Exam 5: Corporate Operations

For incentive stock options, the value of the options that accrue in a given year always creates a permanent, unfavorable book-tax difference.

Which of the following statements regarding nonqualified stock options (NQOs) is false?

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

AmStore Inc. sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation and expensing 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?

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

Federal income tax expense reported on a corporation's books generates a temporary book-tax difference for Schedule M-3 purposes.

Studios reported a net capital loss of $30,000 in Year 5. It reported net capital gains of $14,000 in Year 4 and $27,000 in Year 6. What is the amount and nature of the book-tax difference in Year 6 related to the net capital carryover?

AB Inc. received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent) on the dividends received (after taking the DRD into account)?

Calendar-year C corporations that request an extension for filing their 2019 tax returns will have a tax return due date of October 15.

BTW Corporation has taxable income in the current year that can be offset with an NOL carryover from a previous year. What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?

In 2019, AutoUSA Inc. reported $4,600,000 of book income, including $20,000 of interest income from tax-exempt bonds. AutoUSA reported $3,600,000 of regular business expenses. If it made $210,000 of estimated tax payments (prepayments) throughout the tax year, what is its tax due or tax refund when it files its return?

What is the unextended due date of the tax return of a calendar-year C corporation for 2019?

A nonqualified stock option will create a permanent book-tax difference in a given year if it accrues during the year but is exercised in a later year.

Jazz Corporation owns 50 percent of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income before the dividend was $100,000. What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Jazz Corporation owns 10 percent 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.?

AR Systems Inc. (AR) had $120,000 of tax liability last year. It anticipates a current-year tax liability of $500,000. Assuming AR is considered a large corporation for purposes of estimating tax liability, what are the minimum estimated tax payments it should make to avoid underpayment penalties? Ignore the annualized income method.

Tatoo Inc. reported a net capital loss of $13,000 in 2019. The company had a net capital gain of $4,300 in 2017 and $3,000 in 2016. In 2018, although the company suffered a net operating loss, it had net capital gains of $1,000. What is the amount of Tatoo's capital loss carryover remaining after it applies the carryback?

A C corporation reports its taxable income or loss on Form 1065.

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?

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: 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?