Question 1

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 2

On January 1, 2005 [before the adoption of ASC 718 (a codification of FAS 123R)], Net Optimizers Inc. granted 1,000 nonqualified stock options (NQOs) valued at $.05 per option. Each option entitles the owner to purchase one share of stock for $1. These options vest at 10 percent per year for ten years. On December 31, 2014, 300 options are exercised when the stock price is $5. In 2014, what is the book-tax difference associated with the stock options? Is it favorable or unfavorable? Is it permanent or temporary?

Accepted Answer

$1,200, fa

Question 3

Which of the following statements is false regarding corporate estimated tax payments?

Accepted Answer

A)  The due dates for estimated tax payments are the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. 
B)  Corporations must pay estimated taxes only if they have a federal income tax liability greater than $10,000 (including the alternative minimum tax). 
C)  Even though a corporation extends its tax return it still must pay its tax liability for the year by two and one half months after year end. 
D)  Corporations using the annualized income method for determining estimated tax payments project their tax liability for the year based on income from the first, second, and third quarters. 
A)  The due dates for estimated tax payments are the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. 
B)  Corporations must pay estimated taxes only if they have a federal income tax liability greater than $10,000 (including the alternative minimum tax). 
C)  Even though a corporation extends its tax return it still must pay its tax liability for the year by two and one half months after year end. 
D)  Corporations using the annualized income method for determining estimated tax payments project their tax liability for the year based on income from the first, second, and third quarters.

Question 4

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Accepted Answer

A)  $0 
B)  $2,800 
C)  $4,200 
D)  $7,000 
E)  None of these. 
A)  $0 
B)  $2,800 
C)  $4,200 
D)  $7,000 
E)  None of these.

Question 5

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) does not apply?

Accepted Answer

A)  Financial accounting-no expense; tax-no deduction 
B)  Financial accounting-no expense; tax-deduct bargain element at exercise 
C)  Financial accounting-expense value over vesting period; tax-no deduction 
D)  Financial accounting-expense value over vesting period; tax-deduct bargain element at exercise 
A)  Financial accounting-no expense; tax-no deduction 
B)  Financial accounting-no expense; tax-deduct bargain element at exercise 
C)  Financial accounting-expense value over vesting period; tax-no deduction 
D)  Financial accounting-expense value over vesting period; tax-deduct bargain element at exercise

Question 6

Which of the following statements regarding capital gains and losses is false?

Accepted Answer

A)  In terms of tax treatment, corporations generally prefer capital gains to ordinary income. 
B)  Like individuals, corporations can deduct $3,000 of net capital losses against ordinary income in a given year. 
C)  C corporations can carry back net capital losses three years and they can carry them forward for five years. 
D)  Corporations must apply capital loss carrybacks and carryovers in a particular order. 
A)  In terms of tax treatment, corporations generally prefer capital gains to ordinary income. 
B)  Like individuals, corporations can deduct $3,000 of net capital losses against ordinary income in a given year. 
C)  C corporations can carry back net capital losses three years and they can carry them forward for five years. 
D)  Corporations must apply capital loss carrybacks and carryovers in a particular order.

Question 7

Which of the following statements regarding the alternative minimum tax is false?

Accepted Answer

A)  Corporations compute the AMT by multiplying their AMT base by 35% and subtracting their regular tax liability. 
B)  Small corporations are exempt from the AMT. 
C)  All first-year corporations are exempt from the AMT. 
D)  None of these is false (choose if you believe All of these are true). 
A)  Corporations compute the AMT by multiplying their AMT base by 35% and subtracting their regular tax liability. 
B)  Small corporations are exempt from the AMT. 
C)  All first-year corporations are exempt from the AMT. 
D)  None of these is false (choose if you believe All of these are true).

Question 8

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

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 9

Over what time period do corporations amortize purchased goodwill for tax purposes?

Accepted Answer

A)  180 months 
B)  150 months 
C)  60 months 
D)  None of these 
A)  180 months 
B)  150 months 
C)  60 months 
D)  None of these

Question 10

Pure Action Cycles Inc., a bicycle manufacturer, has a net capital loss in 2014 of $64,000. It had net capital gains of $21,500 in 2013, $45,000 in 2012, $10,000 in 2011 (but suffered a net operating loss in 2011), and $8,000 of net capital gain in 2010. What is the net capital gain in 2013 after the carryback is applied?

Accepted Answer

$2,500 capital gain, computed as follows

Question 11

Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total). The options vest over two years - half in 2014 (the year of issue) and half in 2015. One thousand options are exercised in 2015 with a bargain element on each option of $6. What is the 2015 book-tax difference associated with the stock options?

Accepted Answer

A)  $14,000 unfavorable 
B)  $14,000 favorable 
C)  $20,000 unfavorable 
D)  $20,000 favorable 
E)  None of these 
A)  $14,000 unfavorable 
B)  $14,000 favorable 
C)  $20,000 unfavorable 
D)  $20,000 favorable 
E)  None of these

Question 12

Which of the following statements regarding controlled groups is false?

