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| 1 | |
All distributions from a corporation to a shareholder are taxed as dividends. |
| | A) | True |
| | B) | False |
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| 2 | |
A distribution from a corporation to a shareholder can never be taxed as a dividend if the corporation has negative current earnings and profits. |
| | A) | True |
| | B) | False |
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| 3 | |
Only those items that appear on a corporation's federal income tax return are considered in the computation of current earnings and profits. |
| | A) | True |
| | B) | False |
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| 4 | |
The computation of earnings and profits can include items of income that are tax-exempt and expenditures that are not deductible. |
| | A) | True |
| | B) | False |
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| 5 | |
Z Corporation uses a net capital loss carryover from the prior year to offset current year capital gains. The net capital loss carryover used in the current year will reduce current earnings and profits. |
| | A) | True |
| | B) | False |
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| 6 | |
M Corporation distributes appreciated property to its shareholder as a dividend. M Corporation will recognize gain on the distribution of the property. |
| | A) | True |
| | B) | False |
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| 7 | |
M Corporation distributes property with a value of $100 and an adjusted basis of $150 to its shareholder as a dividend. M Corporation will recognize a $50 loss on the distribution of the property. |
| | A) | True |
| | B) | False |
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| 8 | |
A stock redemption will always be treated as an exchange by the shareholder participating in the transaction. |
| | A) | True |
| | B) | False |
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| 9 | |
A calendar-year corporation has positive current E&P of $1,500 and accumulated negative E&P of $2,000. The corporation makes a $500 distribution to its sole shareholder. Which of the following statements is true?? |
| | A) | The distribution may be a dividend, depending on whether total earnings and profits at the date of the distribution is positive. |
| | B) | The distribution will be a dividend if current earnings and profits are positive and exceed the distribution. |
| | C) | The distribution will not be a dividend because total earnings and profits is a negative $500. |
| | D) | A distribution from a corporation to a shareholder is always a dividend, regardless of the balance in earnings and profits. |
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| 10 | |
Which of these items is not an adjustment to taxable income or net loss to compute current E&P? |
| | A) | Disallowed portion of meals and entertainment expenditure |
| | B) | Employee compensation |
| | C) | Tax exempt life insurance proceeds |
| | D) | Federal income taxes paid or accrued |
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| 11 | |
Manistee Corporation reported taxable income of $1,200,000 this year and paid federal income taxes of $408,000. Not included in the computation was disallowed entertainment expenses of $25,000, tax-exempt interest of $20,000, and a net capital loss of $50,000 incurred this year. Manistee is an accrual basis taxpayer. The corporation's current earnings and profits this year would be: |
| | A) | $1,200,000 |
| | B) | $1,145,000 |
| | C) | $787,000 |
| | D) | $737,000 |
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| 12 | |
Boulder Company reports current E&P of $500,000 this year and accumulated negative E&P at the beginning of the year of $200,000. Boulder distributed $400,000 to its sole shareholder on January 1 of this year. How much of the distribution is treated as a dividend this year? |
| | A) | $400,000 |
| | B) | $200,000 |
| | C) | $300,000 |
| | D) | $0 |
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| 13 | |
Samantha owns 60 percent of the stock of Bewitched Corporation. Unrelated individuals own the remaining 40 percent. For a stock redemption of Samantha's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Bewitched stock must Samantha own after the redemption? |
| | A) | Any amount less than 60 percent |
| | B) | Any amount less than 50 percent |
| | C) | Any amount less than 48 percent |
| | D) | Any amount less than 40 percent |
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| 14 | |
Force Corporation is owned equally by Luke and his sister Leila, each of whom own 200 shares in the company. Force redeemed 100 shares of Luke's stock in the company on December 31 of this year. Force paid Luke $1,000 per share. Luke's income tax basis in each share is $500. Force has total E&P of $800,000. What are the tax consequences to Luke as a result of the stock redemption? |
| | A) | $50,000 capital gain and a tax basis in each of his remaining shares of $500 |
| | B) | $50,000 capital gain and a tax basis in each of his remaining shares of $1,000 |
| | C) | $100,000 dividend and a tax basis in each of his remaining shares of $500 |
| | D) | $100,000 dividend and a tax basis in each of his remaining shares of $1,000 |
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| 15 | |
Horned Frog Corporation is owned equally by Sandy, her husband Tom, her daughter Caitlin, and her grandmother, Martha. Each shareholder owns 200 shares in the company. Under the family attribution rules, how many shares of Horned Frog stock is Sandy deemed to own? |
| | A) | 200 |
| | B) | 400 |
| | C) | 600 |
| | D) | 800 |
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