93) Bebop Corporation reports the following results in the current year:
Gross income from operations $150,000 Dividends from 15% owned domestic corporation 50,000 Expenses 140,000
What is Bebop's taxable income?
Answer: Gross income from operations $150,000 Dividends received 50,000 Gross income $200,000 Minus: expenses 140,000 Taxable income before special deductions $ 60,000 Minus: dividends-received deduction (0.70 x 50,000) ( 35,000) Taxable income $ 25,000 Page Ref.: C:3-15; Example C:3-15 Objective: 2
94) Jackel, Inc. has the following information for the current tax year:
Gross sales $350,000 Cost of goods sold 50,000 Dividends received (10%) 40,000 Operating expenses 30,000 Charitable contributions 45,000
What is Jackel's charitable contribution deduction? What is Jackel's taxable income? Answer:
$350,000 Gross sales 40,000 Plus: dividend income ( 50,000) Minus: cost of sales ( 30,000) Minus: operating expenses $310,000 Taxable income before DRD and charitable contributions × 0.10 $ 31,000 Charitable contribution limit
The 10% charitable contribution deduction limitation is computed before the dividends-received deduction. The $14,000 ($45,000 - $31,000) excess contributions are carried over for up to 5 years.
$310,000 Taxable income before DRD ( 31,000) Minus: charitable deduction $279,000 Taxable income before DRD ( 28,000) Minus: dividends-received deduction $251,000 Taxable income Page Ref.: C:3-15 through C:3-18 Objective: 2
31
Copyright ? 2013 Pearson Education, Inc. publishing as Prentice Hall
95) Dexter Corporation reports the following results for the current year:
Gross income from operations $90,000 Dividends from less than 20%-owned corporations 50,000 Operating expenses 75,000 Charitable contributions 10,000
In addition, Dexter has a $25,000 NOL carryover from the preceding tax year. What is Dexter's taxable income for the current year?
Answer: Gross income (90,000 + 50,000) $140,000 Minus: operating expenses ( 75,000) Income before special deductions $ 65,000 Minus: charitable contribution ( 4,000)a dividends-received deduction ( 35,000) NOL ( 25,000) Taxable income $ 1,000
a The charitable contribution is limited to $4,000 [0.10 × ($65,000 - $25,000)]. The dividends-received deduction is not limited by the 70% DRD limitation [($65,000 - $4,000) × 0.70 = $42,700]. Page Ref.: C:3-19 and C:3-20 Objective: 2
96) Chase Corporation reports the following results in the current year:
Gross income from operations $150,000 Dividends from 15%-owned domestic corporation 50,000 Expenses 155,000
What is Chase's taxable income?
Answer: Gross income from operations $150,000 Dividends received 50,000 Gross income $200,000 Minus: expenses 155,000 Taxable income before special deductions $ 45,000 Minus: Dividends-received deduction * ( 31,500) Taxable income $ 13,500
*The DRD is limited to the lesser of 70% of dividends received ($35,000) or 70% of taxable income before the DRD ($31,500 = $45,000 × 0.70). Page Ref.: C:3-16; Example C:3-18 Objective: 2
32
Copyright ? 2013 Pearson Education, Inc. publishing as Prentice Hall
97) Dumont Corporation reports the following results in the current year:
Gross income from operations $150,000 Dividends from 15%-owned domestic corporation 50,000 Expenses 165,500
What is Dumont's taxable income?
Answer: Gross income from operations $150,000 Dividends received 50,000 Gross income $200,000 Minus: expenses 165,500 Taxable income before special deductions $ 34,500 Minus: dividends-received deduction * ( 35,000) Taxable income $ 500
*Dumont's DRD is not restricted by the limitation of 70% of taxable income before the DRD because, after taking into account the tentative $35,000 DRD, the corporation has a $500 NOL for the year. Page Ref.: C:3-16; Example C:3-18 Objective: 2
33
Copyright ? 2013 Pearson Education, Inc. publishing as Prentice Hall
98) Courtney Corporation had the following income and expenses for the tax year:
Gross profit on sales $300,000 Expenses $600,000 Dividends received from less-than-20%- owned domestic corporations $ 20,000
Courtney had taxable income for the past three years of: 2009 $100,000 2010 $120,000 2011 $ 80,000
a) Determine the corporation's NOL for the current year.
b) Determine the amount of NOL carried back to each preceding tax year and the amount of NOL, if any, available as a carryforward. Answer:
a) Gross income from operations $300,000 Plus: dividends 20,000 Gross income $320,000 Minus: expenses 600,000 Taxable income before DRD (280,000) Minus: DRD ($20,000 × 0.70) ( 14,000) NOL ($294,000)
b) 2009 $0 2011 $80,000 2010 $120,000 Carryforward $94,000 Page Ref.: C:3-19 Objective: 2
99) Paul, who owns all the stock in Rodgers Corporation, purchases a truck from the corporation in
January. The truck cost $11,000 and has an adjusted basis of $9,000. Paul pays Rodgers the truck's $7,000 FMV. Paul sells the truck later in the tax year to an unrelated party for $12,000. What is the amount and character of the income that Paul will report on this year's tax return?
Answer: The corporation could not recognize the $2,000 ($11,000 - $9,000) realized loss on the sale of the truck since Paul and the corporation are related parties (Sec. 267(a)(1)). Paul would recognize a gain of only $3,000 [($12,000 - $7,000) - $2,000 disallowed loss] on his subsequent sale. Page Ref.: C:3-21 Objective: 2
100) Little Corporation uses the accrual method of accounting. Little's sole shareholder, Renee, uses the cash method of accounting. Both taxpayers use the calendar year as their tax year. The corporation
accrues a $25,000 interest payment to Renee on December 25, 2011 and makes the payment on March 10, 2012. What are the tax consequences of the transactions to both taxpayers in 2011 and 2012?
Answer: Little Corporation cannot deduct the interest in 2011, but must wait until Renee reports the income in 2012. There are no tax consequences to either taxpayer in 2011. Page Ref.: C:3-22; Example C:3-27 Objective: 2
34
Copyright ? 2013 Pearson Education, Inc. publishing as Prentice Hall
101) Westwind Corporation reports the following results for the current year:
Gross profit on sales $250,000 Long-term capital gain 25,000 Long-term capital loss 10,000 Short-term capital gain 7,500 Short-term capital loss 12,500 Operating expenses 80,000
What are Westwind's taxable income and regular tax liability before credits for the current year? Answer: The net capital gain is $10,000 [($25,000 - $10,000) + ($7,500 - $12,500)].
Gross profit on sales $250,000 Plus: net capital gain 10,000 Minus: operating expenses ( 80,000) Taxable income $180,000
Tax on first $100,000 of taxable income $ 22,250 Tax on remaining taxable income ($80,000 x 0.39) 31,200 Tax liability $ 53,450 Page Ref.: C:3-23 Objective: 3
35
Copyright ? 2013 Pearson Education, Inc. publishing as Prentice Hall