Question 1

Net operating losses generally create permanent book-tax differences.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) Dividends are taxed at preferential rates for corporations and individuals. 
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 are taxed at preferential rates for corporations and individuals. 
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 3

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation)by corporations is true?

Accepted Answer

A) Corporations may not carryover or carryback excess charitable contributions. 
B) Corporations can carry excess charitable contributions over to a future year or back to a prior year. 
C) Corporations can carry excess charitable contributions over to a future year but not back to a prior year. 
D) Corporations can carry excess charitable contributions back to a prior year but not over to a future year. 
A) Corporations may not carryover or carryback excess charitable contributions. 
B) Corporations can carry excess charitable contributions over to a future year or back to a prior year. 
C) Corporations can carry excess charitable contributions over to a future year but not back to a prior year. 
D) Corporations can carry excess charitable contributions back to a prior year but not over to a future year.

Question 4

In the current year,Auto Rent Corporation reported the following taxable income at the end of its first,second,and third quarters:
 $\begin{array} { l c } 
& \text { Curnulative Taxab } \
\text { Quarter }& \text { Income } \
\text { First } & \$ 1,500,000 \
\text { Second } & \$ 2,800,000 \
\text { Third } & \$ 3,600,000
\end{array}$ What amount of estimated tax payments would Auto Rent pay each quarter in order to avoid estimated tax penalties under the annualized income method of computing estimated tax payments?

Accepted Answer

First quarter $315,000; ($1,500,000 × 4

Question 5

Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $50 on the property transferred.What is Roy's tax basis in the stock received in the exchange?

Accepted Answer

A) $800. 
B) $750. 
C) $700. 
D) $500. 
A) $800. 
B) $750. 
C) $700. 
D) $500.

Question 6

Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs)?

Accepted Answer

A) Financial-no expense; tax-no deduction. 
B) Financial-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-no expense; tax-no deduction. 
B) Financial-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 7

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.

Accepted Answer

A) True 
 B)False

Question 8

Ken and Jim agree to go into business together selling old comic books and records.According to the agreement,Ken will contribute inventory valued at $200,000 in return for 80 percent of the stock in the corporation.Ken's tax basis in the inventory is $120,000.Jim will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures).The accounting services are valued at $50,000.
Please answer the following questions about the tax consequences of the transaction to Ken.
a.What amount of gain or loss does Ken realize on the formation of the corporation?
b.What amount of gain or loss,if any,does he recognize?
c.What is Ken's tax basis in the stock he receives in return for his contribution of property to the corporation?

Accepted Answer

a.$80,000 gain  
 b.Ken does not recogni

Question 9

Harry and Sally formed Empire Corporation on January 2.Harry contributed cash of $500,000 in return for 50 percent of the corporation's stock.Sally contributed a building and land with the following fair market values and tax bases in return for 50 percent of the corporation's stock.
 $\begin{array} { l c c } 
 & \text { FMV } & \text { Tax Basis } \
\text { Buildirg }& 180,000 & 150,000 \
\text { Land } & \underline {420,000} & \underline {500,000} \
\text { Total }  & \underline {\$ 600,000} & \underline {\$ 650,000}
\end{array}$ To equalize the exchange,Empire Corporation paid Sally $100,000 in addition to her stock.
a.What amount of gain or loss does Sally realize on the formation of the corporation?
b.What amount of gain or loss,if any,does she recognize?
c.What is Sally's tax basis in the stock she receives in return for her contribution of property to the corporation?
d.What tax basis does Empire Corporation take in the land and building received from Sally?

Accepted Answer

None

Question 10

BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year.What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?

Accepted Answer

A) Permanent; favorable. 
B) Permanent; unfavorable. 
C) Temporary; favorable. 
D) Temporary; unfavorable. 
A) Permanent; favorable. 
B) Permanent; unfavorable. 
C) Temporary; favorable. 
D) Temporary; unfavorable.

Question 11

Keegan incorporated his sole proprietorship by transferring inventory,a building,and land to the corporation in return for 100 percent of the corporation's stock.The property transferred to the corporation had the following fair market values and tax bases.
 $\begin{array} { l r r r r } 
& \text { FMV } & \text { Tax Basis } \
\text { Irventory } & \$  20,000 & \$  14,000 \
\text { Buildirin } & 70,000 &  50,000 \
\text { Land } &\underline { 150,000 }&\underline {100,000} \
\text { Total } &\underline { \$ 240,000 }& \underline {\$ 164,000}
\end{array}$ The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Keegan.
Assuming the gain or loss realized in the previous problem is deferred under section 351,what is Keegan's basis in the stock he receives in his corporation?

Accepted Answer

$164,000 The stock t

Question 12

Antoine transfers property with a tax basis of $500 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $550 in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $50 on the property transferred.What is Antoine's tax basis in the stock received in the exchange?

