Exam 16: Corporate Operations

Urban Corporation receives tax-exempt income from Denver municipal bonds. All the proceeds from the bonds were used to fund public projects. In computing its AMT base, Urban must add back the interest income from its municipal bonds to taxable income.

An affiliated group must file a consolidated tax return.

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) assuming its ordinary marginal tax rate is 34%?

On January 1, 2012, Credit Inc. recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2013, 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 2014, the goodwill was not further impaired. In 2015, 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 2013, 2014, and 2015? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

The tax rate for the corporate alternative minimum tax is a flat 26%.

In 2011, Smith Traders Inc. reported taxable income of $100,000. In 2012, it reported taxable income of $15,000. In 2013, it reported taxable income of $95,000. In 2014, Smith Traders experienced a net operating loss of $25,000. What amount of refund can Smith Traders receive if it does not elect to forgo the carry back (see the corporate income tax schedule)?

QDP Corporation's AMTI is $569,000 for 2014. Its regular tax liability is $110,000. What is its AMT?

A corporation with an AMTI of $400,000 will have all of its AMT exemption phased-out.

In January 2014, Khors Company issues 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 2015, the company experiences 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 2015, what is the nature of the book-tax difference due to the options exercised?

The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes.

Imperial Construction Inc. (IC) issued 100,000 incentive stock options (ISOs) to its employees on January 1, 2014 with an estimated value of $5.50 per option. The options vest at 25 percent per year for four years (beginning in 2014). Each option allows the holder to purchase one share of stock at $8. On January 1, 2015, employees exercised 12,500 options as IC's stock price reached $14.72. What is the amount of the book-tax difference in 2015 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

Corporations can carry net operating loss sustained in 2014 back two years and forward 20 years.

The adjusted current earnings (ACE) adjustment is 75% of the difference between a corporation's alternative minimum taxable income before the ACE adjustment and its ACE.

In 2014, Carbonfab Manufacturers Inc. 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?

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

TerraWise Inc. reported the following information for 2014: Regular taxable income \ 5,620,000 Regular depreciation \ 810,000 AMT depreciation \ 570,000 Adjusted basis of equipment sold - Regular \ 100,000 Adjusted basis of equipment sold - AMT \ 140,000 Income from a private-activity municipal bond issued in 2006 \ 45,000 Unfavorable ACE adjustment \ 35,000 What is TerraWise Inc.'s AMTI?

Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs) that were granted when ASC 718 (a codification of FAS 123R) applies?

Small corporations (in terms of average annual gross receipts) are exempt from the alternative minimum tax.

In 2014, Datasoft Inc. received $350,000 in dividends from CSLabs Inc. Datasoft's taxable income before the dividends received deduction and $20,000 charitable contribution deduction is $300,000. What is Datasoft's DRD assuming it owns 15% of the CSLabs Inc. stock?

Federal income tax expense reported on a corporation's books generates a temporary book-tax difference for Schedule M-3 purposes.