Question 1

Which of the following describes the correct treatment of incentive stock options (ISOs)?

Accepted Answer

A)  Financial accounting-no expense; tax-no deduction. 
B)  Financial accounting-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 accounting-no expense; tax-no deduction. 
B)  Financial accounting-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 2

In January 2020, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Miss Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2020, the company experienced a decline in its stock price, and Miss Svaro exercises the options. The total bargain element at the time of exercise is $40,000. For 2020, what is the nature of the book-tax difference due to the options exercised?

Accepted Answer

A)  Favorable and temporary. 
B)  Favorable and permanent. 
C)  Unfavorable and temporary. 
D)  Unfavorable and permanent. 
E)  Not enough information to determine. 
A)  Favorable and temporary. 
B)  Favorable and permanent. 
C)  Unfavorable and temporary. 
D)  Unfavorable and permanent. 
E)  Not enough information to determine.

Question 3

The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes.

Accepted Answer

A) True 
 B)False

Question 4

Corporation A receives a dividend from Corporation B. It includes the dividend in gross income for tax purposes but includes a pro-rata portion of B's earnings in its financial accounting income. If A has accounted for the dividend correctly (using the general rule), how much of B's stock does A own?

Accepted Answer

A)  A owns less than 20 percent of the stock of B. 
B)  A owns at least 20 but not more than 50 percent of the stock of B. 
C)  A owns more than 50 percent of the stock of B. 
D)  Cannot be determined. 
A)  A owns less than 20 percent of the stock of B. 
B)  A owns at least 20 but not more than 50 percent of the stock of B. 
C)  A owns more than 50 percent of the stock of B. 
D)  Cannot be determined.

Question 5

For incentive stock options, the value of the options that vest in a given year always creates a permanent, unfavorable book-tax difference.

Accepted Answer

A) True 
 B)False

Question 6

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

Accepted Answer

A) True 
 B)False

Question 7

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 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

Corporation A receives a dividend from Corporation B. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference). If A has accounted for the dividend correctly (following the general rule), how much of B stock does A own?

Accepted Answer

A)  A owns less than 20 percent of the stock of B. 
B)  A owns at least 20 but not more than 50 percent of the stock of B. 
C)  A owns more than 50 percent of the stock of B. 
D)  Cannot be determined. 
A)  A owns less than 20 percent of the stock of B. 
B)  A owns at least 20 but not more than 50 percent of the stock of B. 
C)  A owns more than 50 percent of the stock of B. 
D)  Cannot be determined.

Question 10

During 2020, Hughes Corporation sold a portfolio of stock it had held for five years at a loss of $200,000. It also sold some investment land and recognized a capital gain of $180,000. In 2018, Hughes reported a net capital gain of $12,000 and in 2019 it recognized a net capital gain of $6,000. What is the amount of its net capital loss carryover to 2021?

Accepted Answer

$2,000, co

Question 11

Corporations are not allowed to deduct charitable contributions in excess of 10percent of the corporation's taxable income (before the charitable contribution and certain other deductions).

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  Dividends received by corporations are taxed at a lower tax rate than ordinary income. 
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 received by corporations are taxed at a lower tax rate than ordinary income. 
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

In 2020 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 Corporations charitable contribution deduction?

Accepted Answer

$46,000, c

Question 14

An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income in the current year.

Accepted Answer

A) True 
 B)False

Question 15

Most corporations use the annualized income method to determine their required annual payment for purposes of making quarterly estimated payments.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is false regarding corporate estimated tax payments?

Accepted Answer

A)  The due dates for estimated tax payments are the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. 
B)  Corporations must pay estimated taxes only if they have a federal income tax liability greater than $10,000. 
C)  Even though a corporation extends its tax return, it still must pay its tax liability for the year by three and one-half months after year-end. 
D)  Corporations using the annualized income method for determining estimated tax payments project their tax liability for the year based on income from the first, second, and third quarters. 
A)  The due dates for estimated tax payments are the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. 
B)  Corporations must pay estimated taxes only if they have a federal income tax liability greater than $10,000. 
C)  Even though a corporation extends its tax return, it still must pay its tax liability for the year by three and one-half months after year-end. 
D)  Corporations using the annualized income method for determining estimated tax payments project their tax liability for the year based on income from the first, second, and third quarters.

Question 17

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 18

A corporation may carry a net capital loss back three years and forward five years.

Accepted Answer

A) True 
 B)False

Question 19

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

Accepted Answer

A) True 
 B)False

Question 20

For tax purposes, a corporation may deduct the entire amount of a net capital loss in the year incurred.

Accepted Answer

A) True 
 B)False

Which of the following describes the correct treatment of incentive stock options (ISOs)?

The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes.

For incentive stock options, the value of the options that vest in a given year always creates a permanent, unfavorable book-tax difference.

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

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

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.

Corporation A receives a dividend from Corporation B. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference). If A has accounted for the dividend correctly (following the general rule), how much of B stock does A own?

Corporations are not allowed to deduct charitable contributions in excess of 10percent of the corporation's taxable income (before the charitable contribution and certain other deductions).

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

An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income in the current year.

Most corporations use the annualized income method to determine their required annual payment for purposes of making quarterly estimated payments.

Which of the following statements is false regarding corporate estimated tax payments?

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

A corporation may carry a net capital loss back three years and forward five years.

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

For tax purposes, a corporation may deduct the entire amount of a net capital loss in the year incurred.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Business Entities Overview

Accounting for Income Taxes

Corporate Taxation: Non-Liquidating 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

Which of the following describes the correct treatment of incentive stock options (ISOs)?

The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes.

For incentive stock options, the value of the options that vest in a given year always creates a permanent, unfavorable book-tax difference.

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

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

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.

Corporation A receives a dividend from Corporation B. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference). If A has accounted for the dividend correctly (following the general rule), how much of B stock does A own?

Corporations are not allowed to deduct charitable contributions in excess of 10percent of the corporation's taxable income (before the charitable contribution and certain other deductions).

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

An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income in the current year.

Most corporations use the annualized income method to determine their required annual payment for purposes of making quarterly estimated payments.

Which of the following statements is false regarding corporate estimated tax payments?

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

A corporation may carry a net capital loss back three years and forward five years.

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

For tax purposes, a corporation may deduct the entire amount of a net capital loss in the year incurred.

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Business Entities Overview

Accounting for Income Taxes

Corporate Taxation: Non-Liquidating 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