Accepted Answer

A) $600. 
B) $550. 
C) $500. 
D) $450. 
A) $600. 
B) $550. 
C) $500. 
D) $450.

Question 13

Omnidata uses the annualized income method to determine its quarterly federal income tax payments.It had $100,000,$50,000,and $90,000 of taxable income for the first,second,and third quarters,respectively ($240,000 in total through the first three quarters).What is Omnidata's annual estimated taxable income for the tax year as of the end of the third quarter?

Accepted Answer

A) $300,000. 
B) $320,000. 
C) $400,000. 
D) $480,000. 
A) $300,000. 
B) $320,000. 
C) $400,000. 
D) $480,000.

Question 14

Zhao incorporated her sole proprietorship by transferring inventory,a building,and land to the corporation in return for 100 percent of the corporation's stock.The property transferred to the corporation had the following fair market values and tax bases.
 $\begin{array}{l}
\begin{array}{lll}
\
\text {Inventory} \
\text {Building} \
\text {Land} \
\text {Total} \
\end{array}
\begin{array}{lll}
\text { FMV } & \text { Tax Basis } \
\$ 80,000& \$ 40,000 \
100,000 & 120,000 \
\underline {200,000 }& \underline {120,000}\
\underline {\$ 380,000}&\underline {\$ 310,000}\
\end{array}
\end{array}$
 The corporation also assumed a mortgage of $50,000 attached to the building and land.The fair market value of the corporation's stock received in the exchange was $330,000.The transaction met the requirements to be tax-deferred under section 351.
a.What amount of gain or loss does Zhao realize on the transfer of the property to her corporation?
b.What amount of gain or loss does Zhao recognize on the transfer of the property to her corporation?
c.What is the corporation's tax basis in each of the assets received in the exchange?

Accepted Answer

None

Question 15

Large corporations 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 16

A taxpayer must receive voting common stock to be eligible for deferral in a section 351 exchange.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Maria defers $100 of gain realized in a section 351 transaction.The stock she receives in the exchange has a fair market value of $500.Maria's tax basis in the stock will be $400.

Accepted Answer

A) True 
 B)False

Question 19

Orange Inc.issued 20,000 nonqualified stock options valued at $40,000 (in total)on December 31,2017.The options vest entirely on December 31,2018.The options were all exercised in 2018 with a bargain element on each option of $3.What is the 2018 book-tax difference associated with the stock options?

Accepted Answer

A) $40,000 unfavorable. 
B) $40,000 favorable. 
C) $20,000 unfavorable. 
D) $20,000 favorable. 
E) None of the choices are correct. 
A) $40,000 unfavorable. 
B) $40,000 favorable. 
C) $20,000 unfavorable. 
D) $20,000 favorable. 
E) None of the choices are correct.

Question 20

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

Accepted Answer

A) 100 percent of the prior year's tax liability (with a few exceptions). 
B) 100 percent of the current year's tax liability. 
C) 100 percent of the estimated current year tax liability using the annualized income method. 
D) All of the choices are acceptable methods of determining the required annual payment of federal income tax for corporations. 
A) 100 percent of the prior year's tax liability (with a few exceptions). 
B) 100 percent of the current year's tax liability. 
C) 100 percent of the estimated current year tax liability using the annualized income method. 
D) All of the choices are acceptable methods of determining the required annual payment of federal income tax for corporations.

Net operating losses generally create permanent book-tax differences.

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

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation)by corporations is true?

Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs)?

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.

BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year.What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?

Large corporations are allowed to use the cash method of accounting for at least the first two years of their existence.

A taxpayer must receive voting common stock to be eligible for deferral in a section 351 exchange.

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

Maria defers $100 of gain realized in a section 351 transaction.The stock she receives in the exchange has a fair market value of $500.Maria's tax basis in the stock will be $400.

Orange Inc.issued 20,000 nonqualified stock options valued at $40,000 (in total)on December 31,2017.The options vest entirely on December 31,2018.The options were all exercised in 2018 with a bargain element on each option of $3.What is the 2018 book-tax difference associated with the stock options?

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview dependents and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Individual From Agi Deductions

Filters

Exam 12: Corporate Formations and Operations

Net operating losses generally create permanent book-tax differences.

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

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation)by corporations is true?

Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs)?

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.

BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year.What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?

Large corporations are allowed to use the cash method of accounting for at least the first two years of their existence.

A taxpayer must receive voting common stock to be eligible for deferral in a section 351 exchange.

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

Maria defers $100 of gain realized in a section 351 transaction.The stock she receives in the exchange has a fair market value of $500.Maria's tax basis in the stock will be $400.

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview dependents and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Individual From Agi Deductions

Filters