000 of increases to the allowance on its 2013 income statement but was not allowed to deduct that amount on its tax return. On its 2013 tax return, the corporation was allowed to deduct the $60,000 actual loss sustained because of its client’s bankruptcy. On its financial statements, Pelican,
Inc., treated the $190,000 increase in the bad debt reserve as an expense that gave rise to a temporary difference. On its 2013 tax return, Pelican, Inc., took a $60,000 deduction for bad debt expense. How is this information reported on Schedule M–3?
49. LO.7 Prance, Inc., earns pretax book net income of $800,000 in 2013. Prance acquires a depreciable asset in 2013, and first-year tax depreciation exceeds book depreciation by $80,000. Prance reports no other temporary or permanent book-tax differences. Assuming that the relevant U.S. tax rate is 35%, compute Prance’s total income tax expense, current income tax expense, and deferred income tax expense.
50. LO.7 Using the facts of Problem 49, determine the 2013 end-of-year balance in Prance’s deferred tax asset and deferred tax liability balance sheet accounts.
See Appendix E for Comprehensive Tax Return Problem—Form 1120