Exam 16: Corporate Operations

ValuCo gives you the following information: What is its ACE adjustment for the year? Is it favorable or unfavorable?

In 2017, 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 bookpurposes, it expensed $10,000 of meals and entertainment expenditures. What is the total book-taxdifference associated with these items? Is it favorable or unfavorable? What amount of the book-tax difference is temporary and what amount is permanent?

TireShop, Inc. owns 85% of Rubber Supply Co.'s voting stock throughout the tax year.TireShop and Rubber Supply would be considered as what kind of controlled group?

QDP Corporation's AMTI is $569,000 for 2017. Its regular tax liability is $110,000. What is itsAMT?

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

On January 1, 2005 [before the adoption of ASC 718], Net Optimizers Inc. granted 1,000nonqualified stock options (NQOs) valued at $.05 per option. Each option entitles the owner to purchase one share of stock for $1. These options vest at 10 percent per year for ten years. On December 31, 2017, 300 options are exercised when the stock price is $5. In 2017, what is the book-tax difference associated with the stock options? Is it favorable or unfavorable? Is it permanent or temporary?

Netgate Corporation's gross regular tax liability for 2017 was $95,375. What was its taxable income? (Use Corporate Tax Rate Schedule.)

The adjusted current earnings (ACE) adjustment is 75% of the difference between a corporation's alternative minimum taxable income before the ACE adjustment and its ACE.

If a corporation's cash charitable contributions exceed the charitable contribution deduction limit, what kind of book-tax difference is created?

Imperial Construction Inc. (IC) issued 100,000 incentive stock options (ISOs) to its employees on January 1, 2017 with an estimated value of $5.50 per option. The options vest (accrue) at 25 percent per year for four years (beginning in 2017). Each option allows the holder to purchase one share of stock at $8. On January 1, 2018, employees exercised 12,500 options as IC's stock price reached$14.72. What is the amount of the book-tax difference in 2018 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

IndusTree Inc. received $1,800,000 from the sale of a property in 2017. The property's adjustedbasis for regular tax purposes was $200,000 at the time of the sale. The property's adjusted basis forAMT purposes was $290,000. What is the amount of the AMT adjustment due to the sale of the asset? Does it increase or decrease AMTI?

Which of the following describes the correct treatment of incentive stock options (ISOs)granted when ASC 718 does not apply?

If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?

In the current year, FurnitureKing Corporation recognized $32,000 of income from aninstallment sale it made in a previous tax year. If installment sales are the only difference between ACE and alternative minimum taxable income (before the ACE adjustment), what is the amount and nature of the ACE adjustment for the current tax year?

Calendar-year corporations that request an extension for filing their 2017 tax returns will have a tax return due date of October 15.

TerraWise Inc. reported the following information for 2017: What is TerraWise Inc.'s AMTI?

Which of the following statements regarding controlled groups is false?

Pure Action Cycles Inc., a bicycle manufacturer, has a net capital loss in 2017 of $64,000. It had net capital gains of $21,500 in 2016, $45,000 in 2015, $10,000 in 2014 (but suffered a net operatingloss in 2014), and $8,000 of net capital gain in 2012. What is the net capital gain in 2016 after the carryback is applied?

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

On January 1, 2016, 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 2016. By the end of 2016, 20,000 of the options had vested. At the end of 2017, these options were exercised when the stock price is $6.25. What is the total value of the book-tax difference associated with the stock options for 2017? Is it favorable or unfavorable? How much of the adjustment is permanent and how much is temporary? (Note that ASC 718 applies to these transactions.)