Federal Tax Exam 2 ACTUAL Exam
Questions and CORRECT Answers
Which of the following corporations is an includible corporation for purposes of filing a
consolidated tax return?
insurance companies
S corporations
car manufacturing corporation
foreign corporations - CORRECT ANSWER - car manufacturing corporation
A subsidiary recognizes no gain or loss on a distribution to a parent corporation owning more the
majority of the subsidiary's stock in a complete liquidation.
True or False - CORRECT ANSWER - False
To be an affiliated group, the parent corporation must directly own at least 80% of another group
member.
True or False - CORRECT ANSWER - True
An advantage of filing a consolidated return is that losses of one affiliated group member may be
offset against the taxable income of other group members in the same tax year.
True or False - CORRECT ANSWER - True
,Diana Corporation owns stock of Tomika Corporation. For Diana and Tomika to qualify for the
filing of consolidated returns, at least what percentage of Tomika's total voting power and total
value of stock must be directly owned by Diana?
Total voting power Total Value of Stock
51% 51%
Total voting power Total Value of Stock
51% 80%
Total voting power Total Value of Stock
80% 51%
Total voting power Total Value of Stock
80% 80% - CORRECT ANSWER - Total voting power Total val stock
80% 80%
Cowboy Corporation owns 90% of the single class of stock in Doggie Corporation. The other
10% is owned by Miguel, an individual. Cowboy's basis in its Doggie Corporation stock is
$100,000 and Miguel's basis is $50,000. Doggie Corporation distributes property having an
adjusted basis of $150,000 and an FMV of $500,000 to Cowboy Corporation, and $60,000 of
money to Miguel as a liquidating distribution. Doggie and Cowboy Corporations must recognize
gain of
Doggie Cowboy
$0 $0
Doggie Cowboy
$10,000 $0
Doggie Cowboy
, $400,000 $350,000
Doggie Cowboy
$350,000 $400,000 - CORRECT ANSWER - Doggie Cowboy
$0 $0
The adjusted basis of property received in a complete liquidation is its fair market value on the
distribution date
True or False - CORRECT ANSWER - True
Market Corporation owns 100% of Subsidiary Corporation's stock. Market Corporation
completely liquidates Subsidiary Corporation, receiving land with a $400,000 adjusted basis and
a $500,000 FMV in exchange for Subsidiary stock, which has a $300,000 adjusted basis. Market
Corporation has a basis in the land of
$300,000.
$400,000.
$500,000.
None of these - CORRECT ANSWER - $400,000
Identify which of the following statements is true.
The basic accounting method elections that are used by the seller in intercompany transactions
do not override the intercompany transaction rules.
Questions and CORRECT Answers
Which of the following corporations is an includible corporation for purposes of filing a
consolidated tax return?
insurance companies
S corporations
car manufacturing corporation
foreign corporations - CORRECT ANSWER - car manufacturing corporation
A subsidiary recognizes no gain or loss on a distribution to a parent corporation owning more the
majority of the subsidiary's stock in a complete liquidation.
True or False - CORRECT ANSWER - False
To be an affiliated group, the parent corporation must directly own at least 80% of another group
member.
True or False - CORRECT ANSWER - True
An advantage of filing a consolidated return is that losses of one affiliated group member may be
offset against the taxable income of other group members in the same tax year.
True or False - CORRECT ANSWER - True
,Diana Corporation owns stock of Tomika Corporation. For Diana and Tomika to qualify for the
filing of consolidated returns, at least what percentage of Tomika's total voting power and total
value of stock must be directly owned by Diana?
Total voting power Total Value of Stock
51% 51%
Total voting power Total Value of Stock
51% 80%
Total voting power Total Value of Stock
80% 51%
Total voting power Total Value of Stock
80% 80% - CORRECT ANSWER - Total voting power Total val stock
80% 80%
Cowboy Corporation owns 90% of the single class of stock in Doggie Corporation. The other
10% is owned by Miguel, an individual. Cowboy's basis in its Doggie Corporation stock is
$100,000 and Miguel's basis is $50,000. Doggie Corporation distributes property having an
adjusted basis of $150,000 and an FMV of $500,000 to Cowboy Corporation, and $60,000 of
money to Miguel as a liquidating distribution. Doggie and Cowboy Corporations must recognize
gain of
Doggie Cowboy
$0 $0
Doggie Cowboy
$10,000 $0
Doggie Cowboy
, $400,000 $350,000
Doggie Cowboy
$350,000 $400,000 - CORRECT ANSWER - Doggie Cowboy
$0 $0
The adjusted basis of property received in a complete liquidation is its fair market value on the
distribution date
True or False - CORRECT ANSWER - True
Market Corporation owns 100% of Subsidiary Corporation's stock. Market Corporation
completely liquidates Subsidiary Corporation, receiving land with a $400,000 adjusted basis and
a $500,000 FMV in exchange for Subsidiary stock, which has a $300,000 adjusted basis. Market
Corporation has a basis in the land of
$300,000.
$400,000.
$500,000.
None of these - CORRECT ANSWER - $400,000
Identify which of the following statements is true.
The basic accounting method elections that are used by the seller in intercompany transactions
do not override the intercompany transaction rules.
