14-20 What tax years are available to corporations? How do the options differ from other forms of business organizations? Solution Upon establishing a new corporation, the corporation may choose either a calendar year or a fiscal year. They may choose either of the two regardless of the tax years of its owners which creates tax savings. This differs from other forms of business organizations, S corporations are required to use the calendar year unless they can establish a business purpose to use a fiscal year.
Also, with even higher liabilities, it may be difficult to meet the debt service agreements if the company doesn’t have enough cash flow from operations. 1(c) What potential income tax ramifications exist for Mr. Johnson personally if he purchases the stock of Smithon and converts it to an S corporation? If the Mr.Jones decides to convert Smithon to a subchapter S Corporation, it will enable the corporation itself to avoid paying taxes, but the profit and losses will be passed to shareholders as personal income and losses. Now we should consider the expected losses from the huge investment in equipment purchase. Net operating losses cannot be used to shelter personal income but can be carried forward by a C corporation to provide tax benefit in future when the business expects profit.
14-24 What is the purpose of the dividends-received deduction? What corporations are entitled to claim this deduction? What dividends qualify for this deduction? The purpose of the dividends-received deduction is to reduce the effect of multiple taxation that takes place when corporations are receiving dividend income. Only dividends received from domestic corporations subject to the corporate income tax are eligible for the dividends-received deduction.
14-24. The purpose of the dividends received deduction is to reduce the amount of taxable events when a company earns a profit and pays dividends to shareholders. The dividends that qualify for this deduction are those paid out of the corporate earnings by domestic corporations subject to the US corporate income tax. 14-51. The purpose of the reconciliation of taxable income with book income would be to establish ascertain temporary and permanent differences.
Week 5 Assignment Questions 14-24 What is the purpose of the dividends-received deduction? What corporations are entitled to claim this deduction? What dividends qualify for this deduction? The purpose of the dividends received deduction is so that corporations would not be taxed at a corporate level a shareholder level or if when dividends or a recipient corporation. The dividends qualifying for the dividends-received deduction are those dividends paid by domestic corporations subject to the corporate income tax.
The repeal of Sec. 351 would result in more existing businesses being incorporated. C. Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences. D. Section 351 is an example of a negative aspect of the corporate form of business organization. 3.
3) A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change should include a A. credit to Accumulated Depreciation 4) Presenting consolidated financial statements this year when statements of individual companies were presented last year is an accounting change that should be reported by restating the financial statements of all prior periods presented. 13) If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information EXCEPT: the number of financing institutions that refused to refinance the debt, if any 14) Stock dividends distributable should be classified on the balance sheet as an item of stockholders' equity. 15) Which of the following items is a current liability? A long-term debt maturing currently, which is to be paid with cash in a sinking fund b.
Corporations can acquire a treasury stock by not selling all of the shares of the original stock. By keeping some of the share for the company itself, a treasury stock is created. When a company buys shares of its own stock it will actually increase the value of its stock because the shares will be taken out of the marketplace. By having a treasury stock it also can allow a company to generate cash if it is needed. A treasury stock can affect stockholders because if the company decides to sell the stock then the equity will decrease and the overall assets will also
Consult the IRS Circular E for federal payroll tax regulations and your state taxation agency (see Resources) for state payroll tax regulations. Withhold federal income tax based on the Circular E’s withholding tax tables and the employee’s W-4 form. Withhold Social Security tax at 6.2 percent of gross income, up to $106,800 for the year. Withhold Medicare tax at 1.45 percent. Consult your state withholding tax tables (see Resources) and the employee’s state income tax form to determine state income tax withholding.
Does management of a profitable organization differ from management of a not for profit organization? If so, how and why? Keywords: for profit organization, not for profit organization. There are two types of corporations, both legal entities formed for the purpose of doing business; profit and a non profit, or a not for profit. A non profit or not for profit organization are interchangeable words to describe the corporation that is “intended to further a purpose versus a for profit corporation that is for the benefit of its owners”.