Corporate Taxation
Pre-Test Questions
Course Introduction
Corporate Taxation explores the principles and practices governing the taxation of corporations and their transactions. The course covers topics such as the formation and structure of corporations, taxation of corporate income, distributions to shareholders, mergers and acquisitions, and liquidations. Students will learn how federal income tax laws apply to corporations and their shareholders, analyze the impact of tax considerations on business decisions, and become familiar with compliance and planning strategies. Emphasis is placed on real-world applications, current legal developments, and the role of tax policy in shaping corporate behavior.
Recommended Textbook
Concepts in Federal Taxation 2018 25th Edition by
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16 Chapters
2096 Verified Questions
2096 Flashcards
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Kevin E. Murphy
Page 2
Chapter 1: Conceptual Foundations of Tax Law
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Q1) Which of the following statement is/are included in Adam Smith's four requirements for a good tax system?
I.Changes in the tax law should be made as needed to raise revenue and for proper administration.
II.A tax should be imposed in proportion to a taxpayer's ability to pay.
III.A taxpayer should be required to pay a tax when it is most likely to be convenient for the taxpayer to make the payment.
IV.The government must collect taxes equal to it's expenses.
A)Statements I and II are correct.
B)Statements I and IV are correct.
C)Statements II and III are correct.
D)Statements II and IV are correct.
E)Statements III and IV are correct.
Answer: C
Q2) A tax is an enforced contribution used to finance the functions of government.
A)True
B)False
Answer: True
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3
Chapter 2: Income Tax Concepts
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Questions
Q1) Lauren owns an annuity that pays her $400 per month until she dies.Which of the following income tax concepts provides for the tax treatment of the annuity payments Lauren receives?
I.Annual Accounting Period Concept.
II.All-inclusive Income Concept.
III.Constructive Receipt Doctrine.
IV.Capital Recovery Concept.
A)Statements I and II are correct.
B)Statements II and III are correct.
C)Statements I and IV are correct.
D)Statements II,III,and IV are correct.
E)Only statement IV is correct.
Answer: D
Q2) Bethany bought a new suit to wear to work.She will not be able to deduct the cost of the suit even though she wears it to work.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Income Sources
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Q1) Which of the following constitutes a realization?
I.Oak Ridge Coal Company's coal mine reserves were recently appraised at $5,750,000 more than the previous year's appraisal.
II.Lea's employer gives her (and all other salaried employees)a weekend in Chicago in recognition of their efforts to make this a successful year.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: B
Q2) Net collectibles gains are taxed at a maximum rate of 25 percent.
A)True
B)False
Answer: False
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Chapter 4: Income Exclusions
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Q1) Ferris inherited State of Florida general-purpose bonds worth $2,400 from his grandfather in 2015.He received $120 interest on the bonds in 2015,2016,and 2017.In 2017,he sells the bonds for a gain of $300.Ferris excludes the value of the bonds received and the bond interest,but must include a $300 capital gain in his 2017 gross income.Which of the following Concepts,Constructs,and/or Doctrines form the basis for this treatment?
I.Capital Recovery Concept
II.Legislative Grace Concept
III.Constructive Receipt Doctrine
IV.Realization Concept
A)Statements I and II are correct.
B)Statements I and IV are correct.
C)Statements II,III,and IV are correct.
D)Statements I,II,and III are correct.
E)Statements I,II,and IV are correct.
Q2) The interest from Guam Water Authority bonds is excluded from income as "Municipal Bond Interest."
A)True
B)False
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Page 6
Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Which of the following production of income expenses would be deductible:
I.Interest expense on loan to acquire U.S.Treasury notes.
II.Interest expense on loan to acquire IBM Corporate bonds.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Betterment
A)Capitalized and amortized over a number of accounting periods
B)Expensed in the period incurred
C)Not deductible
D)Can be capitalized and amortized or deductible depending on the amount of the expenditure
Q3) Illegal gambling operation expenses
A)Capitalized and amortized over a number of accounting periods
B)Expensed in the period incurred
C)Not deductible
D)Can be capitalized and amortized or deductible depending on the amount of the expenditure
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Chapter 6: Business Expenses
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Sample Questions
Q1) Carl,age 59,and Cindy,age 49,are married and file a joint return.During the current year,Carl had a salary of $41,000 and Cindy had a salary of $35,000.Both Carl and Cindy are covered by an employer-sponsored pension plan.Their adjusted gross income for the year is $94,000.Determine the maximum IRA contribution and deduction amounts.
