CHAPTER 17 CORPORATIONS: INTRODUCTION AND

1. Pink, Inc., a calendar year C corporation, manufactures golf gloves. For the current year, Pink had taxable income (before DPAD) of $900,000, qualified domestic production activities income of $750,000, and W-2 wages related to qualified production activities income of $140,000. Pink’s domestic production activities deduction for the current year is:

a. $0.

b. $12,600.

c. $67,500.

d. $70,000.

e. None of the above.

2. In the current year, Crimson, Inc., a calendar C corporation, has income from operations of $180,000 and operating deductions of $225,000. Crimson also had $30,000 of dividends from a 15% stock ownership in a domestic corporation. Which of the following statements is correct with respect to Crimson for the current year?

a. Crimson’s NOL is $15,000.

b. A dividends received deduction is not allowed in computing Crimson’s NOL.

c. The NOL is carried back 3 years and forward 10 years by Crimson.

d. Crimson’s dividends received deduction is $21,000.

e. None of the above.

3. Which of the following statements is incorrectwith respect to the treatment of net operating losses by corporations?

a. A corporation may elect to forgo the carryback period and just carryforward an NOL.

b. A corporation may claim a dividends received deduction in computing an NOL.

c. An NOL is generally carried back 2 years and forward 20 years.

d. Unlike individuals, corporations do not adjust their NOLs for net capital losses or nonbusiness deductions.

e. None of the above.

4. Red Corporation, which owns stock in Blue Corporation, had net operating income of $200,000 for the year. Blue pays Red a dividend of $40,000. Red takes a dividends received deduction of $28,000. Which of the following statements is correct?

a. Red owns 80% of Blue Corporation.

b. Red owns 20% or more, but less than 80% of Blue Corporation.

c. Red owns 80% or more of Blue Corporation.

d. Red owns less than 20% of Blue Corporation.

e. None of the above.

5. Eagle Corporation owns stock in Hawk Corporation and has taxable income of $100,000 for the year before considering the dividends received deduction. Hawk Corporation pays Eagle a dividend of $130,000, which was considered in calculating the $100,000. What amount of dividends received deduction may Eagle claim if it owns 15% of Hawk’s stock?

a. $0.

b. $70,000.

c. $91,000.

d. $104,000.

e. None of the above.

6. Copper Corporation owns stock in Bronze Corporation and has net operating income of $900,000 for the year. Bronze Corporation pays Copper a dividend of $150,000. What amount of dividends received deduction may Copper claim if it owns 85% of Bronze stock (assuming Copper’s dividends received deduction is not limited by its taxable income)?

a. $97,500.

b. $105,000.

c. $120,000.

d. $150,000.

e. None of the above.

7. Orange Corporation owns stock in White Corporation and has net operating income of $400,000 for the year. White Corporation pays Orange a dividend of $60,000. What amount of dividends received deduction may Orange claim if it owns 45% of White stock (assuming Orange’s dividends received deduction is not limited by its taxable income)?

a. $27,000.

b. $42,000.

c. $48,000.

d. $60,000.

e. None of the above.

8. Which of the following statements is incorrectregarding the dividends received deduction?

a. A corporation must hold stock for more than 90 days in order to qualify for a deduction with respect to dividends on such stock.

b. The taxable income limitation does not apply with respect to the 100% deduction available to members of an affiliated group.

c. If a stock purchase is financed 75% by debt, the deduction for dividends on such stock is reduced by 75%.

d. The taxable income limitation does not apply if the normal deduction (i.e., 70% or 80% of dividends) results in a net operating loss for the corporation.

e. None of the above.

9. Emerald Corporation, a calendar year C corporation, was formed and began operations on April 1, 2014. The following expenses were incurred during the first tax year (April 1 through December 31, 2014) of operations:

Expenses of temporary directors and of organizational meetings	$27,000
Fee paid to the state of incorporation	1,000
Accounting services incident to organization	15,500
Legal services for drafting the corporate charter and bylaws	9,500
Expenses incident to the printing and sale of stock certificates	6,000

Assuming a § 248 election, what is the Emerald’s deduction for organizational expenditures for 2014?

a. $0.

b. $4,550.

c. $5,000.

d. $7,400.

e. None of the above.

10.During the current year, Sparrow Corporation, a calendar year C corporation, had operating income of $425,000, operating expenses of $280,000, a short-term capital loss of $10,000, and a long-term capital gain of $25,000. How much is Sparrow’s tax liability for the year?

a. $42,650.

b. $42,800.

c. $45,650.

d. $62,400.

e. None of the above.