Question 1

Atom Ventures Inc. (AV) owns stock in the Primo and Faraday corporations. The following summarizes information relating to AV's investment in Primo and Faraday as follows: $$\begin{array} { | c | r | c | r | } 
\hline \text { Corporation } & \begin{array} { c } 
\text { Corporation's } \
\text { earnings for year }
\end{array} & \text { Atom's ownership } & \begin{array} { c } 
\text { Dividends distributed } \
\text { to Atom during year }
\end{array} \
\hline \text { Primo } & \$ 625,000 & 35 \% & \$ 125,000 \
\hline \text { Faraday } & \$ 940,000 & 10 \% & \$ 50,000 \
\hline
\end{array}$$ Assuming that AV follows the general rules for reporting its income from these investments, what is the amount of AV's book-tax difference associated with the investment in these corporations (disregarding the dividends received deduction)? Is it favorable or unfavorable? Is it permanent or temporary?

Accepted Answer

$93,750, favorable, ...

Question 2

In 2014, US Sys Corporation received $250,000 in death benefits after its CEO (a key employee) died (it included this amount in book income). For book purposes, US Sys also expensed life insurance premiums for other key employees in the amount of $20,000. In addition, for book purposes, it expensed $10,000 of meals and entertainment expenditures. What is the total book-tax difference associated with these items? Is it favorable or unfavorable? What amount of the book-tax difference is temporary and what amount is permanent?

Accepted Answer

$225,000 f...

Question 3

The amount of a corporation's AMT is the amount of its tentative minimum tax in excess of its regular tax.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements regarding book-tax differences associated with purchased goodwill is false?

Accepted Answer

A)   It is possible to have no book-tax difference in a year when there is no goodwill amortization for tax purposes.
B)   In a year when goodwill is impaired and yet fully amortized for tax purposes (so no tax amortization of the goodwill for that year) , the book-tax difference will be unfavorable.
C)   Temporary book-tax differences associated with goodwill are always favorable.
D)   If goodwill has been fully amortized for tax purposes in a previous year, the book-tax difference is equal to the amount of impairment recognized.E) C) and D)
F) B) and C)

Question 5

Taxable income of the most profitable corporations is subject to a flat 35% tax rate.

Accepted Answer

A) True 
 B)False

Question 6

What is the unextended due date of the tax return of a calendar-year corporation?

Accepted Answer

A)   February 15.
B)   March 15.
C)   April 15.
D)   September 15.E) B) and D)
F) A) and B)

Question 7

Which of the following is not a type of controlled group as defined in the Internal Revenue Code?

Accepted Answer

A)   Parent-subsidiary
B)   Brother-sister
C)   Combined
D)   All of these are types of controlled groups.E) B) and D)
F) C) and D)

Question 8

Canny Foods Co. is considering three ways it could contribute to a local, qualified charity. First, it could give $5,000 in cash. Second, it could give stock it initially purchased two years ago for $4,000 but is now worth $6,000. Third, it could give items of inventory with a fair market value of $7,000 but with an adjusted basis of $3,000. Which of the following correctly describes the relation among possible charitable contributions in terms of amount deductible for tax purposes?

Accepted Answer

A)   Cash > Stock > Inventory
B)   Stock > Cash > Inventory
C)   Inventory > Stock > Cash
D)   Inventory > Cash > StockE) All of the above
F) A) and B)

Question 9

Rapidpro Inc. had more than $1,000,000 of taxable income two years prior to the current year. It would like to use its prior year tax liability (which was very low but above zero)  to determine its quarterly estimated payments this year. Which of the following statements is true?

Accepted Answer

A)   Rapidpro may use the prior year tax liability to determine its first and second quarter estimated tax payments only since it is a large corporation.
B)   To avoid penalty, the second quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its first quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment) .
C)   To avoid penalty, the third quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its third quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment) .
D)   None of these is true.E) None of the above
F) A) and D)

Question 10

For corporations, which of the following regarding net capital losses is true?

Accepted Answer

A)   A corporation that experiences a net capital loss has a favorable book-tax difference in the year of the loss.
B)   A corporation that experiences a net capital loss in year 4 first carries the loss back to year 3, then year 2, and then year 1 before carrying it forward.
C)   Net capital loss carrybacks are deductible in determining a corporation's net operating loss.
D)   Net capital loss carrybacks and carryovers create temporary book-tax differences if they are used before they expire.E) None of the above
F) All of the above

Question 11

Which of the following is deductible in calculating the charitable contribution limit modified taxable income?

Accepted Answer

A)   Net capital loss carrybacks
B)   NOL carrybacks
C)   NOL carryovers
D)   Charitable contributionsE) B) and D)
F) All of the above

Question 12

XPO Corporation has a minimum tax credit of $51,000 from 2013. If its 2014 tentative minimum tax is $211,000 and its regular tax liability is $250,000, what is its minimum tax credit carryover to 2015?

Accepted Answer

A)   $51,000
B)   $39,000
C)   $12,000
D)   $0E) B) and D)
F) A) and B)

Question 13

Corporations compute their dividends received deduction by multiplying the dividend amount by 10%, 50%, or 100% depending on their ownership in the distributing corporation's stock.

Accepted Answer

A) True 
 B)False

Question 14

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss)  before the dividend was ($2,000) . What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Accepted Answer

A)   $0
B)   $5,600
C)   $7,000
D)   $8,000
E)   None of these.F) A) and B)
G) A) and E)

Question 15

Which of the following statements regarding incentive stock options (ISOs)  is false?