Maximum Maximum Contribution Deduction
A)$12,000 $12,000
B)$11,000 $11,000
C)$12,000 $11,000
D)$11,000 $9,000
E)$13,000 $13,000
Q2) Phong is a life insurance salesman for Swan Insurance and spends 4 days a month in the office.His office is 12 miles from home.He also has a part-time job as a salesman in a clothing store.Typically,he works 2 nights during the week and 1 day on the weekend.The clothing store where he works is 6 miles from his office and 7 miles from his home.What portion(s)of Phong's travel is (are)considered business?
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Page 8
Chapter 7: Losses -- Deductions and Limitations
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Sample Questions
Q1) Kenzie and Ross equally own rental real estate.The rental property generated a loss of $20,000.Kenzie is also employed as a part-time Tupperware salesperson and full time as a real estate agent.For her share of the loss to be fully deductible,she must:
I.Not have an adjusted gross income in excess of $100,000.
II.Spend more than 750 hours,in total,as a realtor
III.Spend more than 100 hours managing the rental activity,and spend more time than Ross.
IV.She must spend more than 50% of her time as a realtor and must own more than 5% of the real estate agency.
A)Only statement I is correct.
B)Only statement II is correct.
C)Statements I and II are correct.
D)Statements II,III,and IV are correct.
E)Statements I,II,III,and IV are correct.
Q2) A closely held corporation cannot offset net passive losses against income of the business.
A)True
B)False
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Page 9
Chapter 8: Taxation of Individuals
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Q1) Larry and Louise are both 49 years of age and file a joint return.They provide all of the support for their son,Dylan,who is 20 years old and is at home until he gets called into the army.His income at part-time jobs is $4,500.Their daughter,Phyllis,is a 23-year-old full-time student at State University.She lived at school 9 months and provided two thirds of her own support with a summer job.How many personal and dependency exemptions can Larry and Louise claim on their income tax return?
A)1
B)2
C)3
D)4
Q2) Hugh donates investment real estate to Habitat for Humanity.The property cost him $10,000 six years ago.The fair market value of the property at the date of the contribution is $18,000.Hugh's AGI is $80,000.What is the maximum amount Hugh can deduct as a charitable contribution?
A)$- 0 -
B)$5,000
C)$10,000
D)$18,000
E)$24,000
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Page 10
Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Sanford gives Mitchell 100 shares of stock that cost Sanford $5,000 several years ago.On the date of the gift,the stock is valued at $3,000.Mitchell holds the stock until the value increases and sells it for $4,000.What is Mitchell's recognized gain or loss on the sale?
A)No gain or (loss)is recognized
B)$1,000 loss
C)$1,000 gain
D)$2,000 loss
E)$4,000 gain
Q2) Kim owns a truck that cost $35,000 several years ago.After using it personally for two years,she converts the truck to business use when the truck's fair market value is $20,000.She uses the truck in her business and appropriately deducts $5,000 in depreciation.Then,she sells the truck for $42,000.What is Kim's recognized gain or loss on the sale?
A)No gain or loss
B)$12,000 gain
C)$27,000 gain
D)$32,000 gain
E)$ 7,000 gain
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Page 11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Charles purchases an interest in a uranium mine for $2,500,000 on June 7,2017.Recoverable tonnage is estimated at 500,000.During 2017,25,000 tons are mined and sold for $800,000.Charles incurs $500,000 of expenses during 2017.The percentage depletion rate for uranium is 22%.What is the depletion deduction for 2017?
A)$125,000
B)$150,000
C)$176,000
D)$200,000
E)$250,000
Q2) In June 2016,Chase purchases a new car for $37,000.He uses the car 75% for business purposes.What is Chase's maximum depreciation deduction for the car in 2016?
A)$5,550
B)$2,960
C)$4,200
D)$8,370
E)$11,160
Q3) Why would a taxpayer ever elect to use the alternative depreciation system (ADS)rather than the MACRS?
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Chapter 11: Property Dispositions
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Q1) When a taxpayer sells only a portion of the securities that they own,the average cost method is used to establish the cost basis for the shares sold.
