Question 1

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

Accepted Answer

A)  The DRD allows corporations to deduct the amount of dividends that they distribute. 
B)  Dividends are taxed at preferential rates for corporations as well as for individuals. 
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 can increase the net operating loss of a corporation. 
A)  The DRD allows corporations to deduct the amount of dividends that they distribute. 
B)  Dividends are taxed at preferential rates for corporations as well as for individuals. 
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 can increase the net operating loss of a corporation.

Question 2

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 followingstatements is true?

Accepted Answer

A)  To avoid penalty, the second quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its first quarter estimated taxable income (assume it does not rely on its current year actual tax
Liability to determine its estimated tax payment). 
B)  To avoid penalty, the third quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its third quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment). 
C)  Rapidpro may use the prior year tax liability to determine its first and second quarter estimated tax payments only since it is a large corporation. 
D)  None of the choices are true. 
A)  To avoid penalty, the second quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its first quarter estimated taxable income (assume it does not rely on its current year actual tax
Liability to determine its estimated tax payment). 
B)  To avoid penalty, the third quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its third quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment). 
C)  Rapidpro may use the prior year tax liability to determine its first and second quarter estimated tax payments only since it is a large corporation. 
D)  None of the choices are true.

Question 3

Which of the following describes the correct treatment of incentive stock options (ISOs)granted when ASC 718 applies?

Accepted Answer

A)  Financial accounting-no expense; tax-deduct bargain element at exercise. 
B)  Financial accounting-no expense; tax-no deduction. 
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 accounting-no expense; tax-deduct bargain element at exercise. 
B)  Financial accounting-no expense; tax-no deduction. 
C)  Financial-expense value over vesting period; tax-no deduction. 
D)  Financial-expense value over vesting period; tax-deduct bargain element at exercise.

Question 4

Although a corporation may report a temporary book-tax difference for an item ofincome 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 5

XPO Corporation has a minimum tax credit of $51,000 from 2016. If its 2017 tentative minimum tax is $211,000 and its regular tax liability is $250,000, what is its minimum tax credit carryover to 2018?

Accepted Answer

A)  $51,000. 
B)  $0. 
C)  $12,000. 
D)  $39,000. 
A)  $51,000. 
B)  $0. 
C)  $12,000. 
D)  $39,000.

Question 6

BTW Corporation has taxable income in the current year that can be offset with an NOL 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?

Accepted Answer

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

Question 7

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

Accepted Answer

A)  Key employee death benefit income. 
B)  Fines and penalties expenses. 
C)  Organizational and start-up expenses. 
D)  Municipal bond interest income. 
A)  Key employee death benefit income. 
B)  Fines and penalties expenses. 
C)  Organizational and start-up expenses. 
D)  Municipal bond interest income.

Question 8

AB Inc. received a dividend from CD Corporation and is able to claim a dividends receiveddeduction 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) assuming its ordinary marginal tax rate is 34%?

Accepted Answer

10.2% [34%

Question 9

In 2017, AutoUSA Inc. received $4,600,000 of book income, including $20,000 of interest income from tax-exempt municipal bonds. AutoUSA reported $3,600,000 of regular business expenses. If it made $350,000 of estimated tax payments (prepayments) throughout the tax year, what is its tax due or tax refund when it files its return? Assume AutoUSA pays taxes at a flat 34 percent rate anddisregard the alternative minimum tax.

Accepted Answer

The answer of In 2017, AutoUSA Inc. received $4,600,000 of...

Question 10

Corporations are allowed to deduct at least some AMT exemption regardless of profitability.

Accepted Answer

A) True 
 B)False

Question 11

Depreciation adjustments can increase or decrease the AMT base relative to taxable income.

Accepted Answer

A) True 
 B)False

Question 12

In 2017, Webtel Corporation donated $50,000 to a qualifying charity. For the year, it reported taxable income of $310,000, which included the following: the $50,000 charitable contribution (before limitation), a $100,000 dividends received deduction, and a $20,000 net operating loss carryover. What is Webtel Corp.'s charitable contribution deduction?

Accepted Answer

$46,000, c

Question 13

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

Accepted Answer

A)  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. 
B)  To file a consolidated tax return, one corporation must own at least 50% 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)  An affiliated group can file a consolidated tax return only if it elects to do so. 
A)  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. 
B)  To file a consolidated tax return, one corporation must own at least 50% 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)  An affiliated group can file a consolidated tax return only if it elects to do so.

Question 14

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

Accepted Answer

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

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

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 operating losses from other years. 
C)  Net capital loss carryback. 
D)  Domestic production activities deduction. 
A)  Charitable contribution deduction. 
B)  Net operating losses from other years. 
C)  Net capital loss carryback. 
D)  Domestic production activities deduction.

Question 17

Three brothers each own 20% of the stock in three corporations. Because no single brother owns more than 50% of a corporation, the tax law would not treat thecorporations as a controlled group.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 16: Corporate Operations

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

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 followingstatements is true?

Which of the following describes the correct treatment of incentive stock options (ISOs)granted when ASC 718 applies?

Although a corporation may report a temporary book-tax difference for an item ofincome 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.

XPO Corporation has a minimum tax credit of $51,000 from 2016. If its 2017 tentative minimum tax is $211,000 and its regular tax liability is $250,000, what is its minimum tax credit carryover to 2018?

BTW Corporation has taxable income in the current year that can be offset with an NOL 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?

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

Corporations are allowed to deduct at least some AMT exemption regardless of profitability.

Depreciation adjustments can increase or decrease the AMT base relative to taxable income.

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

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

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

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

Three brothers each own 20% of the stock in three corporations. Because no single brother owns more than 50% of a corporation, the tax law would not treat thecorporations as a controlled group.

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.

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.

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

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, 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 US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

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