Solved by verified expert :88. CHAPTER
2—CORPORATIONS: INTRODUCTION AND OPERATING RULES Quest14
As a general rule, a personal service corporation (PSC) must use a calendar
year as its accounting period.
a.
True
b. False
89. CHAPTER
2—CORPORATIONS: INTRODUCTION AND OPERATING RULES Quest15
A calendar year C corporation with average annual gross receipts of $5 million
or less must use the cash method of accounting.
a.
True
b. False
90. CHAPTER
2—CORPORATIONS: INTRODUCTION AND OPERATING RULES Quest16
On December 31, 2011, Lavender, Inc., an accrual basis C corporation, accrues a
$90,000 bonus to Barry, its vice president and a 70% shareholder. Lavender pays
the bonus to Barry, who is a cash basis taxpayer, on March 15, 2012. Lavender
can deduct the bonus in 2012, the year in which it is included in Barry’s gross
income.
a.
True
b. False
91. CHAPTER
2—CORPORATIONS: INTRODUCTION AND OPERATING RULES Quest17
Unlike individual taxpayers, corporate taxpayers do not receive a preferential
tax rate with respect to long-term capital gains.
a.
True
b. False
92. CHAPTER
2—CORPORATIONS: INTRODUCTION AND OPERATING RULES Quest18
Albatross, a C corporation, had $125,000 net income from operations and a
$10,000 short-term capital loss in 2011. Albatross Corporation’s taxable income
is $115,000.
a.
True
b. False
93. CHAPTER
2—CORPORATIONS: INTRODUCTION AND OPERATING RULES Quest19
Owl Corporation, a C corporation, recognizes a gain on the sale of a § 1250
asset in the current year. Owl had used the straight-line method for
depreciating the realty. Some of Owl’s gain on the sale of the realty will be
treated as depreciation recapture (ordinary income).
a.
True
b. False
94. CHAPTER
2—CORPORATIONS: INTRODUCTION AND OPERATING RULES Quest20
The passive loss rules apply to closely held C corporations and to personal
service corporations but not to S corporations.
a.
True
b. False
95. CHAPTER
2—CORPORATIONS: INTRODUCTION AND OPERATING RULES Quest21
Peach Corporation had $210,000 of active income, $45,000 of portfolio income,
and a $230,000 passive loss during the year. If Peach is a closely held C
corporation that is not a PSC, it can deduct $230,000 of the passive loss in
the year.
a.
True
b. False
96. CHAPTER
2—CORPORATIONS: INTRODUCTION AND OPERATING RULES Quest22
On December 20, 2011, the directors of Quail Corporation (an accrual basis,
calendar year taxpayer) authorized a cash donation of $5,000 to the American
Cancer Society, a qualified charity. The payment, which is made on March 15,
2012, may be claimed as a deduction for tax year 2011.
a.
True
b. False
97. CHAPTER
2—CORPORATIONS: INTRODUCTION AND OPERATING RULES Quest23
In the current year, Oriole Corporation donated a painting worth $75,000 to the
Texas Art Museum, a qualified public charity. The museum included the painting
in its permanent collection. Oriole Corporation purchased the painting 5 years
ago for $25,000. Oriole’s charitable contribution deduction is $25,000
(ignoring the taxable income limitation).
a.
True
b. False
