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.

Gold Corp.

White Corp.

Income from Operations $600,000 $1,000,000 $710,000 Expenses from Operations ($450,000) ($1,200,000) ($750,000) Qualifying Dividends $200,000 $420,000 $200,000

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.

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?

Expenses of temporary directors and of organizational meetings $ 9,000 Fee paid to state for incorporation $ 8,000 Accounting services incident to organization $ 15,000 Legal services for drafting the corporate charter $ 20,000 Expenses incident to the printing and sale of stock certificates $ 10,000

4. The following information for 2009 relates to Spruce Corporation, a calendar

year, accrual basis taxpayer. You are to determine the amount of Spruce’s 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) $350,000 Federal Income tax expense per books $115,000 Interest income from tax-exempt bonds $10,000 Depreciation per books $25,000 Depreciation per MACRS $100,000 Premium paid on life insurance for president of corporation $10,000 Excess capital losses over capital gain $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 $1,100,000 U.S. Treasury Bill Interest 20,000Dividends Received (from 40% owned Domestic Corp.) 250,000Long-Term Capital Gain 35,000Short-Term Capital Loss 22,000Prepaid Interest Income (will be earned throughout 2010) 50,000Salary Expense 460,000Net Increase to Allowance for Bad Debts for the year 5,000Bad Debt-Write-Offs 20,000MACRS Depreciation Expense 95,000Straight-Line Depreciation (for Book purposes) 30,000Charitable Contributions to Red Cross 80,000Key Man Life-Insurance Premiums 12,000Other Deductible Expenses 70,000 Required: a) How much is Grover’s taxable income? b) How much is Grover’s 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.)