Question 1

For incentive stock options,the value of the options that is expensed as compensation in a given year creates a permanent,unfavorable book-tax difference.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with a fair market value of $650 and $50 cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $100 on the property transferred.What is the corporation's tax basis in the property received in the exchange?

Accepted Answer

A) $800. 
B) $600. 
C) $550. 
D) $450. 
A) $800. 
B) $600. 
C) $550. 
D) $450.

Question 4

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 5

Which of the following statements regarding incentive stock options (ISOs)is false?

Accepted Answer

A) ISOs that vest create solely permanent book-tax differences. 
B) For ISOs,book-tax differences are always unfavorable. 
C) For books,the initial estimated value of the ISOs is expensed pro-rata over the vesting period. 
D) Book-tax differences associated with ISOs may be either permanent or temporary. 
A) ISOs that vest create solely permanent book-tax differences. 
B) For ISOs,book-tax differences are always unfavorable. 
C) For books,the initial estimated value of the ISOs is expensed pro-rata over the vesting period. 
D) Book-tax differences associated with ISOs may be either permanent or temporary.

Question 6

Large corporations (corporations with over $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.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) A corporations can carry a net operating loss incurred in 2017 forward indefinitely. 
B) A corporation can carry forward a net operating incurred in 2018 to 2019 but it may offset only 80 percent of taxable income (before the NOL deduction)in 2019. 
C) When a corporation applies a net operating loss carryover,it reports a favorable,permanent book-tax difference in the amount of the applied carryover. 
D) None of these is a true statement. 
A) A corporations can carry a net operating loss incurred in 2017 forward indefinitely. 
B) A corporation can carry forward a net operating incurred in 2018 to 2019 but it may offset only 80 percent of taxable income (before the NOL deduction)in 2019. 
C) When a corporation applies a net operating loss carryover,it reports a favorable,permanent book-tax difference in the amount of the applied carryover. 
D) None of these is a true statement.

Question 8

The City of Boston made a capital contribution of land to Fenway Company as an inducement to the company to build a manufacturing plant in the city.The land was valued at $500,000 at the time of the contribution.What gain,if any,does Fenway recognize on the contribution and what is Fenway's basis in the land?

Accepted Answer

$500,000 income.$500,000 basis

Question 9

Calendar-year corporations that request an extension for filing their tax returns will have a extended tax return due date of October 15.

Accepted Answer

A) True 
 B)False

Question 10

Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in exchange for stock with a fair market value of $250 in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $50 on the property transferred.What is the corporation's tax basis in the property received in the exchange?

Accepted Answer

A) $150. 
B) $200. 
C) $250. 
D) $300. 
A) $150. 
B) $200. 
C) $250. 
D) $300.

Question 11

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?

Accepted Answer

A) The shareholder recognizes gain and loss on the transfer and the corporation's basis in the property transferred equals its fair market value. 
B) The shareholder does not recognize gain and loss on the transfer and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred. 
C) The shareholder recognizes gain and loss on the transfer and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred. 
D) The shareholder does not recognize gain and loss on the transfer and the corporation's basis in the property transferred equals zero. 
A) The shareholder recognizes gain and loss on the transfer and the corporation's basis in the property transferred equals its fair market value. 
B) The shareholder does not recognize gain and loss on the transfer and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred. 
C) The shareholder recognizes gain and loss on the transfer and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred. 
D) The shareholder does not recognize gain and loss on the transfer and the corporation's basis in the property transferred equals zero.

Question 12

Boston,Inc.made a capital contribution of investment property to its 100 percent-owned subsidiary,Hartford Company.The investment property had a fair market value of $1,000,000 and a tax basis to Boston of $250,000.What are the tax consequences to Boston,Inc.on the contribution of the investment property to Hartford Company and what is the tax basis of the investment property to Hartford Company after the contribution to capital?

Accepted Answer

No gain is recognized by Boston,Inc.The

Question 13

Which of the following class of stock is not allowed to be used in a section 351 transaction?

Accepted Answer

A) Voting common stock. 
B) Voting preferred stock. 
C) Nonvoting preferred stock. 
D) All of the choices of classes of stock can be used in a section 351 transaction. 
A) Voting common stock. 
B) Voting preferred stock. 
C) Nonvoting preferred stock. 
D) All of the choices of classes of stock can be used in a section 351 transaction.

Question 14

Francine 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.
 $\begin{array} { l r r r } 
& \text { FMV } & \text { Tax Basis } \
\text { Inventory } & \$ 30,000 & \$ 10,000 \
\text { Buildirin } & 130,000 &  80,000 \
\text { Land } & \underline {50,000} & \underline {100,000} \
\text { Total } & \underline {\$ 210,000 }& \underline {\$ 190,000}
\end{array}$ The corporation also assumed a mortgage of $60,000 attached to the building and land.The fair market value of the corporation's stock received in the exchange was $150,000.
a.What amount of gain or loss does Francine realize on the transfer of the property to her corporation?
b.What amount of gain or loss does Francine recognize on the transfer of the property to her corporation?
c.What is Francine's basis in the stock she receives in her corporation?

Accepted Answer

a.$20,000   b.Francine does not recogniz

Question 15

Imperial Construction Inc.(IC)issued 100,000 incentive stock options (ISOs)to its employees on December 31,2017 with an estimated value of $5.50 per option.The options vest at 25 percent per year for four years (beginning on December 31,2018).Each option allows the holder to purchase one share of stock at $8.On December 31,2018,employees exercised 12,500 options when IC's stock was valued at $14.72 per share.What is the amount of the book-tax difference in 2018 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

Accepted Answer

$137,500 unfavorable,permanent book-tax

For incentive stock options,the value of the options that is expensed as compensation in a given year creates a permanent,unfavorable book-tax difference.

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

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

Which of the following statements regarding incentive stock options (ISOs)is false?

Large corporations (corporations with over $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.

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

Calendar-year corporations that request an extension for filing their tax returns will have a extended tax return due date of October 15.

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?

Which of the following class of stock is not allowed to be used in a section 351 transaction?

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

For incentive stock options,the value of the options that is expensed as compensation in a given year creates a permanent,unfavorable book-tax difference.

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

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

Which of the following statements regarding incentive stock options (ISOs)is false?

Large corporations (corporations with over $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.

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

Calendar-year corporations that request an extension for filing their tax returns will have a extended tax return due date of October 15.

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?

Which of the following class of stock is not allowed to be used in a section 351 transaction?

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