Accepted Answer

A)  The purpose of the controlled group rules is to essentially treat the group as though it were one entity for purposes of determining certain tax benefits. 
B)  Having several entities treated as a controlled group is advantageous for tax purposes because each corporation in the group is allowed to use the 15% tax bracket in the corporate tax rate schedule in computing its regular income tax liability. 
C)  Lauren owns 100% of Corporation A stock and 100% of Corporation B stock. Corporation A and Corporation B form a controlled group. 
D)  Corporation A owns 100% of CorporationB. Corporation A and Corporation B form a controlled group.
All of the entities together in a controlled group can make use of only one 15% tax rate bracket. 
A)  The purpose of the controlled group rules is to essentially treat the group as though it were one entity for purposes of determining certain tax benefits. 
B)  Having several entities treated as a controlled group is advantageous for tax purposes because each corporation in the group is allowed to use the 15% tax bracket in the corporate tax rate schedule in computing its regular income tax liability. 
C)  Lauren owns 100% of Corporation A stock and 100% of Corporation B stock. Corporation A and Corporation B form a controlled group. 
D)  Corporation A owns 100% of CorporationB. Corporation A and Corporation B form a controlled group.
All of the entities together in a controlled group can make use of only one 15% tax rate bracket.

Question 13

TireShop, Inc. owns 85% of Rubber Supply Co.'s voting stock throughout the tax year. TireShop and Rubber Supply would be considered as what kind of controlled group?

Accepted Answer

A)  Parent-subsidiary 
B)  Brother-sister 
C)  Combined 
D)  None of these 
A)  Parent-subsidiary 
B)  Brother-sister 
C)  Combined 
D)  None of these

Question 14

Assume a corporation is not required to pay AMT in the current year but will pay AMT next year. Also assume the corporation's regular marginal tax rate is 35%. Which tax planning strategy would minimize its after-tax cost of a charitable contribution it is considering paying to a qualified charity?

Accepted Answer

A)  Pay the contribution this year. 
B)  Wait until next year to pay the contribution. 
C)  The after-tax cost of the contribution will be the same no matter which year it makes the contribution. 
D)  None of these. 
A)  Pay the contribution this year. 
B)  Wait until next year to pay the contribution. 
C)  The after-tax cost of the contribution will be the same no matter which year it makes the contribution. 
D)  None of these.

Question 15

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

Accepted Answer

A) True 
 B)False

Question 16

IndusTree Inc. received $1,800,000 from the sale of a property in 2014. The property's adjusted basis for regular tax purposes was $200,000 at the time of the sale. The property's adjusted basis for AMT purposes was $290,000. What is the amount of the AMT adjustment due to the sale of the asset? Does it increase or decrease AMTI?

Accepted Answer

$90,000; the gain recognized for regular

Question 17

In 2014, AutoUSA Inc. received $4,600,000 of book income, including $20,000 of interest income from tax-exempt municipal bonds. AutoUSA reported $3,600,000 of regular business expenses. If it made $350,000 of estimated tax payments (prepayments) throughout the tax year, what is its tax due or tax refund when it files its return? Assume AutoUSA pays taxes at a flat 34 percent rate and disregard the alternative minimum tax.

Accepted Answer

The answer of In 2014, AutoUSA Inc. received $4,600,000 of...

Question 18

Which of the following statements regarding net operating losses generated in 2013 is true?

Accepted Answer

A)  Corporations can carry net operating losses back two years and forward up to 15 years. 
B)  A corporation may elect to forgo carrying a net operating loss back and instead carry it over to future years. 
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)  Marginal tax rates are irrelevant in determining the tax benefit of applying a net operating loss carryback or carryover. 
E)  None of these is a true statement. 
A)  Corporations can carry net operating losses back two years and forward up to 15 years. 
B)  A corporation may elect to forgo carrying a net operating loss back and instead carry it over to future years. 
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)  Marginal tax rates are irrelevant in determining the tax benefit of applying a net operating loss carryback or carryover. 
E)  None of these is a true statement.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

TrendSetter Inc. paid $50,000 in premiums for life insurance coverage for its key employees. What is the nature of the book-tax difference created by this expense?

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

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

Which of the following statements is false regarding corporate estimated tax payments?

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) does not apply?

Which of the following statements regarding capital gains and losses is false?

Which of the following statements regarding the alternative minimum tax is false?

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

Over what time period do corporations amortize purchased goodwill for tax purposes?

Which of the following statements regarding controlled groups is false?

TireShop, Inc. owns 85% of Rubber Supply Co.'s voting stock throughout the tax year. TireShop and Rubber Supply would be considered as what kind of controlled group?

Assume a corporation is not required to pay AMT in the current year but will pay AMT next year. Also assume the corporation's regular marginal tax rate is 35%. Which tax planning strategy would minimize its after-tax cost of a charitable contribution it is considering paying to a qualified charity?

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

Which of the following statements regarding net operating losses generated in 2013 is true?

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

TrendSetter Inc. paid $50,000 in premiums for life insurance coverage for its key employees. What is the nature of the book-tax difference created by this expense?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters

Exam 16: Corporate Operations

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

Which of the following statements is false regarding corporate estimated tax payments?

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) does not apply?

Which of the following statements regarding capital gains and losses is false?

Which of the following statements regarding the alternative minimum tax is false?

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

Over what time period do corporations amortize purchased goodwill for tax purposes?

Which of the following statements regarding controlled groups is false?

TireShop, Inc. owns 85% of Rubber Supply Co.'s voting stock throughout the tax year. TireShop and Rubber Supply would be considered as what kind of controlled group?

Assume a corporation is not required to pay AMT in the current year but will pay AMT next year. Also assume the corporation's regular marginal tax rate is 35%. Which tax planning strategy would minimize its after-tax cost of a charitable contribution it is considering paying to a qualified charity?

Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

Which of the following statements regarding net operating losses generated in 2013 is true?

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

TrendSetter Inc. paid $50,000 in premiums for life insurance coverage for its key employees. What is the nature of the book-tax difference created by this expense?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters