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Tax 4001 Schmitt Spring 2010 Homework Set #8

DUE DATE: Monday, June 14, 2010, at 10:00 a.m.


1. Cye is the sole owner of Sports World Enterprises. The company earned net operating income of $140,000 during 2009 and had a LTCL of $20,000. He withdrew $20,000 of the profit from Sports World during the year. How should he report this information if Sports World is: a. A sole proprietorship? b. A C-Corp? c. An S-Corp? 2. In each of the following independent situation, determine the dividends received deduction. Assume that none of the corporate shareholders owns a 20% or more of the stock in the corporations paying dividends.
Black Corp. $600,000 ($450,000) $200,000 Gold Corp. $1,000,000 ($1,200,000) $420,000 White Corp. $710,000 ($750,000) $200,000

Income from Operations Expenses from Operations Qualifying Dividends

3. Harper Corporation, an accrual basis taxpayer, was formed and began operations on June 1, 2009. The following expenses were incurred during the first tax year (June 1 to December 31, 2009) of operations.
Expenses of temporary directors and of organizational meetings Fee paid to state for incorporation Accounting services incident to organization Legal services for drafting the corporate charter Expenses incident to the printing and sale of stock certificates $ $ $ $ $ 9,000 8,000 15,000 20,000 10,000

Assume that Harper Corp. does not forgo the deemed election under 248. What is the maximum amount of organizational expenses Harper may write off for tax year 2009?

4. The following information for 2009 relates to Spruce Corporation, a calendar year, accrual basis taxpayer. You are to determine the amount of Spruces taxable income for the year using this information. You may use Schedule M-1, which is included as part of the Form 1120 (available on my website on the Tax Links page).
Net Income per books (after tax) Federal Income tax expense per books Interest income from tax-exempt bonds Depreciation per books Depreciation per MACRS Premium paid on life insurance for president of corporation Excess capital losses over capital gain $350,000 $115,000 $10,000 $25,000 $100,000 $10,000 $15,000

5. Grover Corporation, an accrual basis C Corp, reported the following items of income and expense for 2009 (assume they are NOT eligible for the manufacturer's deduction): Gross Profit U.S. Treasury Bill Interest Dividends Received (from 40% owned Domestic Corp.) Long-Term Capital Gain Short-Term Capital Loss Prepaid Interest Income (will be earned throughout 2010) Salary Expense Net Increase to Allowance for Bad Debts for the year Bad Debt-Write-Offs MACRS Depreciation Expense Straight-Line Depreciation (for Book purposes) Charitable Contributions to Red Cross Key Man Life-Insurance Premiums Other Deductible Expenses $1,100,000 20,000 250,000 35,000 22,000 50,000 460,000 5,000 20,000 95,000 30,000 80,000 12,000 70,000

Required: a) How much is Grovers taxable income? b) How much is Grovers before-tax book income? c) How much is Grover's tax liability for 2009 (ignoring estimated payments)? d) Does Grover have any carry-overs to other tax years? e) Use Schedule M-1 to reconcile book income to taxable income. (HINT 1: M-1 ends with taxable income BEFORE the dividends received deduction.) (HINT 2: Assume that income tax expense per books = tax liability computed based on taxable income.)