Acct 406 Exam 1 UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
Identify which of the following statements is true.
A. At the election of a corporation, a net capital loss carryback can be forgone and carried forward
only.
B. Corporate capital loss carrybacks can offset corporate ordinary income earned in previous years.
C. A corporate capital loss can be carried back three years, and then can be carried forward five years.
D. All of the above are false. - CORRECT ANSWER C
Trail Corporation has gross profits on sales of $140,000 and deductible expenses of $180,000. In
addition, Trail has a net capital gain of $60,000. Trail's taxable income is
A. a $40,000 loss.
B. a $20,000 loss.
C. $20,000.
D. $60,000. - CORRECT ANSWER C
Evans Corporation has a $15,000 net capital loss in 2011. The corporation reported the following
capital gain net income during the past three years. Identify which of the following statements is true.
Year Capital Gain Net Income
2008 10,000
2009 11,000
2010 5,000
A. The loss is used to offset the gains from 2010 and then carried back to offset $10,000 of the gains
in 2008.
B. The loss is used to offset the year 2008 net gains, then $5,000 of the year 2009 net gains.
, C. The loss is used to offset the $11,000 of the 2009 gains and then carried back to offset $4,000 of
the year 2008 net gain.
D. The loss is used to offset $3,000 of the current year ordinary income, all of the year 2008 capital
gains, and $7,000 of the year 2009 net gain. - CORRECT ANSWER B
Booth Corporation sells a building classified as a residential rental property for $200,000. The
MACRS straight-line depreciation taken is $20,000 and the adjusted basis of the building is $170,000.
Booth Corporation must recognize ordinary income of
A. $20,000.
B. $30,000.
C. $0.
D. $4,000. - CORRECT ANSWER D
Organizational expenditures include all of the following except for
A. expenses of organizational meetings.
B. fees paid to the state of incorporation.
C. costs incurred when issuing stock.
D. legal costs incident to the creation of the corporation. - CORRECT ANSWER C
Green Corporation is incorporated on March 1 and begins business on June 1. Green's first tax year
ends on October 31, i.e., a short year. Green incurs the following expenses during the year:
Month Type Amount
February Draft charter 2,000
March Stock commission 30,000
QUESTIONS AND CORRECT ANSWERS
Identify which of the following statements is true.
A. At the election of a corporation, a net capital loss carryback can be forgone and carried forward
only.
B. Corporate capital loss carrybacks can offset corporate ordinary income earned in previous years.
C. A corporate capital loss can be carried back three years, and then can be carried forward five years.
D. All of the above are false. - CORRECT ANSWER C
Trail Corporation has gross profits on sales of $140,000 and deductible expenses of $180,000. In
addition, Trail has a net capital gain of $60,000. Trail's taxable income is
A. a $40,000 loss.
B. a $20,000 loss.
C. $20,000.
D. $60,000. - CORRECT ANSWER C
Evans Corporation has a $15,000 net capital loss in 2011. The corporation reported the following
capital gain net income during the past three years. Identify which of the following statements is true.
Year Capital Gain Net Income
2008 10,000
2009 11,000
2010 5,000
A. The loss is used to offset the gains from 2010 and then carried back to offset $10,000 of the gains
in 2008.
B. The loss is used to offset the year 2008 net gains, then $5,000 of the year 2009 net gains.
, C. The loss is used to offset the $11,000 of the 2009 gains and then carried back to offset $4,000 of
the year 2008 net gain.
D. The loss is used to offset $3,000 of the current year ordinary income, all of the year 2008 capital
gains, and $7,000 of the year 2009 net gain. - CORRECT ANSWER B
Booth Corporation sells a building classified as a residential rental property for $200,000. The
MACRS straight-line depreciation taken is $20,000 and the adjusted basis of the building is $170,000.
Booth Corporation must recognize ordinary income of
A. $20,000.
B. $30,000.
C. $0.
D. $4,000. - CORRECT ANSWER D
Organizational expenditures include all of the following except for
A. expenses of organizational meetings.
B. fees paid to the state of incorporation.
C. costs incurred when issuing stock.
D. legal costs incident to the creation of the corporation. - CORRECT ANSWER C
Green Corporation is incorporated on March 1 and begins business on June 1. Green's first tax year
ends on October 31, i.e., a short year. Green incurs the following expenses during the year:
Month Type Amount
February Draft charter 2,000
March Stock commission 30,000
