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Computational Exercises 17-18
Chapter 17
Computational Exercises
21. LO.2 Goose Corporation, a C corporation, incurs a net capital loss of $12,000 for
2016. It also has ordinary income of $10,000 in 2016. Goose had net capital gains of $2,500 in 2012 and $5,000 in 2015.
a. Determine the amount, if any, of the net capital loss of $12,000 that is deductible in 2016.
b. Determine the amount, if any, of the net capital loss of $12,000 that is carried forward to 2017.
22. LO.2 Aqua Corporation purchases nonresidential real property on May 9, 2013, for $1 million. Straight-line cost recovery is taken in the amount of $89,765 before the property is sold on November 30, 2016, for $1.5 million.
a. Compute the amount of Aqua’s recognized gain on the sale of the realty.
b. Determine the amount of the recognized gain that is treated as § 1231 gain and the amount that is treated as § 1250 recapture (ordinary income).
23. LO.2 Hummingbird Corporation, a closely held C corporation that is not a PSC, has $40,000 of net active income, $15,000 of portfolio income, and a $45,000 loss from a passive activity. Compute Hummingbird’s taxable income for the year.
24. LO.2 Compute the charitable contribution deduction (ignoring the percentage limitation) for each of the following C corporations.
a. Amber Corporation donated inventory of clothing (basis of $24,000, fair market value of $30,000) to a qualified charitable organization that operates homeless shelters.
b. Brass Corporation donated stock held as an investment to Western College (a qualified organization). Brass acquired the stock three years ago for $18,000, and the fair market value on the date of the contribution is $32,000. Western
College plans on selling the stock.
c. Ruby Corporation donates a sculpture held as an investment and worth $130,000 to a local museum (a qualified organization), which exhibits the sculpture.
Ruby acquired the sculpture four years ago for $55,000.
25. LO.3 Crane and Loon Corporations, two unrelated C corporations, have the following transactions for the current year:
Crane Loon
Gross income from operations $180,000 $300,000
Expenses from operations 255,000 310,000
Dividends received from domestic corporations (15% ownership) 100,000 230,000
a. Compute the dividends received deduction for Crane Corporation.
b. Compute the dividends received deduction for Loon Corporation.
26. LO.3 Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1, 2016. In connection with its formation, Cherry incurs organizational expenditures of $54,000. Determine Cherry Corporation’s deduction for organizational expenditures for 2016.
27. LO.4 Compute the income tax liability for each of the following unrelated C corporations.
a. Darter Corporation has taxable income of $68,000.
b. Owl Corporation has taxable income of $10,800,000.
c. Toucan Corporation, a personal service corporation, has taxable income of $170,000.
28. LO.7 Prance, Inc., earns pretax book net income of $800,000 in 2016. Prance acquires a depreciable asset that year, and first-year tax depreciation exceeds book depreciation by $80,000. Prance reported no other temporary or permanent book-tax differences. Assuming that the relevant U.S. tax rate is 35%, compute
Prance’s total income tax expense, current income tax expense, and deferred income tax expense.
29. LO.7 Using the facts of Problem 28, determine the 2016 end-of-year balance in
Prance’s deferred tax asset and deferred tax liability balance sheet accounts.
Chapter 18
Computational Exercises
19. LO.1 Marie and Ethan form Roundtree Corporation with the transfer of the following.
Marie performs personal services for the corporation with a fair market value of $80,000 in exchange for 400 shares of stock. Ethan contributes an installment note receivable (basis $25,000; fair market value $30,000), land (basis $50,000; fair market value $170,000), and inventory (basis $100,000; fair market value $120,000) in exchange for 1,600 shares. Determine Marie and Ethan’s current income, gain, or loss; calculate the basis that each takes in the Roundtree stock.
20. LO.1 Grady exchanges qualified property, basis of $12,000 and fair market value of $18,000, for 60% of the stock of Eadie Corporation. The other 40% of the stock is owned by Pedro, who acquired it five years ago. Calculate Grady’s current income, gain, or loss and the basis he takes in his shares of Eadie stock as a result of this transaction.
21. LO.2 Jocelyn contributes land with a basis of $60,000 and fair market value of $90,000 and inventory with a basis of $5,000 and fair market value of $8,000 in exchange for 100% of Zion Corporation stock. The land is subject to a $15,000 mortgage. Determine Jocelyn’s recognized gain or loss and the basis in the Zion stock received.
22. LO.2 Martin transfers real estate with an adjusted basis of $260,000 and fair market value of $350,000 to a newly formed corporation in exchange for 100% of the stock. The corporation assumes the liability on the transferred real estate in the amount of $300,000. Determine Martin’s recognized gain on the transfer and the basis for his stock.
23. LO.3 Yvonne and Simon form Ion Corporation. Yvonne transfers equipment (basis of $110,000 and fair market value of $165,000). Simon invests $130,000 of cash. They each receive 100 shares in Ion Corporation, worth $130,000, but Yvonne also receives $35,000 in cash from Ion. Calculate Ion Corporation’s basis in the equipment. In addition, determine Yvonne and Simon’s basis in the Ion stock.
24. LO.5 Chaz transfers cash of $60,000 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has net income of $15,000. The income is credited to its earnings and profits account. The corporation distributes $5,000 to Chaz.
a. How do Chaz and the corporation treat the $5,000 distribution?
b. Assume, instead, that Chaz transfers to the corporation cash of $30,000 for stock and cash of $30,000 for a note of the same amount. The note is payable in equal annual installments of $3,000 each (beginning at the end of the corporation’s initial year of operations) and bears interest at the rate of 6%. At the end of the year, the corporation pays an amount to meet this obligation.
Determine the total amount of the payment and its tax treatment to Chaz and the corporation.
25. LO.6 Several years ago, Lowell, who is single, acquired § 1244 stock in Blue Corporation at a cost of $60,000. He sells the Blue stock for $5,000 in the current year. Determine the amount and nature of Lowell’s gain or loss recognized this year.