Question 1. On December 31, 2014, Lavender, Inc., an accrual basis C co

1. On December 31, 2014, Lavender, Inc., an accrual basis C corporation, accrues a $50,000 bonus to Barry, its vice president and a 40% shareholder. Lavender pays the bonus to Barry, who is a cash basis taxpayer, on March 13, 2015. Lavender can deduct the bonus in 2015, the year in which it is included in Barry’s gross income.

a. True

b. False

2. Azure Corporation, a C corporation, had a long-term capital gain of $50,000 in the current year. The maximum amount of tax applicable to the capital gain is $7,500 ($50,000 × 15%).

a. True

b. False

3. Albatross, a C corporation, had $140,000 net income from operations and a $25,000 short-term capital loss in the current year. Albatross Corporation’s taxable income is $140,000.

a. True

b. False

4. If a C corporation uses straight­line depreciation on real estate (§ 1250 property), no portion of a gain on the sale of the property will be recaptured as ordinary income.

a. True

b. False

5. The passive loss rules apply to closely held C corporations and to personal service corporations but not to S corporations.

a. True

b. False

6. Peach Corporation had $210,000 of active income, $45,000 of portfolio income, and a $230,000 passive loss during the current year. If Peach is a closely held C corporation that is not a PSC, it can deduct $210,000 of the passive loss in the year.

a. True

b. False

7. On December 19, 2014, the directors of Quail Corporation (an accrual basis, calendar year taxpayer) authorized a cash donation of $5,000 to the American Cancer Society, a qualified charity. The payment, which is made on April 10, 2015, may be claimed as a deduction for tax year 2014.

a. True

b. False

8. In the current year, Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum, a qualified public charity. The museum included the painting in its permanent collection. Oriole Corporation purchased the painting 5 years ago for $10,000. Oriole’s charitable contribution deduction is $30,000 (ignoring the taxable income limitation).

a. True

b. False

9. Crow Corporation, a C corporation, donated scientific property (basis of $30,000, fair market value of $50,000) to State University, a qualified charitable organization, to be used in research. Crow had held the property for four months as inventory. Crow Corporation may deduct $50,000 for the charitable contribution (ignoring the taxable income limitation).

a. True

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