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1. An S-corporation has made a charitable contribution of \$5,000 this
year. How should this expense be treated for tax purposes?
 A) Deduct from the S-corporation's taxable income.
 B) Pass through to shareholders and deduct on their individual returns.
 C) Add back to the S-corporation's taxable income.
 D) None of the above.
 Answer: B) Pass through to shareholders and deduct on their individual
returns.
 Rationale: Under the Internal Revenue Code, S-corporations are
considered pass-through entities where income and deductions are
through to shareholders.
2. Which of the following is not an allowable exclusion from a
corporation's gross income?
 A) Life insurance proceeds received due to death of an insured officer.
 B) Dividends received from a domestic corporation.
 C) Interest earned on state and municipal bonds.
 D) Federal income tax refunds.
 Answer: D) Federal income tax refunds.
 Rationale: Federal income tax refunds are not excluded from gross
income as they are considered recoveries of amounts previously deducted.
3. When accounting for inventory, which costing method can potentially
defer taxes due to inflation?
 A) First-in, first-out (FIFO)
 B) Last-in, first-out (LIFO)
 C) Weighted average cost
 D) Specific identification
 Answer: B) Last-in, first-out (LIFO)
 Rationale: LIFO can potentially defer taxes in times of inflation as it
assumes the most recently acquired inventory is sold first, resulting in
higher cost of goods sold and lower taxable income.
4. A corporation has incurred \$50,000 in startup expenses. How should
these expenses be treated for tax purposes?
 A) Deduct \$5,000 in the first year and amortize the remaining over 180
months.
 B) Capitalize all expenses and deduct upon dissolution.
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