Question 1

A corporation generally will report a favorable,temporary book-tax difference when it deducts a charitable contribution carryover.

Accepted Answer

A) True 
 B)False  True

Question 2

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  True

Question 3

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  True

Question 4

An affiliated group must file a consolidated tax return.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

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?

Accepted Answer

A) $11,000 unfavorable. 
B) $11,000 favorable. 
C) $16,000 unfavorable. 
D) $16,000 favorable. 
A) $11,000 unfavorable. 
B) $11,000 favorable. 
C) $16,000 unfavorable. 
D) $16,000 favorable.

Question 8

C corporations with annual average gross receipts of $26 million or more are allowed to use the cash method of accounting for at least the first two years of their existence.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

Netgate Corporation's gross regular tax liability for 2019 was $189,000.What was its taxable income?

Accepted Answer

$900,000.{

Question 12

Which of the following statements regarding the dividends and/or the dividends received deduction (DRD)is true?

Accepted Answer

A) Dividends are taxed at preferential rates for corporations as well as for individuals. 
B) The DRD can increase the net operating loss of a corporation. 
C) Corporations are allowed to deduct from a dividend received the product of the dividend and the percentage of the receiving corporation's ownership in the distributing corporation's stock. 
D) The DRD allows corporations to deduct the amount of dividends that they distribute. 
A) Dividends are taxed at preferential rates for corporations as well as for individuals. 
B) The DRD can increase the net operating loss of a corporation. 
C) Corporations are allowed to deduct from a dividend received the product of the dividend and the percentage of the receiving corporation's ownership in the distributing corporation's stock. 
D) The DRD allows corporations to deduct the amount of dividends that they distribute.

Question 13

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.

Question 14

Volos Company (a calendar-year corporation)began operations in March of 2017 and was not profitable through December of 2018.Volos has been profitable for the first quarter of 2019 and is trying to determine its first quarter estimated tax payment.It will have no estimated tax payment requirement in 2019 because it had no tax liability for the 2018 tax year and has been in business for at least 12 months.

Accepted Answer

A) True 
 B)False

Question 15

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 16

For a corporation,goodwill created in an asset acquisition generally leads to temporary book-tax differences.

Accepted Answer

A) True 
 B)False

Question 17

In the current year,Auto Rent Corporation reported the following taxable income at the end of its first,second,and third quarters: (Use Exhibit 16-10)
   What amount of estimated tax payments would Auto Rent pay each quarter to avoid estimated tax penalties under the annualized income method of computing estimated tax payments?

Accepted Answer

First quarter $315,000; ($1,500,000 × 4

Question 18

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 19

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 20

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.

Exam 16: Corporate Operations

A corporation generally will report a favorable,temporary book-tax difference when it deducts a charitable contribution carryover.

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

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

An affiliated group must file a consolidated tax return.

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

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

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?

C corporations with annual average gross receipts of $26 million or more are allowed to use the cash method of accounting for at least the first two years of their existence.

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

Netgate Corporation's gross regular tax liability for 2019 was $189,000.What was its taxable income?

Which of the following statements regarding the dividends and/or the dividends received deduction (DRD)is true?

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

For a corporation,goodwill created in an asset acquisition generally leads to temporary book-tax differences.

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

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

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

An Introduction to Tax

Tax Compliance,the Irs,and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview,dependents,and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

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 Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

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