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Q 16 Identify which of the following statements is true. A corporation can be subject to...

Q 16 Identify which of the following statements is true.

A corporation can be subject to both the accumulated earnings tax and the personal holding company tax in the same year.

The accumulated earnings tax is applied to a corporation's earnings. If the earnings are not subsequently distributed, the earnings will be taxed again under the accumulated earnings tax the next year.

The accumulated earnings tax is not levied on the corporation's total accumulated earnings balance, but only on its current-year addition to the balance.

All of the above are false.
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Answer #1

Answer

c.The accumulated earnings tax is not levied...addition to the balance.

Explanation:

The accumulated earnings tax is no calculated on the total balance of reserves or accumulated earnings. Instead, it is calculated on the earnings which are added to the reserves.

For example, if a company had opening accumulated reserves of $ 10,000,000 and it added $ 5,000,000 to its accumulated earnings., it will have $ 15,000,000 in its accumulated reserves. But taxes will be calculated only on $ 5,000,000. This is because taxes on $ 10,000,0000 were already levied in previous years.

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