Exam 5: Corporate Operations

AB Inc. 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 dividends received (after taking the DRD into account)?

Corporations calculate adjusted gross income (AGI) in the same way as individuals.

The dividends received deduction cannot create a net operating loss. The deduction can reduce income to zero but not below zero.

Which of the following is not calculated in the corporate income tax formula?

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

WFO Corporation has gross receipts according to the following schedule: 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?

For corporations, which of the following regarding net capital losses is True?

It is important to distinguish between temporary and permanent book-tax differences for which of the following reasons?

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.

For estimated tax purposes, a "large" corporation is any corporation with average annual gross receipts of $5,000,000 in the three years prior to 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.

On January 1, 2017, 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 2017. By the end of 2017, 20,000 of the options had vested. At the end of 2018, these options were exercised when the stock price is $6.25. What is the total book-tax difference associated with the stock options for 2018? Is it favorable or unfavorable? How much of the adjustment is permanent and how much is temporary?

On January 1, 2016, Credit Inc. recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2017, the auditors of Credit Inc. determined that the goodwill had been impaired by $50,000 and Credit Inc. wrote down the book value of the goodwill by $50,000. During 2018, the goodwill was not further impaired. In 2019, additional goodwill was impaired and was written down another $18,000 for financial reporting purposes. What is the temporary book-tax difference associated with the purchased goodwill in 2017, 2018, and 2019? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

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

C corporations with annual average gross receipts of $25 million or more are allowed to use the cash method of accounting for at least the first two years of their existence.

Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total). The options vest over two years-half in 2018 (the year of issue) and half in 2019. One thousand options are exercised in 2019 with a bargain element on each option of $6. What is the 2019 book-tax difference associated with the stock options?

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

What is the unextended due date of the tax return of a calendar-year C corporation for 2018?

In January 2018, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2018, the company experienced a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $40,000. For 2018, what is the nature of the book-tax difference due to the options exercised?

Pure Action Cycles Inc., a bicycle manufacturer, has a net capital loss in 2018 of $(64,000). It had net capital gains of $21,500 in 2017, $45,000 in 2016, $10,000 in 2015 (but suffered a net operating loss in 2015), and $8,000 of net capital gain in 2014. What is the net capital gain in 2017 after the carryback is applied?