Question 1

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

Accepted Answer

A)  In general, smaller corporations are required to complete Schedule M-1 while larger corporations are required to complete Schedule M-3. 
B)  Schedule M-3 lists more book-tax differences than Schedule M-1. 
C)  Both Schedules M-1 and M-3 reconcile to a corporation's bottom line taxable income. 
D)  Schedule M-1 does not distinguish between temporary and permanent book-tax differences whereas Schedule M-3 does. 
A)  In general, smaller corporations are required to complete Schedule M-1 while larger corporations are required to complete Schedule M-3. 
B)  Schedule M-3 lists more book-tax differences than Schedule M-1. 
C)  Both Schedules M-1 and M-3 reconcile to a corporation's bottom line taxable income. 
D)  Schedule M-1 does not distinguish between temporary and permanent book-tax differences whereas Schedule M-3 does.

Question 2

GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank, a qualified nonprofit organization, in November of 2019. GenerUs made the payment to FoodBank on February 2, 2020. GenerUs Inc. (a calendar-year corporation) may claim a deduction for the contribution on its 2019 tax return.

Accepted Answer

A) True 
 B)False

Question 3

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. 
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.

Question 4

A corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.

Accepted Answer

A) True 
 B)False

Question 5

An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income.

Accepted Answer

A) True 
 B)False

Question 6

In general, all C corporations can elect to use either the accrual or cash method of accounting.

Accepted Answer

A) True 
 B)False

Question 7

On January 1, 2018, GrowCo issued 50,000 nonqualified stock options (NQOs) valued at $1 per option. Each option entitles the owner to purchase one share of stock for $4. These options vest (accrue) at 20 percent per year for five years beginning in 2018. By the end of 2018, 20,000 of the options had vested. At the end of 2019, these options were exercised when the stock price is $6.25. What is the total book-tax difference associated with the stock options for 2019? Is it favorable or unfavorable? How much of the adjustment is permanent and how much is temporary?

Accepted Answer

$35,000, favorable. $25,000 of the adjus

Question 8

Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total). The options vest over two years-half in 2019 (the year of issue) and half in 2020. One thousand options are exercised in 2020 with a bargain element on each option of $6. What is the 2020 book-tax difference associated with the stock options?

Accepted Answer

A)  $14,000 unfavorable. 
B)  $6,000 favorable. 
C)  $24,000 unfavorable. 
D)  $24,000 favorable. 
E)  None of the choices are correct. 
A)  $14,000 unfavorable. 
B)  $6,000 favorable. 
C)  $24,000 unfavorable. 
D)  $24,000 favorable. 
E)  None of the choices are correct.

Question 9

Coop Inc. owns 40 percent of Chicken Inc. Both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in the current year. Chicken also reports financial accounting earnings of $20,000 for that year. Assume Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction)?

Accepted Answer

A)  $2,000 unfavorable. 
B)  $2,000 favorable. 
C)  $10,000 unfavorable. 
D)  $10,000 favorable. 
E)  None of the choices are correct. 
A)  $2,000 unfavorable. 
B)  $2,000 favorable. 
C)  $10,000 unfavorable. 
D)  $10,000 favorable. 
E)  None of the choices are correct.

Question 10

On January 1, 2017, Credit Inc. recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2018, the auditors of Credit Inc. determined that the goodwill had been impaired by $50,000, and Credit Inc. wrote down the book value of the goodwill by $50,000. During 2019, the goodwill was not further impaired. In 2020, additional goodwill was impaired and was written down another $18,000 for financial reporting purposes. What is the temporary book-tax difference associated with the purchased goodwill in 2018, 2019, and 2020? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

Accepted Answer

2018: $32,000 unfavorable, tem

Question 11

Which of the following statements is false regarding consolidated tax returns?

Accepted Answer

A)  An affiliated group can file a consolidated tax return only if it elects to do so. 
B)  To file a consolidated tax return, one corporation must own at least 50 percent of the stock of another corporation. 
C)  For a group of corporations filing a consolidated tax return, an advantage is that losses of one group member may offset gains of another group member. 
D)  For a group of corporations filing a consolidated tax return, losses from certain intercompany transactions are deferred until realized through a transaction outside of the group. 
A)  An affiliated group can file a consolidated tax return only if it elects to do so. 
B)  To file a consolidated tax return, one corporation must own at least 50 percent of the stock of another corporation. 
C)  For a group of corporations filing a consolidated tax return, an advantage is that losses of one group member may offset gains of another group member. 
D)  For a group of corporations filing a consolidated tax return, losses from certain intercompany transactions are deferred until realized through a transaction outside of the group.

Question 12

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

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

Question 14

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

Accepted Answer

A)  Charitable contribution deduction. 
B)  Net capital loss carryback. 
C)  Net operating loss carryover from other years. 
D)  Both charitable contribution deduction and net operating loss carryover from other years are deductible in computing the current-year NOL. 
A)  Charitable contribution deduction. 
B)  Net capital loss carryback. 
C)  Net operating loss carryover from other years. 
D)  Both charitable contribution deduction and net operating loss carryover from other years are deductible in computing the current-year NOL.

Question 16

In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. Adams has a favorable temporary book-tax difference for that year.

Accepted Answer

A) True 
 B)False

Question 17

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

Accepted Answer

A) True 
 B)False

Question 18

Taxable income of all C corporations is subject to a flat 21 percent tax rate.

Accepted Answer

A) True 
 B)False

Question 19

Large corporations (corporations with more than $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year.

Accepted Answer

A) True 
 B)False

Question 20

NOL and capital loss carryovers are deductible in calculating the charitable contribution limit modified taxable income, while capital loss carrybacks are not.

Accepted Answer

A) True 
 B)False

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

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

A corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.

An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income.

In general, all C corporations can elect to use either the accrual or cash method of accounting.

Which of the following statements is false regarding consolidated tax returns?

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

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

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. Adams has a favorable temporary book-tax difference for that year.

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

Taxable income of all C corporations is subject to a flat 21 percent tax rate.

Large corporations (corporations with more than $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year.

NOL and capital loss carryovers are deductible in calculating the charitable contribution limit modified taxable income, while capital loss carrybacks are not.

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 regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

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

A corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.

An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income.

In general, all C corporations can elect to use either the accrual or cash method of accounting.

Which of the following statements is false regarding consolidated tax returns?

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

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

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. Adams has a favorable temporary book-tax difference for that year.

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

Taxable income of all C corporations is subject to a flat 21 percent tax rate.

Large corporations (corporations with more than $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year.

NOL and capital loss carryovers are deductible in calculating the charitable contribution limit modified taxable income, while capital loss carrybacks are not.

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