Can you please assist with some True/False and Multiple questions for an accounting class specializing in Business Taxation. My school is located in Minnesota so all US GAAP, etc would apply.
Question 1. Dew-Drop Trust had a $10,000 of dividend income and a $7,000 capital gain for the year. The trust is a simple trust. Under state law both income items must be allocated to accounting income.
True / False
Question 2. Dilbert Company paid $200,000 cash in full settlement of a $175,000 debt. Before the payment, its assets were worth $265,000, and its debts equaled $290,000. None of the debt relief must be included in gross income.
True / False
Question 3. Scott Corporation made a $10,000 distribution to its shareholders when its current E&P was $4,000, and accumulated E&P at the beginning of the year was $3,000. The entire distribution is a dividend.
True / False
Question 4. Goodwill purchased as part of a taxable acquisition is amortized over a period of 15 years.
True / False
Question 5. A parent-subsidiary controlled group requires an 80% ownership test of the subsidiary by the parent.
True / False
Question 6. This year Mr. Dilfer recognized a $100,000 gain on §1202 stock (qualified small business stock). Mr. Dilfer's marginal tax rate is 35%. His capital gain tax on this item is $20,000.
True / False
Question 7. Carla makes a cash gift of $50,000 to her niece for a Christmas present in Year 2003. This is her only gift to her niece for 2003. Carla has made a taxable gift of $50,000 .
True / False
Question 8. Allen Inc. has foreign operations. The corporation can choose between taking a foreign tax credit or a deduction for foreign taxes paid each year.
True / False
Question 9. Distributions of property have no effect on the corporation's earnings and profits.
True / False
Question 10. Sales of products made on the Internet by "e-tailers" are subject to sales and use taxes even if the "e-tailer" does not have nexus in the state of purchase.
True / False
Question 11. If the foreign tax rate is higher than the U.S. tax rate, then all of the foreign income taxes paid will be allowed as a credit against the U.S. tax.
True / False
Question 12. Barbara received a property distribution from her corporation when the property had a FMV of $80,000 and an adjusted basis of $100,000. Her basis in the property is $100,000.
True / False
Question 13. In order for a gift to be entitled to an annual exclusion, the taxpayer must give up all legal ownership.
True / False
Question 14. O'Reilly Corporation sold all of its assets for $25 million. The FMV of the inventory included in the purchase was $13 million. O'Reilly and the purchaser can agree to allocate $15 million of the purchase price to the inventory.
True / False
Question 15. Whether a stock redemption by an S corporation is treated as a sale or a distribution is determined under rules that are the same as those applied to distributions from a regular corporation.
True / False
Question 16. Bulldozer Corporation, a U.S. corporation, used its construction equipment 40% on projects in China and 60% on projects in Alaska. Any gain on a later sale of its equipment (to the extent of depreciation claimed) would be allocated all to U.S. sources.
True / False
Question 17. Marge has an outside basis of $100,000 in a partnership, at a time when the partnership makes a $120,000 nonliquidating cash distribution to her. Marge has a $20,000 capital gain from the distribution.
True / False
Question 18. Robert has land that is worth $10 million that he believes will be worth $25 million in about ten years. It will probably be cheaper to give it all to his kids this year rather than engaging in a plan of systematic giving designed to maximize his annual exclusion.
True / False
Question 19. Candle-Maker Corporation distributes a mail order catalogue to customers all over the United States. The company recently opened a store in Florida. It must collect and remit sales tax to the state of Florida on sales made in the store and on catalogue sales to customers anywhere in the state of Florida.
True / False
Question 20. Asserting economic nexus allows a state to assess an income tax on a business that does not have a physical presence in the state.
True / False
Question 21. If a §754 election is in effect, the inside basis of partnership assets is adjusted to reflect the new partner's purchase of the underlying assets.
True / False
Question 22. Up to $11,000 of gifts of future interests made to any individual during a taxable year are excluded from gift tax.
True / False
Question 23. Jenny Inc. is a U.S. corporation. Although it is chartered and headquarted in Miami, Florida, it does not conduct any business in the United States. Its only source of income is from operations in Latin America. Because of tax incentives granted by the foreign governments, no foreign income taxes are paid. Jenny Inc. had taxable business income from the following sources:
Argentina: $800,000
Peru: $200,000
What is Jenny Inc's taxable income on its U.S. corporate income tax return, Form 1120?
A. -0-
B. $ 1,000,000
C. $ 800,000
D. $ 200,000
Question 24. Anthill Inc.'s taxable income for the year was $10 million and its federal tax was $3,400,000. The company earned $200,000 tax-exempt interest and realized a $500,000 nondeductible capital loss. Anthill's current E&P is:
A. $ 3,400,000
B. $ 10,000,000
C. $ 6,300,000
D. $ 6,600,000
Question 25. Which of the following in a true statement concerning nexus for sales tax purposes?
