Question 1

The dividends received deduction is designed to mitigate the extent to which corporate earnings are subject to more than two levels of taxation.

Accepted Answer

A) True 
 B)False

Question 2

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 ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Accepted Answer

A)  $0. 
B)  $2,000. 
C)  $4,000. 
D)  $5,000. 
E)  None of the choices are correct. 
A)  $0. 
B)  $2,000. 
C)  $4,000. 
D)  $5,000. 
E)  None of the choices are correct.

Question 3

The dividends received deduction cannot create a net operating loss. The deduction can reduce income to zero but not below zero.

Accepted Answer

A) True 
 B)False

Question 4

For book purposes, RadioAircast Inc. reported $15,000 of income from municipal bonds in 2018. It also expensed $12,000 of radio station filing fines paid to the FCC the same year. What is the total book-tax difference associated with these items? Is it favorable or unfavorable? What amount of the total adjustment is permanent and what amount is temporary?

Accepted Answer

$3,000, favorable bo

Question 5

It is important to distinguish between temporary and permanent book-tax differences for which of the following reasons?

Accepted Answer

A)  Temporary book-tax differences affect the computation of taxable income whereas permanent differences do not. 
B)  All corporations are required to disclose book-tax differences as permanent or temporary on their tax returns. 
C)  Temporary book-tax differences will reverse in future years whereas permanent differences will not. 
D)  Neither temporary nor permanent book-tax differences will reverse in future years. 
A)  Temporary book-tax differences affect the computation of taxable income whereas permanent differences do not. 
B)  All corporations are required to disclose book-tax differences as permanent or temporary on their tax returns. 
C)  Temporary book-tax differences will reverse in future years whereas permanent differences will not. 
D)  Neither temporary nor permanent book-tax differences will reverse in future years.

Question 6

Corporations calculate adjusted gross income (AGI) in the same way as individuals.

Accepted Answer

A) True 
 B)False

Question 7

Bingo Corporation incurred a $10 million net operating loss in 2019. Bingo reported taxable income of $12 million in 2020. Bingo can offset the entire $10 million NOL carryover against taxable income in 2020.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements regarding capital gains and losses is false?

Accepted Answer

A)  In terms of tax treatment, corporations generally prefer capital gains to ordinary income. 
B)  Like individuals, corporations can deduct $3,000 of net capital losses against ordinary income in a given year. 
C)  C corporations can carry back net capital losses three years and they can carry them forward for five years. 
D)  Corporations must apply capital loss carrybacks and carryovers in a particular order. 
A)  In terms of tax treatment, corporations generally prefer capital gains to ordinary income. 
B)  Like individuals, corporations can deduct $3,000 of net capital losses against ordinary income in a given year. 
C)  C corporations can carry back net capital losses three years and they can carry them forward for five years. 
D)  Corporations must apply capital loss carrybacks and carryovers in a particular order.

Question 9

Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as either temporary or permanent.

Accepted Answer

A) True 
 B)False

Question 10

In 2019, LuxAir Inc. (LA) has book income of $160,000. Included in this figure is income generated from ownership in Jet Repair Corporation (JRC), of which LA owns 30 percent. JRC has $270,000 in earnings for the year and pays $32,000 in dividends to LA. Assuming accounting for the investment in JRC (income from JRC and the DRD) are its only book-tax differences, what is LA's tax liability for 2019?

Accepted Answer

$18,942, c

Question 11

Which of the following is not required to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity?

Accepted Answer

A)  Approval of the payment from the board of directors. 
B)  Approval from the IRS prior to making the contribution. 
C)  Payment made within three and one-half months of the tax year-end. 
D)  All of the choices are necessary. 
A)  Approval of the payment from the board of directors. 
B)  Approval from the IRS prior to making the contribution. 
C)  Payment made within three and one-half months of the tax year-end. 
D)  All of the choices are necessary.

Question 12

In 2019, 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 business meals 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 favorable;

Question 13

For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are exercised.

Accepted Answer

A) True 
 B)False

Question 14

Over what time period do corporations amortize purchased goodwill for tax purposes?