Accepted Answer

A)   If ASC 718 (a codification of FAS 123R)  does not apply, ISOs do not create book-tax differences.
B)   For ISOs granted when ASC 718 applies, book-tax differences are always unfavorable.
C)   If ASC 718 applies, the value expensed for book purposes in a given year is the value of the options that vest.
D)   If ASC 718 applies, book-tax differences associated with ISOs may be either permanent or temporary.E) A) and B)
F) None of the above

Question 16

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

Accepted Answer

A)   100 percent of the prior year's tax liability (with a few exceptions) 
B)   100 percent of the current year's tax liability
C)   100 percent of the estimated current year tax liability using the annualized income method
D)   All of these are acceptable methods of determining the required annual payment of federal income tax for corporationsE) A) and B)
F) C) and D)

Question 17

AmStore Inc. sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation and MACRS for tax cost-recovery. If accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes, what is the nature of the book-tax difference associated with the gain on the sale?

Accepted Answer

A)   Permanent; favorable
B)   Permanent; unfavorable
C)   Temporary; favorable
D)   Temporary; unfavorableE) A) and D)
F) B) and C)

Question 18

In the current year, FurnitureKing Corporation recognized $32,000 of income from an installment sale it made in a previous tax year. If installment sales are the only difference between ACE and alternative minimum taxable income (before the ACE adjustment) , what is the amount and nature of the ACE adjustment for the current tax year?

Accepted Answer

A)   $24,000 favorable
B)   $24,000 unfavorable
C)   $32,000 favorable
D)   $32,000 unfavorableE) B) and C)
F) B) and D)

Question 19

Bingo Corporation incurred a net operating loss in 2014. If it carries the loss back, it must first carry the loss back to offset its 2013 taxable income and then it carries any remaining loss back to offset its 2012 taxable income.

Accepted Answer

A) True 
 B)False

Question 20

In January 2013, Khors Company issues nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2014, the company experiences a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $60,000. For 2014, what is the book-tax difference due to the options exercised?

Accepted Answer

A)   10,000 unfavorable
B)   10,000 favorable
C)   50,000 unfavorable
D)   60,000 favorableE) All of the above
F) A) and D)

Exam 16: Corporate Operations

Bingo Corporation incurred a net operating loss in 2014. If it carries the loss back, it must first carry the loss back to offset its 2013 taxable income and then it carries any remaining loss back to offset its 2012 taxable income.

Correct Answer
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Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,000) . What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Correct Answer
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Correct Answer
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For corporations, which of the following regarding net capital losses is true?

Correct Answer
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Which of the following is deductible in calculating the charitable contribution limit modified taxable income?

Correct Answer
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Correct Answer
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$93,750, favorable, ...
View Answer

Corporations compute their dividends received deduction by multiplying the dividend amount by 10%, 50%, or 100% depending on their ownership in the distributing corporation's stock.

Correct Answer
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Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

Correct Answer
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What is the unextended due date of the tax return of a calendar-year corporation?

Correct Answer
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The amount of a corporation's AMT is the amount of its tentative minimum tax in excess of its regular tax.

Correct Answer
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Rapidpro Inc. had more than $1,000,000 of taxable income two years prior to the current year. It would like to use its prior year tax liability (which was very low but above zero) to determine its quarterly estimated payments this year. Which of the following statements is true?

Correct Answer
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Correct Answer
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Correct Answer
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$225,000 f...
View Answer

Correct Answer
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Which of the following is not a type of controlled group as defined in the Internal Revenue Code?

Correct Answer
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Which of the following statements regarding book-tax differences associated with purchased goodwill is false?

Correct Answer
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XPO Corporation has a minimum tax credit of $51,000 from 2013. If its 2014 tentative minimum tax is $211,000 and its regular tax liability is $250,000, what is its minimum tax credit carryover to 2015?

Correct Answer
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Taxable income of the most profitable corporations is subject to a flat 35% tax rate.

Correct Answer
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Which of the following statements regarding incentive stock options (ISOs) is false?

Correct Answer
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Correct Answer
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Exam 16: Corporate Operations

Bingo Corporation incurred a net operating loss in 2014. If it carries the loss back, it must first carry the loss back to offset its 2013 taxable income and then it carries any remaining loss back to offset its 2012 taxable income.

Correct AnswerverifiedShow Answer

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,000) . What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For corporations, which of the following regarding net capital losses is true?

Correct AnswerverifiedShow Answer

Which of the following is deductible in calculating the charitable contribution limit modified taxable income?

Correct AnswerverifiedShow Answer

Correct Answerverified$93,750, favorable, ...View AnswerShow Answer

Corporations compute their dividends received deduction by multiplying the dividend amount by 10%, 50%, or 100% depending on their ownership in the distributing corporation's stock.

Correct AnswerverifiedShow Answer

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

Correct AnswerverifiedShow Answer

What is the unextended due date of the tax return of a calendar-year corporation?

Correct AnswerverifiedShow Answer

The amount of a corporation's AMT is the amount of its tentative minimum tax in excess of its regular tax.

Correct AnswerverifiedShow Answer

Rapidpro Inc. had more than $1,000,000 of taxable income two years prior to the current year. It would like to use its prior year tax liability (which was very low but above zero) to determine its quarterly estimated payments this year. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answerverified$225,000 f...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not a type of controlled group as defined in the Internal Revenue Code?

Correct AnswerverifiedShow Answer

Which of the following statements regarding book-tax differences associated with purchased goodwill is false?

Correct AnswerverifiedShow Answer

XPO Corporation has a minimum tax credit of $51,000 from 2013. If its 2014 tentative minimum tax is $211,000 and its regular tax liability is $250,000, what is its minimum tax credit carryover to 2015?

Correct AnswerverifiedShow Answer

Taxable income of the most profitable corporations is subject to a flat 35% tax rate.

Correct AnswerverifiedShow Answer

Which of the following statements regarding incentive stock options (ISOs) is false?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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$93,750, favorable, ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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$225,000 f...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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