A)True
B)False
Q2) All of the gain from the sale of qualified small business stock,purchased after 9/27/2010 and held more than five years is excluded from tax.
A)True B)False
Q3) The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after February 17,2009,and before September 27,2010,results in an effective tax rate on these capital gains of
A)7.0%
B)14.0%
C)15.0%
D)27.0%
E)30.0%
Q4) What incentive provisions or preferential treatments exist for capital gains?
Q5) Discuss the general differences between Section 1245 and Section 1250 property.
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Chapter 12: Nonrecognition Transactions
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Q1) Which of the following is/are correct regarding the deferral of gain attributable to the involuntary conversion of personal property (personality)?
I.Gain deferral is mandatory.
II.Replacement property must be acquired within one year of the close of the tax year in which gain is realized from an involuntary property damage conversion.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Dominic and Lois sell their home for $775,000,incurring selling expenses of $40,000.They had purchased the residence in 1990 for $185,000 and made capital improvements totaling $45,000.They buy a new residence for $310,000.What is their realized gain and recognized gain on the sale? What is their basis in the new house?
Q3) Office copier for an office fax machine.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
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Page 14
Chapter 13: Choice of Business Entity -- General Tax and
Nontax Factorsformation
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Q1) Bison Financial Group has a health-care plan for all employees.Dan,an employee,is single and owns 10% of Bison Financial.In 2016,the company paid $2,000 for Dan's health plan.Which of the following are correct statements?
I.If Bison Financial Group is an S corporation,Dan must report the $2,000 as income and can deduct the $2,000 as an itemized medical expense deduction.
II.If Bison Financial Group is a partnership,Dan must report the $2,000 as income and can deduct $2,000 as a deduction for AGI.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Partners have extensive flexibility in choosing their tax year-end for their partnership.
A)True
B)False
Q3) Discuss the characteristics of a personal service corporation (PSC).
Q4) Does the selection of a corporate entity ever make sense based on a desire for lower marginal tax rates? Discuss.
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Chapter 14: Choice of Business Entity -- Operations and Distributions
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Sample Questions
Q1) Posey Corporation distributes land with a fair market value of $20,000 and a basis of $12,000 to Brock,a shareholder.Posey's earnings and profits are $125,000.What must Brock report as income from the property distribution?
A)$- 0 -
B)$8,000
C)$12,000
D)$20,000
Q2) Corporations that sell depreciable real property are not subject to depreciation recapture rules
A)True
B)False
Q3) Losses flow-through limited to basis plus the amount of any direct loans
A)Sole Proprietorship.
B)Partnership.
C)Corporation.
D)S Corporation.
Q4) Discuss two tax-planning techniques that can be used by a 100% owner-employee to reduce his/her tax liability.
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Chapter 15: Choice of Business Entity -- Other
Considerations
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Q1) Roland is an employee with the Belmont Corporation.Belmont maintains a money purchase plan for all its employees.Determine the maximum deductible contribution Belmont can make to the pension plan in each of the following situations:
a.Roland's salary is $100,000.
b.Roland's salary is $225,000.
Q2) In 2012,Merlin received the right to acquire 1,200 shares of Noble Corporation stock through the company's incentive stock option plan at an exercise price of $17 per share.On January 4,2017,Merlin exercises the option when the fair market value of the stock is $22 per share.Which of the following is(are)correct statements?
I.Noble can deduct $6,000 as compensation expense in 2017.
II.Merlin does not recognize any income but must include $6,000 as a tax preference item in computing his alternative minimum taxable income.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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Page 17
Chapter 16: Tax Research
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Q1) Which of the following types of cases are subject to the Chief Counsel's Acquiescence / Non -acquiescence Policy?
A)Circuit Court Decisions.
B)District Court Decisions.
C)U.S.Court of Federal Claims.
D)Tax Court Regular Decisions.
E)All of the above are correct.
Q2) Tax planning refers to the preparation of tax returns and doing research on completed transactions.
A)True
B)False
Q3) The most important source of current federal income tax law is the A)Internal Revenue Code of 1986,as amended. B)IRS.
C)U.S.Supreme Court.
D)U.S.Tax Court.
Q4) When the Supreme Court grants a writ of certiorari,they are agreeing to review a lower court's decision.
A)True
B)False
Page 18
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