TAXATION OF BUSINESS ENTITIES CHAPTER 3 QUESTIONS WITH VERIFIED ANSWERS 2024

TAXATION OF BUSINESS ENTITIES
CHAPTER 3 QUESTIONS WITH
VERIFIED ANSWERS 2024
BooneHInc.HsoldHequipmentHforH$110,000.HTheHequipmentHcostH$100,000HseveralHyearsHago.HDepreciation
HdeductionsHofH$70,000HwereHtakenHonHthisHequipmentHpriorHtoHtheHsale.HChooseHtheHbestHanswerHwithHr

espectHtoHthisHtransaction.

a.H$70,000HordinaryHincome;H$10,000HSec.H1231Hgain.

b.H$80,000HordinaryHincome

c.H$70,000HunrecapturedHSec.H1250HgainHtaxedHatH25%HandH$10,000HSec.H1231Hgain.

d.H$10,000HlongHtermHcapitalHgain.e.H$30,000HordinaryHincome;H$50,000HSectionH1231Hgain.H-
HcorrectHanswer-a.H$70,000HordinaryHincome;H$10,000HSec.H1231Hgain.




OnHDecemberH31,HofHtheHcurrentHyear,HFlashHInc.H,HaHcalendarHyear,HaccrualHbasisHCHcorporation,HaccruesH
aHsalaryHofH$5,000HtoHitsHpresidentH(aHcashHbasisHtaxpayer),HwhoHownsH55%HofHtheHcorporation'sHoutstand
ingHstock.HTheHpresidentHperformedHtheHservicesHforHwhichHtheHpaymentHisHbeingHaccruedHduringHtheHcur
rentHyear.HTheHcorporationHmayHdeductHwhatHamountHonHitsHcurrentHyearHincomeHtaxHreturn?

a.H$5,000

b.H$2,500

c.H$0

d.H$2,750H-HcorrectHanswer-c.H$0



DoeHcorporationHmakesHandHsellsHscientificHequipmentHusedHbyHmedical,HbiologicalHandHchemicalHresearc
hHfirms.HDoeHdonatedHscientificHequipmentH(sellingHprice)H$50,000HtoHAppalachianHStateHUniversityHtoHbeH
usedHforHfacultyHandHstudentHresearch.HDoe'sHinventoryHcostHbasisHisH$30,000.HDoeHmayHdeductHwhatHam
ountHasHaHcharitableHcontribution,HignoringHanyHtaxableHincomeHlimit?

a.H$50,000

b.H$40,000

c.H$30,000

d.H$0H-HcorrectHanswer-b.H$40,000



HawkHCorporationHhadH$160,000HnetHincomeHfromHoperationsHandHaH$10,000Hshort-
termHcapitalHloss.HHawkHCorporation'sHtaxableHincomeHisH$150,000.

, a.HTrue

b.HFalseH-HcorrectHanswer-b.HFalse



OrioleHCorporationHdonatesHpaintingHworthH$300,000HtoHtheHPittsburghHArtHMuseum,HaHqualifiedHpublicHc
harity.HOrioleHwasHholdingHthisHpaintingHforHinvestmentHpurposesHasHwellHasHdecorationHinHtheHCEO'sHoffic
e.HTheHmuseumHplacesHtheHpaintingHonHdisplayHinHitsHmodernistHsection.OrioleHCorporationHpurchasedHth
eHpaintingHeightHyearsHagoHforH$85,000.HOriole'sHcharitableHcontributionHdeductionHisH$300,000H(ignoringH
anyHtaxableHincomeHlimitation).

a.HTrue

b.HFalseH-HcorrectHanswer-a.HTrue



AHcorporationHpaysH$3,000HofHlifeHinsuranceHpremiumsHduringHtheHcurrentHyearHforHcoverageHofHitsHpresid
ent,HwhoHisHtheHsoleHshareholder.HTheHcorporationHisHtheHbeneficiaryHofHtheHpolicy.HTheHcorporationHisHno
tHallowedHtoHdeductHtheH$3,000HpremuimHonHitsHcorporateHincomeHtaxHreturn.

a.HTrue

b.HFalseH-HcorrectHanswer-a.HTrue



AnHexpenseHthatHisHdeductedHinHcomputingHnetHincomeHforHfinancialHincomeHbutHnotHdeductibleHinHcomp
utingHtaxableHincomeHisHanHadditionHitemHonHScheduleHM-1.

a.HTrue

b.HFalseH-HcorrectHanswer-a.HTrue



DuringHtheHcurrentHyearHKittyHCorporationHsustainedHaH$5,000HnetHshort-
termHcapitalHlossHandHnoHcapitalHgains.HOnHFormH1120HKittyHCorporationHwillHenterH$5,000HasHanHadditionH
onHScheduleHM-
1H(inHotherHwordsHthisH$5,000HwillHbeHaddedHtoHfinancialHnetHincomeHperHbooksHtoHarriveHatHtaxableHinco
meHperHtheHtaxHreturn).HIsHthisHtrueHorHfalse?

a.HTrue

b.HFalseH-HcorrectHanswer-a.HTrue



EagleHCorporationHhadH$100,000HoperatingHincomeHandH$70,000HoperatingHexpensesHduringHtheHyear.HInH
addition,HEagleHhadHaH$7,000Hshort-termHcapitalHgainHandHaH$13,000Hshort-
termHcapitalHloss.HComputeHEagle'sHtaxableHincomeHforHtheHyear.