A. Selling a product or service does not automatically obligate the seller to collect sales tax.
B. Physical presence by the seller is a precondition to establishing sales and use tax jurisdiction over an out-of-state vendor.
C. Catalogue sales in a state when a company has retail outlets will obligate the seller to collect sales taxes.
D. Nexus is defined the same for sales and income tax purposes.
Question 26. Ellen, who is single, is a shareholder in The Hufnuttle Corporation, an S corporation. During the current year she sells 1,000 of her shares for a $75,000 gain. How much of the gain is ordinary, assuming the stock is Section 1244 stock?
A. $50,000
B. $75,000
C. $37,500
D. 0
Question 27. Melodious Corporation is having cash flow problems, although it is not insolvent nor in bankruptcy proceedings. One of its suppliers decides to accept a $100,000 cash payment from Melodius in full settlement of a $140,000 debt. What is Melodious Corporation's gross income, if any, from the debt settlement?
A. 0
B. $140,000
C. $40,000
D. $100,000
Question 28. In 2003, Billy gave his aunt a block of stock. His tax basis in the stock was $8,000. Its FMV at the date of gift was $35,000. Billy has never made a gift of any sort before. How much gift tax does Billy owe on this transfer?
A. $ -0-
B. $ 4,000
C. $12,500
D. $17,500
Question 29. Lemonade, LLC distributes property to Arlene, one of its members. At the time of the distribution, Arlene had an outside basis of $50,000. The FMV of the property is $90,000 and its inside tax basis to Lemonade is $70,000. This is a nonliquidating distribution. What is Arlene's recognized gain on the distribution?
A. $20,000
B. $90,000
C. -0-
D. $40,000
Question 30. Jimbo Corporation acquires all of the net assets of Sabo Corporation in a tax-deferred merger. Heather was one of the shareholders of Sabo. As part of the merger, she exchanged all of her Sabo shares for shares in Jimbo Corporation. At the time of the exchange, her shares in Sabo had a tax basis of $10,000 and a FMV of $90,000, which was also the FMV of the Jimbo stock. How much gain does Heather recognize from the exchange?
A. 0
B. $80,000
C. $10,000
D. $90,000
Question 31. Immediately before making a liquidating distribution Huron Inc. had the following balance sheet.
Tax Basis FMV
Cash on hand $300,000 $300,000
Investment land 150,000 575,000
$450,000 $875,000
Paid in capital (1,000 shares) $ 55,000
Retained earnings 395,000
$450,000
Keith White is the sole shareholder of Huron, and his tax basis in his stock is $200,000. What is Keith White's tax basis in the land distributed?
A. $150,000
B. $575,000
C. $200,000
D. $450,000
Question 32. Colleen owns 100% of two separate corporations. During their tax years ending December 31, each corporation had taxable income of $50,000. What is the regular tax liability of each separate corporation?
A. $10,000
B. $11,125
C. $12,500
D. $22,250
Question 33. Which of the following is a true statement concerning the valuation of an interest in a closely held business for estate tax purposes.
A. The valuation of goodwill will be difficult.
B. A court may allow a discount for the cost creating a market for the stock.
C. A minority interest discount might be available
D. All of these are true statements.
Question 34. The Harrod Trust had a $100,000 of dividend income and a $70,000 capital gain for the year. It paid $6,000 of trustee fees. The trust specifies that capital gains are allocated to principal and trustee fees are divided equally between income and principal. Accounting income for the year is:
A. $100,000
B. $94,000
C. $97,000
D. $65,000
Question 35. Power Co. acquired the assets of Penny's Place when they were worth $25 million and had a tax basis of $10 million. If this is a tax-deferred reorganization that used only Power stock for consideration, what is Power's tax basis in the assets acquired from Penny?
A. $25 million
B. $10 million
C. $35 million
D. $15 million
Question 36. Which of the following is a true statement concerning state taxable income?
A. The deduction for state income taxes is generally disallowed.
B. The interest earned on municipal bonds is generally included.
C. The interest earned on federal bonds is generally excluded.
D. All of these are true statements.
Question 37. The Harrod Trust had a $150,000 of taxable interest income and $30,000 of tax-exempt income for the year. It paid $6,000 of trustee fees. How much of the trustee fees can be deducted in calculating taxable income?
A. $1,500
B. $3,000
C. $6,000
D. $5,000
E. $ -0-
Question 38. Genera Corporation reported federal taxable income of $1,000,000. During the year it received $15,000 of interest income on Federal bonds, and paid $105,000 of state income taxes. Under the general definitions used in the text, what is Genera's state taxable income?
