Question 1

Which of the following does NOT create a temporary book-tax difference?

Accepted Answer

A)  Deferred compensation. 
B)  Bad-debt expense. 
C)  Depreciation expense. 
D)  Dividends received deduction. 
A)  Deferred compensation. 
B)  Bad-debt expense. 
C)  Depreciation expense. 
D)  Dividends received deduction.

Question 2

For Corporation P to file a consolidated tax return with Corporation S, P must own what percentage of P's voting stock?

Accepted Answer

A)  100 percent. 
B)  80 percent. 
C)  More than 50 percent. 
D)  50 percent or more. 
A)  100 percent. 
B)  80 percent. 
C)  More than 50 percent. 
D)  50 percent or more.

Question 3

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

Accepted Answer

A)  ISO-related compensation expense creates permanent book-tax differences. 
B)  Book-tax differences related to ISO-related compensation expense are always unfavorable. 
C)  The ISO-related compensation expense is recorded for book purposes as the ISO vests. 
D)  Book-tax differences associated with ISO-related compensation expenses can be either permanent or temporary. 
A)  ISO-related compensation expense creates permanent book-tax differences. 
B)  Book-tax differences related to ISO-related compensation expense are always unfavorable. 
C)  The ISO-related compensation expense is recorded for book purposes as the ISO vests. 
D)  Book-tax differences associated with ISO-related compensation expenses can be either permanent or temporary.

Question 4

Net capital loss carryovers are deductible against capital gains in determining a corporation's net operating loss for the year.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following describes the correct treatment of incentive stock options (ISOs)?

Accepted Answer

A)  Financial accounting-no expense; tax-no deduction. 
B)  Financial accounting-no expense; tax-deduct bargain element at exercise. 
C)  Financial-expense value over vesting period; tax-no deduction. 
D)  Financial-expense value over vesting period; tax-deduct bargain element at exercise. 
A)  Financial accounting-no expense; tax-no deduction. 
B)  Financial accounting-no expense; tax-deduct bargain element at exercise. 
C)  Financial-expense value over vesting period; tax-no deduction. 
D)  Financial-expense value over vesting period; tax-deduct bargain element at exercise.

Question 6

Which of the following does NOT create a permanent book-tax difference?

Accepted Answer

A)  Organizational and start-up expenses. 
B)  Key employee death benefit income. 
C)  Fines and penalties expenses. 
D)  Municipal bond interest income. 
A)  Organizational and start-up expenses. 
B)  Key employee death benefit income. 
C)  Fines and penalties expenses. 
D)  Municipal bond interest income.

Question 7

In 2019, Webtel Corporation donated $50,000 to a qualifying charity. For the year, it reported taxable income of $310,000, which included the following: the $50,000 charitable contribution (before limitation), a $100,000 dividends received deduction, and a $20,000 net operating loss carryover. What is Webtel Corp.'s charitable contribution deduction?

Accepted Answer

$46,000, c

Question 8

Which of the following is not calculated in the corporate income tax formula?

Accepted Answer

A)  Gross income. 
B)  Adjusted gross income. 
C)  Taxable income. 
D)  Regular tax liability. 
A)  Gross income. 
B)  Adjusted gross income. 
C)  Taxable income. 
D)  Regular tax liability.

Question 9

In 2019, Carbonfab Manufacturers Inc. expensed $125,000 of depreciation for book purposes, but for tax purposes, it deducted $179,000. Carbonfab also sold equipment for $500,000. The book-adjusted basis of the equipment sold was $350,000, while the adjusted basis for tax purposes was $210,000. What is the total book-tax difference associated with depreciation and the gain on sale? Is it favorable or unfavorable? What amount of the book-tax difference is permanent and what amount is temporary?

Accepted Answer

$86,000, unfavorable

Question 10

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

Accepted Answer

A)  Corporations may not carry over or carry back excess charitable contributions. 
B)  Corporations can carry excess charitable contributions over to a future year or back to a prior year. 
C)  Corporations can carry excess charitable contributions over to a future year but not back to a prior year. 
D)  Corporations can carry excess charitable contributions back to a prior year but not over to a future year. 
A)  Corporations may not carry over or carry back excess charitable contributions. 
B)  Corporations can carry excess charitable contributions over to a future year or back to a prior year. 
C)  Corporations can carry excess charitable contributions over to a future year but not back to a prior year. 
D)  Corporations can carry excess charitable contributions back to a prior year but not over to a future year.

Question 11

Net operating losses generally create permanent book-tax differences.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is deductible in calculating DRD modified taxable income?

