Exam 16: Corporate Operations

Tatoo Inc. reported a net capital loss of $13,000 in 2017. It had a net capital gain of$4,300 in 2015 and $3,000 in 2014. In 2016, although the company suffered a netoperating 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?

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 statements regarding net operating losses generated in 2017 is true?

Which of the following statements regarding the alternative minimum tax is false?

VitalJuice Corporation reports the following schedule of prior year taxes it owed: What is VitalJuice's tax liability for Year 4?

In general, a corporation can elect to use either the accrual or cash method of accountingno matter how large the corporation.

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

For 2017, accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

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

Volos Company (a calendar-year corporation) began operations in March of 2015 and was not profitable through December of 2016. Volos has been profitable for the first quarter of 2017 and is trying to determine its first quarter estimated tax payment. It willhave no estimated tax payment requirement in 2017 because it had no tax liability for the2016 tax year and has been in business for at least 12 months.

For 2017, SRH's taxable income is $35,000 and JHH's taxable income is $45,000. Together, Scott and Jackson Howard own 100 percent of both corporations. What is the combined tax liability of the two corporations? (Use Corporate Tax Rate Schedule.)

Which of the following statements regarding AMT is true?

In January 2017, Khors Company issues 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 of2017, the company experiences 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 2017, what is the nature of the book-tax difference due to the options exercised?

In 2017, 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?

Assume a corporation is not required to pay AMT in the current year but will pay AMT next year. Also assume the corporation's regular marginal tax rate is 35%. Which tax planning strategy would minimize its after-tax cost of a charitable contribution it is considering paying to a qualified charity?

In 2017, Datasoft Inc. received $350,000 in dividends from CSLabs Inc. Datasoft's taxable income before the dividends received deduction and $20,000 charitable contribution deduction is $300,000. What is Datasoft's DRD assuming it owns 15% of the CSLabs Inc. stock?

Flywest Airlines, Inc. has regular taxable income of $190 million. It also has $10 million of AMT preference items, a $5 million unfavorable depreciation adjustment, and a $2 million favorable ACE adjustment (after the 75% adjustment). What is Flywest'salternative minimum tax income (AMTI)?

Net capital loss carryovers but not carrybacks are deductible against capital gains in determining a corporation's net operating loss for the year.

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

Minimum tax credits generated by the corporate AMT can be carried forward indefinitely.