40) In February of the current year, Brent Corporation donates computer equipment that it purchased six months ago to Eastside High School for use in its educational program. The donated property had a $20,000 adjusted basis to Brent and a $40,000 FMV. What is the amount of the gift? A) $20,000 B) $30,000 C) $35,000 D) $50,000 Answer: B
Explanation: B) [$20,000 + .50 ($40,000 - $20,000)] = $30,000. Page Ref.: C:3-12 Objective: 2
41) Garth Corporation donates inventory having an adjusted basis of $40,000 and an FMV of $150,000 to a qualified public charity. The inventory will be used by the charity to care for the ill. The maximum charitable contribution deduction before consideration of the 10% limitation is A) $40,000. B) $55,000. C) $80,000. D) $95,000. Answer: C
Page Ref.: C:3-11 and C:3-12 Objective: 2
42) Blueboy Inc. contributes inventory to a qualified charity for use in feeding the needy. The inventory has a $70,000 FMV and a $30,000 adjusted basis. Blueboy Inc. can take a charitable contribution deduction of
A) $20,000. B) $30,000. C) $50,000. D) $60,000. Answer: C
Explanation: C) FMV $70,000 Minus: basis ( 30,000) Appreciation $40,000 × 0.50 = $20,000 = 1/2 profit Plus: donated property's basis 30,000 Tentative charitable contribution deduction $50,000 Limited to twice the basis ($30,000 × 2) = $60,000 Page Ref.: C:3-11 and C:3-12; Example C:3-9 Objective: 2
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43) Identify which of the following statements is true.
A) When a corporation donates appreciated capital gain property to a charity, the amount of the contribution deduction generally equals the property's FMV.
B) When a corporation donates appreciated capital gain property to a private nonoperating foundation, the corporation's contribution is limited to the property's FMV minus the ordinary gain that would have resulted from the property's sale.
C) When a corporation contributes appreciated property to a charity, the charitable contribution deduction is the property's FMV or adjusted basis, depending on the election made by the taxpayer. D) All of the above are false. Answer: A
Page Ref.: C:3-11 and C:3-12 Objective: 2
44) If a corporation's charitable contributions exceed the deduction limitation in a particular year, the excess
A) is not deductible in any future year.
B) becomes a carryover to a maximum of five succeeding years. C) may be carried back to the third preceding year. D) is carried over indefinitely. Answer: B
Page Ref.: C:3-13 Objective: 2
45) Richards Corporation has taxable income of $280,000 calculated before the charitable contribution deduction and before its dividends-received deduction of $34,000. Richards makes cash contributions of $35,000 to charitable organizations. What is Richards Corporation's charitable contribution deduction for the current year? A) $24,600 B) $28,000 C) $31,400 D) $35,000 Answer: B
Page Ref.: C:3-13 Objective: 2
46) JLA is a U.S. shoe manufacturer. Its domestic production income is $1,000,000 and U.S. W-2 wages are $600,000. Taxable income before the domestic production deduction is $500,000. What is the amount of the production activities deduction? A) $15,000 B) $20,000 C) $45,000 D) $50,000 Answer: C
Explanation: C) $500,000 × 9% = $45,000 Page Ref.: C:3-14 Objective: 2
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47) The U.S. production activities deduction is based on a percentage of which of the following? A) taxable income before the production activities deduction B) 50% of W-2 wages.
C) qualified production activities income D) both A and C above Answer: D
Page Ref.: C:3-14 Objective: 2
48) For purposes of the production activities deduction, domestic production gross receipts do not include which of the following?
A) construction performed in the United States
B) engineering or architectural services performed in the United States for construction projects in the United States
C) lease, rental, license, sale, or other disposition of qualified production property manufactured, produced, grown, or extracted in whole or in significant part within the United States D) sale of food and beverages prepared at a retail establishment Answer: D
Page Ref.: C:3-14 Objective: 2
49) In 2011, Summer Corporation earns domestic gross receipts of $2 million and incurs allocable
expenses of $800,000. It has $400,000 of income from other sources, resulting in taxable income of $1.6 million before the U.S. production activities deduction. What is its U.S. production activities deduction? A) $120,000 B) $108,000 C) $60,000 D) $36,000 Answer: B
Page Ref.: C:3-14; Example C:3-12 Objective: 2
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50) Island Corporation has the following income and expense items for the year: Gross receipts from sales $60,000 Dividends received from 15%-owned domestic corporation 40,000 Expenses connected with sales 30,000 The taxable income of Island Corporation is A) $100,000. B) $70,000. C) $47,000. D) $42,000. Answer: D
Explanation: D) Sales $ 60,000 Plus: dividends 40,000 Gross income $100,000 Minus: expenses ( 30,000) Taxable income before DRD $ 70,000 Minus: 70% DRD (0.70 × $40,000) ( 28,000) Taxable income $ 42,000 Page Ref.: C:3-15; Example C:3-15 Objective: 2
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51) Maxwell Corporation reports the following results: Gross income from operations $90,000 Dividends received from 18%-owned domestic corporation 70,000 Expenses 100,000 Maxwell's dividends-received deduction is A) $42,000. B) $49,000. C) $56,000. D) $70,000. Answer: A
Explanation: A) The dividends-received deduction is limited to $42,000 unless using the full $49,000 dividends-received deduction will produce a NOL (i.e., taxable income would be $11,000 ($60,000 - $49,000). As shown below, the full dividends-received deduction does not produce a NOL. Gross income from operations $ 90,000 Plus: dividends 70,000 × 0.70 = $49,000 (Tentative DRD) Gross income $160,000 Minus: expenses ( 100,000) Taxable income before DRD $ 60,000 × 0.70 = $42,000 (DRD Limit) Page Ref.: C:3-15 Objective: 2
52) Identify which of the following statements is true.
A) The dividends-received deduction is designed to reduce double taxation of corporate dividends. B) The full 80% dividends-received deduction is available without restriction.
C) If a corporation receives dividends eligible for the 80% dividends-received deduction and the 70%
dividends-received deduction, the 70% dividends-received deduction reduces taxable income prior to the 80% deduction.
D) All of the above are false. Answer: A
Page Ref.: C:3-15 Objective: 2
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