Reference no: EM131120173

1. A corporation filing its first return must "annualize" its income if the tax period is less than 12 months.

a. True

b. False

2. A taxable year may be as short as one day and may exceed 366 days.

a. True

b. False

3. Computing "cost of goods sold" and being on the accrual basis are independent of each other.

a. True

b. False

4. If, in the IRS's opinion, the taxpayer's books do not "clearly reflect income," the IRS may revise them so that they do.

a. True

b. False

5. Taxpayers must generally obtain the permission of the IRS to change accounting methods.

a. True

b. False

6. A correction of an error in a tax return is usually considered a change in accounting method.

a. True

b. False

7. A business cannot be taxed as a corporation unless it is incorporated under local law.

a. True

b. False

8. A partnership is not a tax-paying entity.

a. True

b. False

9. The dividends received deduction is 70 percent of dividends received out of the earnings and profits of taxable, domestic corporations.

a. True

b. False

10. Cash basis corporations can only deduct charitable contributions in the year made.

a. True

b. False

11. A shareholder recognizes no gain on a capital contribution to a corporation merely because he is a minority shareholder.

a. True

b. False

12. The receipt of boot in a Code Sec. 351 transfer precludes any nonrecognition treatment.

a. True

b. False

13. Most corporations must use the accrual method of accounting.

a. True

b. False

14. A corporation's deduction for charitable contributions is limited to 50 percent of adjusted taxable income.

a. True

b. False

15. Organizational expenditures must be capitalized but may be amortized over 60 months or longer.

a. True

b. False

16. A distribution is not a dividend if the accumulated deficit exceeds current E&P.

a. True

b. False

17. A distribution of nontaxable stock dividends does not reduce the corporation's E&P.

a. True

b. False

18. Code Sec. 302(b)(2) provides that a substantially proportionate redemption be treated as a sale or exchange.

a. True

b. False

19. In computing current E&P, the realized (but not recognized) gain on an involuntary conversion is added to taxable income.

a. True

b. False

20. A distribution by a corporation can never make its E&P negative.

a. True

b. False

Multiple Choice

1. Which of the following is not a method of accounting?

a. Cash receipts and disbursements method

b. Accrual method

c. LIFO inventory

d. Long-term contracts method

e. None of the above

2. An accrual basis taxpayer must recognize income when a sale is made, even if on credit. This means that income is recognized:

a. When the order is received

b. When the delivery is made

c. When the invoice is mailed

d. At any of the above events, if consistently used

3. A corporation must "annualize" a short taxable year resulting from:

a. Going out of business

b. Starting in business

c. Changing from one fiscal year to another

d. Joining an affiliated group and filing consolidated returns

4. The following statements about cash and accrual basis taxpayers are all false, except:

a. Both cash and accrual basis taxpayers include prepaid rent in gross income.

b. Both cash and accrual basis taxpayers are taxed on rent paid late when received.

c. The timing of dividend income may depend on the record date.

d. Constructive receipt is a concept affecting both cash and accrual method taxpayers.

5. All of the following tax years are acceptable tax years except:

a. 52-53-week tax year.

b. Short tax year which occurred because a business was not in existence for an entire year.

c. Short tax year which occurred because a business had a change in accounting period.

d. Fiscal tax year (other than a 52-53-week tax year) that ends on any day of the month other than the last day.

6. The uniform capitalization rules apply to which one of the following properties?

a. Property you produce under a long-term contract

b. Personal property you purchase for resale, if your average annual gross receipts are $10,000,000 or less

c. Costs paid or incurred by an individual (other than as an employee) or a qualified employee-owner of a personal service corporation in the business of being a writer, photographer, or artist

d. Real property or tangible personal property which you produce for sale to customers

7. Which of the following entities may select any tax period (calendar or fiscal)?

a. sole partnership

b. partnership

c. S corporations

d. trusts

e. corporations other than S corporations.

8. Which entities must have tax years that conform with the tax years of their owners?

a. partnerships

b. S corporations

c. personal service corporations

d. all of the above

e. none of the above

9. Which factors should be considered when selecting a tax year for a taxpayer?

a. business factors

b. natural business year

c. timing of income and deductions

d. tax law requirements

e. all of the above

f. none of the above

10. The check-the-box election to be taxed as a corporation applies to:

a. corporations

b. partnerships

c. trusts

d. all of the above

e. none of the above

11. When deciding if a corporate instrument is debt or equity, the IRS will consider:

a. the corporation's debt to equity ratio

b. if the debt is convertable into stock

c. the relationship between stock and debt ownership percentages

d. if the debt is preferred over or subordinate to other debt

e. all of the above

f. none of the above

12. A corporation must do which of the following with respect to its accounting period?

a. select a calendar year

b. select a fiscal year if it has a business reason for selction

c. select a calendar year or fiscal, regardless of the reason for selection

d. select a year that is the saem as its major shareholders

e. none of the above

13. Members of a parent-subsidiary controlled group may:

a. file separate tax returns

b. file separate tax returns and may elect a 100 percent dividends-received deduction

c. file a consolidated tax return

d. all of the above

e. none of the above

14. The following entities are not subject to double taxation except:

a. partnership

b. sole proprietorship

c. C corporation

d. S corporation

e. all are subject to double taxation

f. none are subject to double taxation

15. Under the "check-the-box" system, which of the following entities could not select, or qualify for, corporate status?

a. sole proprietorship

b. partnership

c. associations

d. none of the above may elect or qualify for corporate status

e. all of the above may elect or qualify for corporate status

16. Absent any special provision (e.g., Code Sec. 351), a transfer of property from a shareholder to a corporation in return for its shares would result in:

a. full gain or loss recognition

b. partial gain or loss recognition

c. no gain or loss recognition

d. none of the above

17. The provisions of Code Sec. 351 are:

a. Optional if elected by a majority of the shareholders

b. Optional if elected by all the shareholders

c. Optional if elected by the corporation

d. Mandatory

18. Corporations and individuals differ in that:

a. corporations are not permitted tax credits

b. corporations are not entitled to exclusions

c. corporations do not have for AGI and from AGI deductions

d. like-kind exchange provisions do not apply to corporations

19. In general, a large C corporation:

a. may use any accounting method it selects

b. may use any hybrid method

c. must use the cash basis only

d. must use the accrual basis only

20. A distribution to the shareholders of stock in the distributor constitutes a taxable dividend, except for the following:

a. Distribution of preferred stock to the common shareholders

b. Proportionate distribution of common stock to the common shareholders, where they all could have taken cash instead, but nobody did

c. Distribution of convertible preferred stock to any shareholder

d. Distribution of common stock to the preferred stockholders.