ExpertMedium1 markMultiple Choice
CPA · Question 40 · Area 3: Entity Tax Compliance
A C Corporation is subject to the Accumulated Earnings Tax (AET). Its taxable income is $500,000. It paid $100,000 in federal income taxes and distributed $50,000 in dividends. It has no reasonable business needs for accumulation. The accumulated earnings credit is $0 (used up in prior years). What is the Accumulated Taxable Income?
A C Corporation is subject to the Accumulated Earnings Tax (AET). Its taxable income is $500,000. It paid $100,000 in federal income taxes and distributed $50,000 in dividends. It has no reasonable business needs for accumulation. The accumulated earnings credit is $0 (used up in prior years). What is the Accumulated Taxable Income?
Answer options:
A.
$500,000
B.
$400,000
C.
$350,000
D.
$450,000
How to approach this question
1. Start: Taxable Income $500,000.<br/>2. Deduct: Federal Income Taxes ($100,000).<br/>3. Deduct: Dividends Paid ($50,000).<br/>4. Deduct: Accumulated Earnings Credit ($0).<br/>5. Result: $350,000.
Full Answer
C.$350,000✓ Correct
C
Accumulated Taxable Income is Taxable Income adjusted for taxes and dividends paid. $500,000 - $100,000 (Tax) - $50,000 (Div) = $350,000.
Common mistakes
Forgetting to deduct federal taxes.
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