Chapter C5 Other Corporate Tax Levies

52) The personal holding company tax

A) may be imposed regardless of the number of equal stockholders in a corporation.

B) may be eliminated by the payment of a deficiency dividend.

C) qualifies as a tax credit, which may be used by the shareholders to reduce their individual income taxes.

D) applies to any corporation whose shareholders satisfy the stock ownership requirement.

53) The accumulated earnings tax does not apply to corporations that

A) have more than one class of stock.

B) are personal holding companies.

C) are members of a controlled group.

D) are closely held corporations.

54) Identify which of the following statements is true.

A) A corporation can be subject to both the accumulated earnings tax and the personal holding company tax in the same year.

B) The accumulated earnings tax is applied to a corporation's earnings. If the earnings are not subsequently distributed, the earnings will be taxed again under the accumulated earnings tax the next year.

C) The accumulated earnings tax is not levied on the corporation's total accumulated earnings balance, but only on its current-year addition to the balance.

D) All of the above are false.

55) Which of the following entities is subject to the accumulated earnings tax?

A) Sec. 501 tax-exempt corporation

B) personal holding company

C) C corporation

D) S corporation

56) Identify which of the following statements is true.

A) In practice, the accumulated earnings tax applies only to closely held corporations.

B) A corporation bears the burden of proving that its earnings are not being accumulated to avoid income taxes.

C) To avoid the accumulated earnings tax, a corporation needs to have a definite plan for expending the accumulated earnings.

D) All of the above are true.

57) Which of following generally does not indicate an unreasonable earnings accumulation?

A) loans to shareholders

B) expenditure of corporate funds for the personal benefit of the shareholders

C) planned expansion of business facilities

D) investments in properties or securities unrelated to the activities of the corporation

58) All of the following are recognized as reasons for accumulating earnings except

A) working capital needs.

B) product liability loss reserves.

C) redemption of stock of deceased shareholder.

D) All of the above are recognized reasons for accumulating earnings.

59) When using the Bardahl formula, an increase in annual credit sales (while holding the average accounts receivable balance constant) has which of the following effects on the working capital requirements?

A) increase

B) decrease

C) no effect

D) increase, decrease, or no effect, depending on other factors

60) Identify which of the following statements is true.

A) The Bardahl formula is based on the firm's inventory period, receivables period, credit period, and total cash expenditures for cost of sales and operating expenses.

B) The Bardahl formula uses the concept of working capital, cash over current liabilities.

C) The Bardahl formula provides mathematical exactness when calculating reasonable working capital needs for accumulated earnings tax purposes.

D) All of the above are false.

61) When using the Bardahl formula, an increase in accounts payable (while holding purchases and operating expenses constant) has which of the following effects on the working capital requirements?

A) increase

B) decrease

C) no effect

D) increase, decrease, or no effect, depending on other factors