A. $1,120,000
B. $1,090,000
C. $1,000,000
D. $ 880,000
Question 39. Larry is a shareholder in Target Corporation, which is part of a tax-deferred Type A merger with Acquiring Corporation. As part of the merger, Larry exchanges all of his Target stock (FMV=$100,000; tax basis=$40,000) for Acquiring stock worth $80,000 and $20,000 cash. What is Larry's recognized gain from the exchange?
A. $20,000
B. 0
C. $40,000
D. $100,000
Question 40. Jim and his best friend Michael each own 50 of the 100 shares of The Buddy Corporation. Jim decides to retire and has the corporation redeem all of his stock for $500,000. Jim's basis in his stock was $50,000 and the corporation had E&P of $2,000,000 at the time of the redemption. How much of the redemption proceeds are treated as dividend income.
A. $500,000
B. $450,000
C. 0
D. $50,000
Question 41. ABC Inc. is headquartered in Birmingham, Alabama, but does business in both Alabama and Georgia. Both states use the standard three-factor apportionment formula, with equal weighting to each factor. ABC has Year 2003 taxable business income of $1,000,000 to apportion. The following amounts for each factor exist for Year 2003 (in thousands of dollars).
Alabama Georgia
Gross receipts from sales $ 800,000 $200,000
Payroll expense $ 350,000 $150,000
Property costs $ 900,000 $100,000
How much of ABC's Year 2003 taxable income is apportioned to Alabama using the above information?
A. $1,000,000
B. $ 800,000
C. $ 750,000
D. $ 200,000
Question 42. ABC Corporation acquires all of the stock of Boisenberry Corporation from its sole shareholder Terry, in a qualifying Type B reorganization. To acquire the Boisenberry stock, ABC issued Terry its own voting common stock, with a FMV of $1,000,000 and a par value of $10,000. Terry's tax basis in his Boisenberry stock was $120,000. ABC will continue to operate Boisenberry as a separate entity. What is ABC's tax basis in the Boisenberry stock?
A. $1,000,000
B. $10,000
C. $880,000
D. $120,000
Question 43. Schwartz Inc. acquired the business operated by Music Inc. in a qualifying Type A reorganization. At the acquisition date, Music had $418,000 accumulated E&P and a $68,000 foreign tax credit (FTC) carryforward. Based on this information, which of the following is a true statement?
A. Schwartz must increase its E&P by $418,000.
B. Schwartz can use the FTC in the first tax return filed after the merger.
C. Both of these are true statements.
D. Neither of these is a true statement.
Question 44. The following corporations' stock is owned as follows:
Shareholder Cat Inc. Dog Inc.
Bird, Inc. 45% 35%
Unrelated 55 65
100% 100%
Which of the following statements is correct?
A. Bird, Cat, and Dog are an affiliated group.
B. Bird and Dog are an affiliated group.
C. Bird and Cat are an affiliated group.
D. There is no affiliated group here
Question 45. Wally Inc. acquired 92% of Trumpet's stock in a qualifying Type B reorganization. Alice was a shareholder in Trumpet. In exchange for all 1,000 shares of her Trumpet stock, she received Wally voting common stock with a FMV of $50,000. At the time of the exchange, Alice's tax basis in her Trumpet stock was $70,000. Which one of the followings statements is true regarding the exchange?
A. Wally's tax basis in Trumpet stock = $70,000; Alice's tax basis in Wally stock = $70,000.
B. Wally's tax basis in Trumpet stock = $50,000; Alice's tax basis in Wally stock = $70,000.
C. Wally's tax basis in Trumpet stock = $50,000; Alice's tax basis in Wally stock = $50,000.
D. Wally's tax basis in Trumpet stock = $70,000; Alice's tax basis in Wally stock = $50,000.
Question 46. Which of the following items must be computed on a consolidated basis?
A. Capital gain net income.
B. Charitable contributions déduction.
C. Net operating loss (NOL) deduction.
D. Dividend-received deduction
E. All of these must be computed on a consolidated basis.
Question 47. Which of the following statements concerning the payment of estate taxes is NOT true?
A. Estate taxes are due 9 months after the decedent's death.
B. The estate is entitled to an automatic extension of time for paying estate taxes.
C. The maximum extension for paying estate taxes is 10 years.
D. Interest accrues on the unpaid estate tax liability.
Question 48. Which of the following is NOT a true statement concerning probate?
A. Costs of probate include cost of obtaining clear title to property.
B. A living trust can be used to avoid probate.
C. Cost is only one reason to avoid probate.
D. A will requires probate only in the state in which the decedent resided.