Accepted Answer

A)  180 months. 
B)  150 months. 
C)  60 months. 
D)  None of the choices are correct. 
A)  180 months. 
B)  150 months. 
C)  60 months. 
D)  None of the choices are correct.

Question 15

iScope Inc. paid $3,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book-tax difference relating to this expense?

Accepted Answer

A)  Permanent; favorable. 
B)  Permanent; unfavorable. 
C)  Temporary; favorable. 
D)  Temporary; unfavorable. 
A)  Permanent; favorable. 
B)  Permanent; unfavorable. 
C)  Temporary; favorable. 
D)  Temporary; unfavorable.

Question 16

Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs)?

Accepted Answer

A)  Financial-no expense; tax-no deduction. 
B)  Financial-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-no expense; tax-no deduction. 
B)  Financial-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 17

For estimated tax purposes, a "large" corporation is any corporation with average annual gross receipts of $5,000,000 in the three years prior to the current year.

Accepted Answer

A) True 
 B)False

Question 18

Imperial Construction Inc. (IC) issued 100,000 incentive stock options (ISOs) to its employees on January 1, 2018, with an estimated value of $5.50 per option. The options vest (accrue) at 25 percent per year for four years (beginning in 2019). Each option allows the holder to purchase one share of stock at $8. On January 1, 2020, employees exercised 12,500 options as IC's stock price reached $14.72. What is the amount of the book-tax difference in 2020 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

Accepted Answer

$137,500 unfavorable

Question 19

Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.

Accepted Answer

A) True 
 B)False

Question 20

Omnidata uses the annualized income method to determine its quarterly federal income tax payments. It had $100,000, $50,000, and $90,000 of taxable income for the first, second, and third quarters, respectively ($240,000 in total through the first three quarters). What is Omnidata's annual estimated taxable income as of the end of the third quarter?

Accepted Answer

A)  $300,000. 
B)  $320,000. 
C)  $400,000. 
D)  $480,000. 
A)  $300,000. 
B)  $320,000. 
C)  $400,000. 
D)  $480,000.

The dividends received deduction is designed to mitigate the extent to which corporate earnings are subject to more than two levels of taxation.

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 ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

The dividends received deduction cannot create a net operating loss. The deduction can reduce income to zero but not below zero.

It is important to distinguish between temporary and permanent book-tax differences for which of the following reasons?

Corporations calculate adjusted gross income (AGI) in the same way as individuals.

Bingo Corporation incurred a $10 million net operating loss in 2019. Bingo reported taxable income of $12 million in 2020. Bingo can offset the entire $10 million NOL carryover against taxable income in 2020.

Which of the following statements regarding capital gains and losses is false?

Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as either temporary or permanent.

Which of the following is not required to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity?

For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are exercised.

Over what time period do corporations amortize purchased goodwill for tax purposes?

iScope Inc. paid $3,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book-tax difference relating to this expense?

Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs)?

For estimated tax purposes, a "large" corporation is any corporation with average annual gross receipts of $5,000,000 in the three years prior to the current year.

Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.

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

The dividends received deduction is designed to mitigate the extent to which corporate earnings are subject to more than two levels of taxation.

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 ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

The dividends received deduction cannot create a net operating loss. The deduction can reduce income to zero but not below zero.

It is important to distinguish between temporary and permanent book-tax differences for which of the following reasons?

Corporations calculate adjusted gross income (AGI) in the same way as individuals.

Bingo Corporation incurred a $10 million net operating loss in 2019. Bingo reported taxable income of $12 million in 2020. Bingo can offset the entire $10 million NOL carryover against taxable income in 2020.

Which of the following statements regarding capital gains and losses is false?

Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as either temporary or permanent.

Which of the following is not required to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity?

For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are exercised.

Over what time period do corporations amortize purchased goodwill for tax purposes?

iScope Inc. paid $3,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book-tax difference relating to this expense?

Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs)?

For estimated tax purposes, a "large" corporation is any corporation with average annual gross receipts of $5,000,000 in the three years prior to the current year.

Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.

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