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Andrew Long Professor William Kaiser Accounting 634 23 September 2013 36.

Torsten owns 100% of Taupe Corporation, which had net operating income of $420,000 and longterm capital gain of $30,000 in 2013. Torsten has sufficient income from other sources to be in the 39.6% marginal tax bracket without regard to the results of Taupe Corporation. The corporation makes no distributions to Torsten during the year. Explain the tax treatment if Taupe Corporation is: a. An S corporation. The $420,000 net operating income is taxed at 39.6% on Torstens personal tax return. The $30,000 long-term capital gain is taxed at 15% on a K-1, which flows through to Torstens personal tax return. b. A C corporation. The $450,000 of combined net operating income and long-term capital gain is taxed at a corporate tax rate on Taupes corporate tax return. 42. Jonathan owns 100% of Lemon Company. In 2013, Lemon recognizes a long-term capital gain of $70,000 and no other income (or loss). Jonathan is in the 33% tax bracket and has no recognized capital gains (or losses) before considering his ownership interest in Lemon Company. What is the income tax result from the $70,000 if Lemon is: a. An LLC? (No election has been filed under the check-the-box Regulations.) The $70,000 longterm capital gain is taxed at 15% on a K-1, which flows through to Jonathans personal tax return. b. A C corporation? The $70,000 long-term capital gain is taxed at a corporate tax rate on Lemons corporate tax return. 48. Aquamarine Corporation, a calendar year C corporation, makes the following donations to qualified charitable organizations during the current year: Adjusted Basis Fair Market Value Painting held four years as an investment, to a church, which sold it immediately $15,000 $25,000 Apple stock held two years as an investment, to United Way, which sold it immediately 40,000 90,000 Canned groceries held one month as inventory, to Catholic Meals for the Poor 10,000 17,000 Determine the amount of Aquamarine Corporations charitable deduction for the current year. (Ignore the taxable income limitation.) The painting is deducted for $15,000, its adjusted basis. Likewise, the Apple stock is deducted for $40,000. The canned groceries are deducted for $15,000, their adjusted basis plus 50%. 52. White Corporation, a calendar year C corporation, manufactures plumbing fixtures. For the current year, White has taxable income [before the domestic production activities deduction (DPAD)] of $900,000, qualified production activities income (QPAI) of $1.2 million, and W-2 wages attributable to QPAI of $200,000. a. How much is White Corporations DPAD? The DPAD is $81,000, 9% of the lesser of taxable income ($900,000) or QPAI ($1,200,000). b. Assume instead that W-2 wages attributable to QPAI are $150,000. How much is Whites DPAD? The DPAD is $75,000, 50% of the wages attributable to QPAI.

54. In each of the following independent situations, determine the dividends received deduction. Assume that none of the corporate shareholders owns 20% or more of the stock in the corporations paying the dividends. Almond Corporation Blond Corporation Cherry Corporation Income from operations $700,000 $800,000 $900,000 Expenses from operations (600,000) (850,000) (910,000) Qualifying dividends 100,000 100,000 100,000 The dividends received deduction for Almond Corporation is $70,000, 70% of the qualifying dividends. Likewise, the dividends received deduction for both Blond and Cherry Corporation is $70,000. 60. Emerald Corporation, a calendar year and accrual method taxpayer, provides the following information and asks you to prepare Schedule M-1 for 2013: Net income per books (after-tax) $257,950 Federal income tax per books 41,750 Tax-exempt interest income 15,000 Life insurance proceeds received as a result of death of corporate president 150,000 Interest on loan to purchase tax-exempt bonds 1,500 Excess of capital loss over capital gains 6,000 Premiums paid on life insurance policy on life of Emeralds president 7,800 Schedule M-1 Reconciliation of Income (Loss) per Books With Income per Return Net income (loss) per books 257,950 Federal income tax per books 41,750 Excess of capital losses over capital gains 6,000 Interest on loan 1,500 Premiums paid 7,800 Tax-exempt interest income (15,000) Life insurance proceeds (150,000) Income 150,000 62. Dove Corporation, a calendar year C corporation, had the following information for 2013: Net income per books (after-tax) $386,250 Taxable income 120,000 Federal income tax per books 30,050 Cash dividend distributions 150,000 Unappropriated retained earnings, as of January 1, 2013 796,010 Based on the above information, use Schedule M-2 of Form 1120 (see example 36 in the text) to determine Doves unappropriated retained earnings balance as of December 31, 2013. Schedule M-2 Analysis of Unappropriated Retained Earnings per Books Balance at beginning of year 796,010 Net income (loss) per books 386,250 Distributions: Cash (150,000) Balance at end of year 1,032,260

64. In the current year, Pelican, Inc., incurs $50,000 of nondeductible fines and penalties. Its depreciation expense is $245,000 for financial statement purposes and $310,000 for tax purposes. How is this information reported on Schedule M-3? Fines and penalties are located in Part III of Schedule M-3. Likewise, depreciation expense is located in Part III.