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Taxation of Business Entities 5th Edition Spilker Test Bank
Taxation of Business Entities 5th Edition Spilker Test Bank
1. The "double taxation" of corporate income refers to the taxation of corporate income at both
the entity-level and the shareholder-level.
True False
2. A distribution from a corporation to a shareholder will always be treated as a dividend for tax
purposes.
True False
3. A corporation's "earnings and profits" account is equal to the company's "retained earnings"
account on its balance sheet.
True False
4. A distribution from a corporation to a shareholder will only be treated as a dividend for tax
purposes if the distribution is paid out of current or accumulated earnings and profits.
True False
7-1
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
5. Green Corporation has current earnings and profits of $100,000 and negative accumulated
earnings and profits of ($200,000). A $50,000 distribution from Green to its sole shareholder
will not be treated as a dividend because total earnings and profits is a negative $100,000.
True False
6. Green Corporation has negative current earnings and profits of ($100,000) and positive
accumulated earnings and profits of $200,000. A $50,000 distribution from Green to its sole
shareholder will be treated as a dividend because total earnings and profits is a positive
$100,000.
True False
7. The term "earnings and profits" is well defined in the Internal Revenue Code.
True False
8. Only income and deductions included on a corporation's income tax return are included in the
computation of current earnings and profits.
True False
9. Cedar Corporation incurs a net capital loss of $20,000 in 20X3 that cannot be deducted on its
income tax return but must be carried forward to 20X4. Cedar will deduct the net capital loss
in the computation of current earnings and profits for 20X3.
True False
10. Terrapin Corporation incurs federal income taxes of $250,000 in 20X3. Terrapin deducts the
federal income taxes in computing its current earnings and profits for 20X3.
True False
7-2
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
11. Evergreen Corporation distributes land with a fair market value of $200,000 to its sole
shareholder. Evergreen's tax basis in the land is $50,000. Assuming sufficient earnings and
profits, the amount of dividend reported by the shareholder is $200,000.
True False
12. Evergreen Corporation distributes land with a fair market value of $200,000 to its sole
shareholder. Evergreen's tax basis in the land is $50,000. Evergreen will report a gain of
$150,000 on the distribution regardless of whether its earnings and profits are positive or
negative.
True False
13. Evergreen Corporation distributes land with a fair market value of $50,000 to its sole
shareholder. Evergreen's tax basis in the land is $200,000. Evergreen will report a loss of
$150,000 on the distribution regardless of whether its earnings and profits are positive or
negative.
True False
True False
15. Unreasonable compensation issues are more likely to arise in audits of privately held
corporations rather than publicly traded corporations.
True False
7-3
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
16. Stock dividends are always tax-free to the recipient.
True False
17. The recipient of a tax-free stock dividend will have a zero tax basis in the stock.
True False
18. The recipient of a taxable stock dividend will have a tax basis in the stock equal to the fair
market value of the stock received.
True False
19. A stock redemption is always treated as a sale or exchange for tax purposes.
True False
20. Tammy owns 60 percent of the stock of Huron Corporation. Unrelated individuals own the
remaining 40 percent. For a stock redemption to be treated as an exchange under the
"substantially disproportionate" rule, Tammy must reduce her stock ownership to below 48
percent.
True False
21. Brothers and sisters are considered "family" under the stock attribution rules that apply to
stock redemptions.
True False
7-4
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
22. Diego owns 30 percent of Azul Corporation. Azul Corporation owns 50 percent of Verde
Corporation. Under the attribution rules applying to stock redemptions, Diego is treated as
owning 15 percent of Verde Corporation.
True False
23. The "family attribution" rules are automatically waived in a complete redemption of a
shareholder's stock.
True False
24. Battle Corporation redeems 20 percent of its stock for $100,000 in a stock redemption that is
treated as an exchange by the shareholders. Battle's E&P at the date of the redemption is
$200,000. Battle will reduce its earnings and profits by $100,000 because of the redemption.
True False
True False
7-5
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
26. Which statement best describes the concept of the "double taxation" of corporation income?
A. Corporate income is subject to two levels of taxation: the regular tax and the alternative
minimum tax.
B. Corporate income is taxed twice at the corporate level: first when earned and then a
second time if appreciated property is distributed to a shareholder.
C. Corporate income is taxed when earned by a C corporation and then a second time at the
shareholder level when distributed as a dividend.
D. Corporate income is subject to two levels of taxation: at the federal level and a second
time at the state level.
27. Which of the following forms of earnings distributions would not be subject to double
taxation at the corporate and shareholder level?
A. Dividend
B. Stock redemption
C. Partial liquidation
7-6
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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It was some moments before Polly could speak, then the words came in
gasps.
"What?"
"Yes; yes, she's dead; and the moon is shining on 'em both."
Gwen appalled at the news, opened the door and looked in. But what she saw
was so wonderful and beautiful that all horror subsided. Rachel was kneeling
by the bed on which Luke lay, her cheek resting on his dead hand and a smile
of rapture on her face. The moonlight was streaming into the room from the
open window on to the faces of husband and wife. Once more they were
together in its pathway as they had been on that evening on the sea at
Southwold, but now they were unconscious of it, as they were together in the
city that has no need of the sun neither the moon to shine in it, for the glory of
God did lighten it and the Lamb is the Light thereof.
When the villagers heard that Rachel had died of heart failure on the same
day as her husband they mourned and wept. So young, they said, to die! Two
valuable lives given for the sake of a poor sick baby of a drunken woman!
What a waste of life!
But the Bishop, who came to preach the funeral sermon, said, "It was one of
the most beautiful things of which he had ever heard, and he felt that instead
of mourning and weeping, there should be flowers and singing. Two happy
saints treading together the streets of gold! No long parting! No farewells! The
Rector," he told the people, "could hardly have had time to reach the gates of
Heaven before he was joined by his wife. What could be more joyful for them!"
"But," he added, and with evident emotion, "when we look at it from our own
point of view, we cannot help tears. Did not our blessed Lord weep at the
tomb of Lazarus? It is not wrong to weep; but in thinking of our loss, we must
not forget their gain; for they were lovely and pleasant in their lives and in their
death they were not divided!"
THE END.
*** END OF THE PROJECT GUTENBERG EBOOK LUKE'S WIFE
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