Intermediate Managerial and Tax Accounting, The Corporate Taxpayer

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Intermediate Managerial and Tax
Accounting ACCTG 325, Fall 2024
Exercise 7
Chapter 11, The Corporate Taxpayer
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1. The stock of AB and YZ is publicly traded, and no shareholder owns more than a 1 percent interest in either
corporation. AB owns 40 percent and YZ owns 60 percent of the stock of Alpha, which owns 90 percent of the
stock of Beta. YZ and Beta each own 50 percent of the stock of Kappa. Which of these corporations forms an
affiliated group eligible to file a consolidated tax return?
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2. In its first year Camco Inc. generated a $92,000 net operating loss, and it made a $5,000 cash donation to a local
charity. In its second year, Camco generated a $210,600 profit, and it made a $10,000 donation to the same
charity. Compute Camco’s taxable income for its second year.
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3. In 2023, NB Inc.’s federal taxable income was $242,000. Compute the required installment payments of 2024 tax
in each of the following cases:
a. NB’s 2024 taxable income is $593,000.
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b. NB’s 2024 taxable income is $950,000.
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c. NB’s 2024 taxable income is $1,400,000.
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4. Leona, whose marginal tax rate on ordinary income is 37 percent, owns 100 percent of the stock of the Henley
Corporation. This year, Henley generates $1 million of taxable income.
a. If Henley wants to pay all of its after-tax earnings to Leona as a dividend, calculate the amount of the
dividend payment.
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b. Calculate Leona’s tax due on the dividend computed in part (a), and her after-tax cash flow from the
dividend receipt. (Preferential dividend rate is 20%.)
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Intermediate Managerial and Tax
Accounting ACCTG 325, Fall 2024
Exercise 7
Chapter 11, The Corporate Taxpayer
c. Compute the combined corporate and individual tax burden on Henley’s $1 million of current year
income, and the effective combined tax rate on this income.
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5. This year, GHJ, Inc. received the following dividends:
Compute GHJ’s dividends-received deduction.
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6. Western Corporation, a calendar year, accrual basis corporation, reported $500,000 of net income after tax on
its financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the
following information:
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Western’s book income included $15,000 of dividends, received from a domestic corporation in which
Western owns less than 1% of the outstanding stock.
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Western’s depreciation expense per books was $55,000, and its MACRS depreciation was $70,000.
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Western earned $5,000 of interest from municipal bonds and $6,000 of interest from corporate bonds.
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Western’s capital losses exceeded its capital gains by $2,000.
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Western’s federal income tax expense per books was $103,000.
Compute Western’s federal taxable income and regular tax liability.
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