ACC 455 Apply: Week 3 Application Assignment

Review the Week 3 Knowledge Check in preparation for this assignment.

Complete the Week 3 Application Assignment in McGraw-Hill Connect.

Crocker and Company (CC) is a C corporation. For the year, CC reported taxable income of  $563,500. At the end of the year, CC distributed all its after-tax earnings to Jimmy, the company’s sole shareholder. Jimmy’s marginal ordinary tax rate is 37 percent and his marginal tax rate on dividends is 23.8 percent, including the net investment income tax. What is the overall tax rate on Crocker and Company’s pre-tax income?

Multiple Choice

18.8%.

23.8%.

21.0%.

39.8%.

66.7%.

).

Logan, a 50 percent shareholder in Military Gear Inc. (MG), is comparing the tax consequences of losses from C corporations with losses from S corporations. Assume MG has a $103,000 tax loss for the year, Logan’s tax basis in his MG stock was $151,500 at the beginning of the year, and he received $76,500 ordinary income from other sources during the year. Assuming Logan’s marginal tax rate is 24%, how much more tax will Logan pay currently if MG is a C corporation compared to the tax he would pay if it were an S corporation?

Multiple Choice

$0.

6,000

12,360

18,360

Roberto and Reagan are both 25 percent owner/managers for Bright Light Inc. Roberto runs the retail store in Sacramento, CA, and Reagan runs the retail store in San Francisco, CA. Bright Light Inc. generated a $125,350 profit companywide made up of a $75,100 profit from the Sacramento store, a ($25,250) loss from the San Francisco store, and a combined $75,500 profit from the remaining stores. If Bright Light Inc. is an S corporation, how much income will be allocated to Roberto?

Multiple Choice

$31,337.50.

$62,675.00.

$75,100.00.

$125,350.00.

Roberto and Reagan are both 25 percent owner/managers for Bright Light Enterprises. Roberto runs the retail store in Sacramento, CA, and Reagan runs the retail store in San Francisco, CA. Bright Light generated a $130,600 profit companywide made up of a $76,600 profit from the Sacramento store, a ($29,000) loss from the San Francisco store, and a combined $83,000 profit from the remaining stores. If Bright Light is taxed as a partnership and decides that Roberto and Reagan will be allocated 70 percent of his own store’s profit with the remaining profits allocated pro rata among all the owners, how much income will be allocated to Reagan?

Multiple Choice

($25,280.00).

Because Bright Lights Enterprises is a partnership, the special allocation described is permissible. Reagan would receive 70 percent of the loss from his store, or ($20,300) ($29,000 × 70 percent). Additionally, Reagan will receive 25 percent of the remaining profits not specially allocated, or $24,320.00 [0.25 × ($130,600 + $20,300 − ($76,600 × 0.70))] Thus, Reagan will be allocated a total of $4,020.00 of income.

WFO Corporation has gross receipts according to the following schedule:

Year 1     $22.90 million

Year 2     $25.80 million

Year 3     $26.60 million

Year 4     $27.60 million

Year 5     $28.10 million

Year 6     $29.10 million

________________________________________

If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?

Multiple Choice

Year 3.

Year 6.

Year 5.

Year 4.

None of the choices are correct.

Coop Inc. owns 42% of Chicken Inc., both Coop and Chicken are corporations. Chicken pays Coop a dividend of $29,000 in the current year. Chicken also reports financial accounting earnings of $39,000 for that year. Assume Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction)?

Multiple Choice

$12,620 unfavorable.

$12,620 favorable.

$29,000 unfavorable.

$29,000 favorable.

None of the choices are correct.

Orange Inc. issued 29,000 nonqualified stock options valued at $58,000 (in total). The options vest over two years—half in 2018 (the year of issue) and half in 2019. One thousand options are exercised in 2019 with a bargain element on each option of $8. What is the 2019 book-tax difference associated with the stock options?

Multiple Choice

$21,000 unfavorable.

$21,000 favorable.

$29,000 unfavorable.

$29,000 favorable.

None of the choices are correct.

In January 2017, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company did not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $52,750. In December of 2018, the company experienced a surge in its stock price, and Ms. Svaro exercised the options. The total bargain element at the time of exercise was $65,500. For 2018, what is the book-tax difference due to the options exercised?

Multiple Choice

$12,750 unfavorable.

$12,750 favorable.

$52,750 unfavorable.

$65,500 favorable.

Studios reported a net capital loss of $32,000 in year 5. It reported net capital gains of $18,000 in year 4 and $31,000 in year 6. What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover?

Multiple Choice

$17,000 unfavorable.

$17,000 favorable.

$14,000 unfavorable.

$14,000 favorable.

Tatoo Inc. reported a net capital loss of $13,400 in 2018. The company had a net capital gain of $4,700 in 2016 and $3,400 in 2015. In 2017, although the company suffered a net operating loss, it had net capital gains of $1,400. What is the amount of Tatoo’s capital loss carryover remaining after it applies the carryback?

Multiple Choice

$5,300.

$8,700.

$13,400.

$3,900.

Remsco has taxable income of $68,000 and a charitable contribution limit modified taxable income of $76,000. Its charitable contributions for the year were $7,820. What is Remsco’s current-year charitable contribution deduction and contribution carryover?

Multiple Choice

$6,800 current-year deduction; $1,020 carryover.

$7,820 current-year deduction; $0 carryover.

$800 current-year deduction; $7,020 carryover.

$7,600 current-year deduction; $220 carryover.

Jazz Corporation owns 50% of the Williams Corp. stock. Williams distributed a $19,000 dividend to Jazz Corporation. Jazz Corp.’s taxable income before the dividend was $100,900. What is the amount of Jazz’s dividends received deduction on the dividend it received from Williams Corp.?

Multiple Choice

$0.

$9,500.

$12,350.

$19,000.

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $13,000 dividend to Jazz Corporation. Jazz Corp.’s taxable income (loss) before the dividend was ($2,300). What is the amount of Jazz’s dividends received deduction on the dividend it received from Williams Corp.?

Multiple Choice

$0.

$5,350.

$6,500.

$8,975.

None of the choices is correct.

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $11,700 dividend to Jazz Corporation. Jazz Corp.’s taxable income (loss) before the dividend was ($6,800). What is the amount of Jazz’s dividends received deduction on the dividend it received from Williams Corp.?

Multiple Choice

$0.

$2,450.

$4,900.

$5,850.

None of the choices is correct.

XPO Corporation has a minimum tax credit of $55,900 from 2017. XPO’s tax liability before any MTC carryover is $32,000. What is XPO’s minimum tax credit carryover to 2019, if any?

Multiple Choice

$55,900.

$23,900.

$11,950.

$0.