Question 1

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

Accepted Answer

A)  In general, smaller corporations are required to complete Schedule M-1 while larger corporations are required to complete Schedule M-3. 
B)  Schedule M-3 lists more book-tax differences than Schedule M-1. 
C)  Both Schedules M-1 and M-3 reconcile to a corporation's bottom line taxable income. 
D)  Schedule M-1 does not distinguish between temporary and permanent book-tax differences whereas Schedule M-3 does. 
A)  In general, smaller corporations are required to complete Schedule M-1 while larger corporations are required to complete Schedule M-3. 
B)  Schedule M-3 lists more book-tax differences than Schedule M-1. 
C)  Both Schedules M-1 and M-3 reconcile to a corporation's bottom line taxable income. 
D)  Schedule M-1 does not distinguish between temporary and permanent book-tax differences whereas Schedule M-3 does.

Question 2

Although a corporation may report a temporary book-tax difference for an item of income 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 3

Jazz Corporation owns 10 percent of the Mitchell Corporation stock. Mitchell distributed a $11,000 dividend to Jazz Corporation. Jazz Corporation's taxable income (loss) before the dividendincome was ($2,100). What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

Accepted Answer

A)  $0. 
B)  $4,450. 
C)  $5,500. 
D)  $7,325. 
E)  None of the choices are correct. 
A)  $0. 
B)  $4,450. 
C)  $5,500. 
D)  $7,325. 
E)  None of the choices are correct.

Question 4

For Corporation P to file a consolidated tax return with Corporation S, P must own what percentage of S's voting stock?

Accepted Answer

A)  100 percent. 
B)  80 percent. 
C)  More than 50 percent. 
D)  50percent or more. 
A)  100 percent. 
B)  80 percent. 
C)  More than 50 percent. 
D)  50percent or more.

Question 5

Corporations and individuals are allowed to claim the qualified business income deduction.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

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

Question 7

LuxAir Incorporated (LA) has book income of $163,000. Included in this figure is income generated from ownership in JRC, of which LA owns 30 percent. JRC has $271,500 in earnings for the year and pays $32,225 in dividends to LA. Assuming accounting for the investment in JRC (income from JRC and the DRD) are its only book-tax differences, what is LA's tax liability for the year?

Accepted Answer

${{[a(23)]

Question 8

Jazz Corporation owns 50 percent of the Mitchell Corporation stock. Mitchell distributed a $17,000 dividend to Jazz Corporation. Jazz Corporations taxable income before the dividend was $100,700. What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

Accepted Answer

A)  $0. 
B)  $8,500. 
C)  $11,050. 
D)  $17,000. 
A)  $0. 
B)  $8,500. 
C)  $11,050. 
D)  $17,000.

Question 9

Which of the following statements regarding net operating losses generated in 2020 is true?

Accepted Answer

A)  Corporations can carrythe NOL back two years and forward up to 20 years. 
B)  A corporation can carry over the NOL indefinitely. 
C)  A corporation can carrythe NOL back two years and forward indefinitely. 
D)  When a corporation applies a net operating loss carryover, it reports a favorable, permanent book-tax difference in the amount of the applied carryover. 
E)  None of these is a true statement. 
A)  Corporations can carrythe NOL back two years and forward up to 20 years. 
B)  A corporation can carry over the NOL indefinitely. 
C)  A corporation can carrythe NOL back two years and forward indefinitely. 
D)  When a corporation applies a net operating loss carryover, it reports a favorable, permanent book-tax difference in the amount of the applied carryover. 
E)  None of these is a true statement.

Question 10

AB Incorporated received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent) on the dividend received (after taking the DRD into account)?

Accepted Answer

10.5% [21%

Question 11

Corporations are not allowed to deduct charitable contributions in excess of a percentage of modified taxable income limitation (before the charitable contribution and certain other deductions).

Accepted Answer

A) True 
 B)False

Question 12

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 50percent or more 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 50percent or more 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 13

Which of the following is deductible in calculating DRD modified taxable income?

Accepted Answer

A)  Charitable contribution deduction. 
B)  Net capital loss carrybacks. 
C)  NOL carryovers. 
D)  Dividends received deduction. 
A)  Charitable contribution deduction. 
B)  Net capital loss carrybacks. 
C)  NOL carryovers. 
D)  Dividends received deduction.

Question 14

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 ${{[a(11)]:#,###}}; (${{[a

Question 15

In 2020, Carbonfab Manufacturers Incorporated 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?

Accepted Answer

$86,000, unfavorable

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Jazz Corporation owns 50percent of the Mitchell Corporation stock. Mitchell distributed a $10,000 dividend to Jazz Corporation. Jazz Corporations taxable income before the dividend was $100,000. What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

Accepted Answer

A)  $0. 
B)  $5,000. 
C)  $6,500. 
D)  $10,000. 
A)  $0. 
B)  $5,000. 
C)  $6,500. 
D)  $10,000.

Question 18

In January 2019, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company did not expect Miss Svaro to leave the company, the options vested at the time they were granted with a total value of $50,000. In December of 2020, the company experienced a surge in its stock price, and Miss Svaro exercised the options. The total bargain element at the time of exercise was $60,000. For 2020, what is the book-tax difference due to the options exercised?

Accepted Answer

A)  $10,000 unfavorable. 
B)  $10,000 favorable. 
C)  $50,000 unfavorable. 
D)  $60,000 favorable. 
A)  $10,000 unfavorable. 
B)  $10,000 favorable. 
C)  $50,000 unfavorable. 
D)  $60,000 favorable.

Question 19

LuxAir Incorporated (LA) has book income of $160,000. Included in this figure is income generated from ownership in Jet Repair Corporation (JRC), of which LA owns 30 percent. JRC has $270,000 in earnings for the year and pays $32,000 in dividends to LA. Assuming accounting for the investment in JRC (income from JRC and the DRD) are its only book-tax differences, what is LA's tax liability for the year?

Accepted Answer

$18,942, c

Question 20

In 2020, US Sys Corporation received $268,000 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 $38,000. In addition, for book purposes, it expensed $28,000 of business meals expenditures. What is the total book-tax difference associated with these items? Is it favorable or unfavorable? What amount of the book-tax difference is temporary and what amount is permanent?

Accepted Answer

${{[a(5)]:#,###}} fa

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

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

For Corporation P to file a consolidated tax return with Corporation S, P must own what percentage of S's voting stock?

Corporations and individuals are allowed to claim the qualified business income deduction.

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

Which of the following statements regarding net operating losses generated in 2020 is true?

AB Incorporated received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent) on the dividend received (after taking the DRD into account)?

Corporations are not allowed to deduct charitable contributions in excess of a percentage of modified taxable income limitation (before the charitable contribution and certain other deductions).

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

Which of the following is deductible in calculating DRD modified taxable income?

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

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 regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

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

For Corporation P to file a consolidated tax return with Corporation S, P must own what percentage of S's voting stock?

Corporations and individuals are allowed to claim the qualified business income deduction.

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

Which of the following statements regarding net operating losses generated in 2020 is true?

AB Incorporated received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent) on the dividend received (after taking the DRD into account)?

Corporations are not allowed to deduct charitable contributions in excess of a percentage of modified taxable income limitation (before the charitable contribution and certain other deductions).

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

Which of the following is deductible in calculating DRD modified taxable income?

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

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