WEEK THREE PROBLEM SET
ACC/455 Corporate Taxation I
C:3-3 Discussion Question – Case
Scenario on Tax Elections
C:3-3 The two calendar year taxpayers, named Susan and Stan,
are going to start a new business of digital circuits where they will
manufacture and sell these goods. They are planning to do so with
the help of their own capital of $600,000 and another equity capital
of $2 million that other people invested. The company’s target is to
gain $100,000 as organizational and start-up expenditure. A
material income-producing factor is the inventories. The company is
also thinking that a loss of $500,000 may have to be brought in the
first two years of operation and first three year’s expenditures for
development purpose. They expect that by three years they will
break even and will make a profit by the end of fourth year although
it is important to run research activities and make development
frequently in this kind of business. Question is what type of
accounting schemes and tax elections Susan and Stan should keep
in mind in the first year of their operation? Explain the probable
alternatives for each and every scheme and election and what
advantages and disadvantages these have.
C: 3-3 Discussion Question – Case
Scenario on Tax Elections
Elections
Tax Year
Accounting Methods
• Calendar Year
•Accrual Method
benefit–The calendar
year is currently being
used by Susan and
Stan
Advantage –typical financial reporting is coordinated
•Fiscal Year
Advantage – to avoid
short time filing, it can
agree with the starting
date of business
•Cash Method
Advantage– Stan and Susan are eligible because of
inventories although it is less burdensome
•Hybrid Method
Advantage–less burdensome for other revenue and
expenses and also meets financial reporting customary
C:5-8 Discussion Question – Identify
Items as AMT Adjustment or Preference
C:5-8
The following items should be identified as (A) an AMT adjustment to
taxable income, (B) a tax preference item or (N) none of them.
a. At the end of the tax year, percentage reduction in excess of a
property’s adjusted basis.
b. The Sec. 179 expense along with first-year MACRS decrease
claimed on a machine, with placing in service in the present year,
which cost $200,000.
c. Discrepancy between the gain, mentioned in Part b, on the sale of
the asset and the other minimum taxable income purposes.
d. The tax-exempt interest which was earned on State of Michigan
private activity bond.
e. The tax-exempt interest that was earned on State of Michigan
general revenue bond.
f. 75% of the surplus of adjusted current earnings (ACE) over
preadjustment AMTI.
C:5-8 Discussion Question –Items to
identify as AMT Adjustment or
Preference






A. – P – Tax inclination item
B. – A – AMT Alteration to taxable income
(decrease)
C. – A – AMT Alteration to taxable income
D. – P – Tax inclination item
E. – A – AMT Alteration to taxable income
F. – A – AMT Alteration to taxable income
C:3-37 Problem – Charitable
Contributions of Property
C:3-37
Charitable contributions of property. Blue Corporation confers some
properties specified below to Johnson Elementary School:
1. 2 years ago XYZ corporation stock purchased for $25,000. There is a
$19,000 FMV to the stock on the contribution date.
2. It cost $16,000 a year ago when computer equipment was built. The
equipment has a $50,000 FMV on the donation date. The business of
manufacturing computer equipment doesn’t include Blue.
3. six months ago XYZ corporation stock was purchased at $12,000. The
hoard has a $19,000 FMV on the date of the bequest.
By selling the stock, the school will remodel a classroom for the use of a
computer laboratory. The taxable income for Blue is $400,000 regarding all
charitable contribution deduction, dividends-received deduction and NOL or
capital loss carry back.
a. What is Blue’s recent charitable contribution deduction?
b. If there is any charitable contribution carryover for this company then what
is that? What years it can be used in?
c. Considering the XYZ stock donation, what could be a better tax plan?
C:3-37 Problem – Charitable
Contributions of Property
A. - $40,000
B. - $47,000
C. Sell XYZ stock
and contribute
proceeds. Claim
loss on sale
against taxable
earnings and
donation of
income as
charitable
contribution
Taxable Income
Contributions
XYZ Stock
Equipment
Blue Corporation
$
Cost
$ 25,000
$ 16,000
400,000
FMV
$ 19,000
$ 50,000
PQR Stock
$ 12,000
$ 18,000
Total donation
$ 53,000
$ 87,000
highest Allowable
Deduction
$
40,000
Contribution Carryover
$
47,000
C:3-64 Tax Form /Return
Preparation Problem – Knoxville
Musical Sales Inc. Tax Return
Preparation
See attached Form 1120, Form 1120
Schedule D, and Form 4562 in Assignment
Section