Accepted Answer

A)  Charitable contribution deduction. 
B)  Net capital loss carrybacks. 
C)  NOL carryovers. 
D)  Dividends received deduction. 
A)  Charitable contribution deduction. 
B)  Net capital loss carrybacks. 
C)  NOL carryovers. 
D)  Dividends received deduction.

Question 13

For 2019, accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

Accepted Answer

A) True 
 B)False

Question 14

Corporations may carry a net operating loss sustained in 2019 back two years and forward 20 years.

Accepted Answer

A) True 
 B)False

Question 15

Corporation A receives a dividend from Corporation B. It includes the dividend in gross income for tax purposes but includes a pro-rata portion of B's earnings in its financial accounting income. If A has accounted for the dividend correctly (using the general rule), how much of B's stock does A own?

Accepted Answer

A)  A owns less than 20 percent of the stock of B. 
B)  A owns at least 20 but not more than 50 percent of the stock of B. 
C)  A owns more than 50 percent of the stock of B. 
D)  Cannot be determined. 
A)  A owns less than 20 percent of the stock of B. 
B)  A owns at least 20 but not more than 50 percent of the stock of B. 
C)  A owns more than 50 percent of the stock of B. 
D)  Cannot be determined.

Question 16

WFO Corporation has gross receipts according to the following schedule:   If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?

Accepted Answer

A)  Year 3. 
B)  Year 4. 
C)  Year 5. 
D)  Year 6. 
E)  None of the choices are correct. 
A)  Year 3. 
B)  Year 4. 
C)  Year 5. 
D)  Year 6. 
E)  None of the choices are correct.

Question 17

A corporation may carry a net capital loss back three years and forward five years.

Accepted Answer

A) True 
 B)False

Question 18

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. 
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.

Question 19

In January 2019, Khors Company issued 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 2019, the company experienced a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $40,000. For 2019, what is the nature of the book-tax difference due to the options exercised?

Accepted Answer

A)  Favorable and temporary. 
B)  Favorable and permanent. 
C)  Unfavorable and temporary. 
D)  Unfavorable and permanent. 
E)  Not enough information to determine. 
A)  Favorable and temporary. 
B)  Favorable and permanent. 
C)  Unfavorable and temporary. 
D)  Unfavorable and permanent. 
E)  Not enough information to determine.

Question 20

Which of the following statements regarding book-tax differences is true?

Accepted Answer

A)  Corporations are not required to report book-tax differences on their income tax returns. 
B)  Corporations will eventually recognize the same amount of income for book and tax purposes for income-related temporary book-tax differences. 
C)  Income excludable for tax purposes usually creates a temporary book-tax difference. 
D)  None of the choices are correct. 
A)  Corporations are not required to report book-tax differences on their income tax returns. 
B)  Corporations will eventually recognize the same amount of income for book and tax purposes for income-related temporary book-tax differences. 
C)  Income excludable for tax purposes usually creates a temporary book-tax difference. 
D)  None of the choices are correct.

Which of the following does NOT create a temporary book-tax difference?

For Corporation P to file a consolidated tax return with Corporation S, P must own what percentage of P's voting stock?

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

Net capital loss carryovers are deductible against capital gains in determining a corporation's net operating loss for the year.

Which of the following describes the correct treatment of incentive stock options (ISOs)?

Which of the following does NOT create a permanent book-tax difference?

Which of the following is not calculated in the corporate income tax formula?

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

Net operating losses generally create permanent book-tax differences.

Which of the following is deductible in calculating DRD modified taxable income?

For 2019, accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

Corporations may carry a net operating loss sustained in 2019 back two years and forward 20 years.

WFO Corporation has gross receipts according to the following schedule: If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?

A corporation may carry a net capital loss back three years and forward five years.

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

Which of the following statements regarding book-tax differences is true?

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 5: Corporate Operations

Which of the following does NOT create a temporary book-tax difference?

For Corporation P to file a consolidated tax return with Corporation S, P must own what percentage of P's voting stock?

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

Net capital loss carryovers are deductible against capital gains in determining a corporation's net operating loss for the year.

Which of the following describes the correct treatment of incentive stock options (ISOs)?

Which of the following does NOT create a permanent book-tax difference?

Which of the following is not calculated in the corporate income tax formula?

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

Net operating losses generally create permanent book-tax differences.

Which of the following is deductible in calculating DRD modified taxable income?

For 2019, accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

Corporations may carry a net operating loss sustained in 2019 back two years and forward 20 years.

WFO Corporation has gross receipts according to the following schedule: If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?

A corporation may carry a net capital loss back three years and forward five years.

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

Which of the following statements regarding book-tax differences is true?

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters