Which of the Following Is Not a Permissible Reason for a Regular

question 26

Multiple Choice

Which of the following is not a permissible reason for a regular corporation to accumulate earnings at the entity level and avoid the imposition of the accumulated earnings tax?

• A) To construct a new plant facility in connection with expanding the corporation's business into a new geographic region
• B) To accumulate a fund of cash with which to pay off long-term debt due in twenty years
• C) To fund the development of a new product line
• D) To invest in the stock of an unrelated company to take advantage of the dividends received deduction

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Definitions:

Profit or Loss Test

A criterion used to evaluate the performance of an investment or business segment by determining if it is generating profit or incurring loss.

Reportable Segment

An operating segment of a business that requires separate disclosure in the company's financial reporting due to its significant size, profitability, or importance.

Operating Segments

Components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources.

Profit or Loss Test

The profit or loss test is a method used to determine if a business activity or transaction is able to generate a profit or results in a loss.