Question

Question 8 (2 points) X Corporation has book income before taxes of $600,000 and you are provided with the following information for the year: • Included dividends from a 20% owned Sub $100,000 • Tax Exempt Municipal Interest $160,000 • Depreciation: Per Books $100,000 Tax $200,000 Compute Taxable income for the year.

Answer 1

Question 8

Particulars	Amount
Book Income before taxes	$600,000
Add Depreciation per books	$100,000
Less Tax Exempt Municipal Interest	$160,000
Less Depreciation per tax	$200,000
Less Dividend received deduction (50% of $100,000)	$50,000
Taxable Income	$290,000

Question 10

Z Corporation's taxable income = $ 2,000,000

Tax rate for corporation = 21%

Z corporation's tax liability before any credits = $2,000,000 * 21% = $420,000

Question 17

When a corporation distributes an appreciated property to its shareholders, the corporation must first record the asset at Fair Market Value and recognize any gain on the same.

The asset is transferred to shareholder at the fair market value.

Any distribution by a C corp to its shareholder to the extent of sum of accumulated Earnings & profit and current earnings & profit is treated as dividend and any distribution in excess of the same is treated as return of capital.

In the given question,

Basis of the land in the hands of corporation is = $4000

Fair Market Value of the land = $ 20,000

The corporation should recognize the gain of $16,000 ( $20,000 - $4000) and distribute the same to shareholder at the fair market value.

Thus distribution in the hand of the shareholder = $20,000

However the accumulated E& P of the corporation is $12000.

Thus to the extent of $12000 distribution shall be treated as dividend in the hands of shareholder T and in excess of that i.e $8000 shall be return of capital.

Question 18

As Discussed in the previous question, the distribution of land to the shareholder would be at fair market value and thus shareholder T's basis on the land would also be fair market value = $20,000