Reference no: EM13343126

-Scarlet Corporation (a calendar year taxpayer) has taxable income of $150,000, and its financial records reflect the following for the year.

Federal income taxes paid	$55,000
Net operating loss carryforward deducted currently	35,000
Gain recognized this year on an installment sale from a prior year	22,000
Depreciation deducted on tax return (ADS depreciation would have been $5,000)	20,000
Interest income on Iowa state bonds	4,000

Scarlet Corporation's current E & P is:

a. $127,000.
b. $107,000.
c. $97,000.
d. $57,000.
e. None of the above.

 

-Blue Corporation, a cash basis taxpayer, has taxable income of $700,000 for the current year. Blue elected $80,000 of § 179 expense. It also had a related party loss of $30,000 and a realized (not recognized) gain from an involuntary conversion of $85,000. It paid Federal income tax of $185,000 and a nondeductible fine of $20,000. Blue's current E & P is:

a. $465,000.
b. $529,000.
c. $614,000.
d. $630,000.
e. None of the above.

 

-Platinum Corporation, a calendar year taxpayer, has taxable income of $500,000. Among its transactions for the year are the following:

Collection of proceeds from insurance policy on life of corporate
officer (in excess of cash surrender value)	$75,000
Realized gain (not recognized) on an involuntary conversion	10,000
Nondeductible fines and penalties	40,000

Disregarding any provision for Federal income taxes, Platinum Corporation's current E & P is:

a. $455,000.
b. $535,000.
c. $545,000.
d. $625,000.
e. None of the above.

 

-Which of the following statements is incorrect with respect to determining current E & P?

a. All tax-exempt income should be added back to taxable income.
b. Dividends received deductions should be added back to taxable income.
c. Charitable contributions in excess of the 10% of taxable income limit should be subtracted from taxable income.
d. Federal income tax refunds should be added back to taxable income.
e. None of the above statements are incorrect.

 

-Ashley and Andrew, equal shareholders in Parrot Corporation, receive $250,000 each in distributions on December 31 of the current year. During the current year, Parrot sold an appreciated asset for $500,000 (basis of $150,000). Payment for the sale of the asset will be made as follows: 50% next year and 50% in the following year, with interest payable at a rate of 7.5%. Before considering the effect of the asset sale, Parrot's current year E & P is $400,000 and it has no accumulated E & P. How much of Ashley's distribution will be taxed as a dividend?

a. $0.
b. $200,000.
c. $250,000.
d. $425,000.
e. None of the above.

 

- Tracy and Lance, equal shareholders in Macaw Corporation, receive $600,000 each in distributions on December 31 of the current year. Macaw's current year taxable income is $1 million and it has no accumulated E & P. Last year, Macaw sold an appreciated asset for $1,200,000 (basis of $400,000). Payment for one-half of the sale of the asset was made this year. How much of Tracy's distribution will be taxed as a dividend?

a. $0.
b. $300,000.
c. $500,000.
d. $600,000.
e. None of the above.

 

- Pheasant Corporation ended its first year of operations with taxable income of $225,000. At the time of Pheasant's formation, it incurred $50,000 of organizational expenses. In calculating its taxable income for the year, Pheasant claimed an $8,000 deduction for the organizational expenses. What is Pheasant's current E & P?

a. $175,000.
b. $183,000.
c. $225,000.
d. $233,000.
e. None of the above.

 

- During the current year, Goose Corporation sold equipment for $500,000 (adjusted basis of $260,000). The equipment was purchased a few years ago for $560,000 and $300,000 in MACRS deductions have been claimed. ADS depreciation would have been $200,000. As a result of the sale, the adjustment to taxable income needed to determine current E & P is:

a. No adjustment is required.
b. Subtract $100,000.
c. Add $100,000.
d. Add $80,000.
e. None of the above.

 

- On January 2, 2011, Orange Corporation purchased equipment for $300,000 with an ADS recovery period of 10 years and a MACRS useful life of 7 years. Section 179 was not elected. MACRS depreciation properly claimed on the asset, including depreciation in the year of sale, totaled $79,605. The equipment was sold on July 1, 2012, for $290,000. As a result of the sale, the adjustment to taxable income needed to arrive at current E & P is:

a. No adjustment is required.
b. Decrease $49,605.
c. Increase $49,605.
d. Decrease $79,605.
e. None of the above.

 

- Tungsten Corporation, a calendar year cash basis taxpayer, made estimated tax payments of $800 each quarter in 2011, for a total of $3,200. Tungsten filed its 2011 tax return in 2012 and the return showed a tax liability $4,200. At the time of filing, March 15, 2012, Tungsten paid an additional $1,000 in Federal income taxes. How does the additional payment of $1,000 impact Tungsten's E & P?

a. Increase by $1,000 in 2011.
b. Increase by $1,000 in 2012.
c. Decrease by $1,000 in 2011.
d. Decrease by $1,000 in 2012.
e. None of the above.

 

- Duck Corporation is a calendar year taxpayer formed in 2005. Duck's E & P for each of the past 5 years is listed below.

2010          $280,000
2009          $400,000
2008          $390,000
2007          $680,000
2006          $160,000

Duck Corporation made the following distributions in the previous 5 years.

2009     Land (basis of $700,000, fair market value of $800,000)
2006          $200,000 cash

Duck's accumulated E & P as of January 1, 2011 is:

a. $910,000.
b. $950,000.
c. $1,010,000.
d. $1,050,000.
e. None of the above.

 

- Stacey and Andrew each own one-half of the stock in Parakeet Corporation, a calendar year taxpayer. Cash distributions from Parakeet are: $350,000 to Stacey on April 1 and $150,000 to Andrew on May 1. If Parakeet's current E & P is $60,000, how much is allocated to Andrew's distribution?

a. $5,000.
b. $10,000.
c. $18,000.
d. $30,000.
e. None of the above.

 

- Maria and Christopher each own 50% of Cockatoo Corporation, a calendar year taxpayer. Distributions from Cockatoo are: $750,000 to Maria on April 1 and $250,000 to Christopher on May 1. Cockatoo's current E & P is $300,000 and its accumulated E & P is $600,000. How much of the accumulated E & P is allocated to Christopher's distribution?

a. $0.
b. $75,000.
c. $150,000.
d. $300,000.
e. None of the above.

 

- Gander, a calendar year corporation, has a deficit in current E & P of $100,000 and a $290,000 positive balance in accumulated E & P. If Gander determines that a $500,000 distribution to its shareholders is appropriate at some point during the year, what is the maximum amount of the distribution that could potentially be treated as a dividend?

a. $0.
b. $190,000.
c. $240,000.
d. $290,000.
e. None of the above.

 

- Falcon Corporation has $200,000 of current E & P and a deficit in accumulated E & P of $90,000. If Swan pays a $300,000 distribution to its shareholders on July 1, how much dividend income do the shareholders report?

a. $0.
b. $10,000.
c. $110,000.
d. $200,000.
e. None of the above.