Exam 5: Corporate Operations

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

Orange Incorporated issued 26,000 nonqualified stock options valued at $52,000 (in total). The options vest over two years-half in 2020 (the year of issue) and half in 2020. One thousand options are exercised in 2021 with a bargain element on each option of $6. What is the 2021 book-tax difference associated with the stock options?

Pure Action Cycles Incorporated, a bicycle manufacturer, has a net capital loss in 2020 of $(72,000). It had net capital gains of $23,300 in 2019, $49,000 in 2018, $10,800 in 2017 (but suffered a net operating loss in 2017), and $8,800 of net capital gain in 2016. What is the net capital gain in 2019 after the carryback is applied?

Coop Incorporated owns 10 percent of Chicken Incorporated. At the end of the year, Coop has $100,000 in invested Chicken stock and Coop's Chicken stock is worth $115,000. Both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in the current year. Chicken also reports financial accounting earnings of $20,000 for that year. Assume Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction)?

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

Which of the following statements regarding nonqualified stock options (NQOs) is false?