Question 1

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

Accepted Answer

A)  Temporary book-tax differences will reverse in future years whereas permanent differences will not. 
B)  Certain corporations are required to disclose book-tax differences as permanent or temporary on their tax returns. 
C)  Temporary book-tax differences will reverse in future years whereas permanent differences will not, and certain corporations are required to disclose book-tax differences as permanent or temporary on their tax returns. 
D)  Neither temporary nor permanent book-tax differences will reverse in future years nor are certain corporations required to disclose book-tax differences as permanent or temporary on their tax returns. 
A)  Temporary book-tax differences will reverse in future years whereas permanent differences will not. 
B)  Certain corporations are required to disclose book-tax differences as permanent or temporary on their tax returns. 
C)  Temporary book-tax differences will reverse in future years whereas permanent differences will not, and certain corporations are required to disclose book-tax differences as permanent or temporary on their tax returns. 
D)  Neither temporary nor permanent book-tax differences will reverse in future years nor are certain corporations required to disclose book-tax differences as permanent or temporary on their tax returns.

Question 2

Z Corporation has AMTI of $250,000, which exceeds the AMT exemption phase-out threshold by $100,000. What is Z's tentative minimum tax?

Accepted Answer

A)  $47,000 
B)  $45,000 
C)  $40,000 
D)  $30,000 
A)  $47,000 
B)  $45,000 
C)  $40,000 
D)  $30,000

Question 3

Minimum tax credits generated by the corporate AMT can be carried forward indefinitely.

Accepted Answer

A) True 
 B)False

Question 4

A corporation generally will report a favorable, temporary book-tax difference when it deducts a charitable contribution carryover.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  Gross income 
B)  Adjusted gross income 
C)  Taxable income 
D)  Regular tax liability 
A)  Gross income 
B)  Adjusted gross income 
C)  Taxable income 
D)  Regular tax liability

Question 6

iScope Inc. paid $3,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book-tax difference relating to 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

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Jazz Corporation owns 50% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income before the dividend was $100,000. What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Accepted Answer

A)  $0 
B)  $7,000 
C)  $8,000 
D)  $10,000 
A)  $0 
B)  $7,000 
C)  $8,000 
D)  $10,000

Question 9

Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.

Accepted Answer

A) True 
 B)False

Question 10

Corporation A receives a dividend from CorporationB. It includes the dividend in gross income for tax purposes but includes a pro-rata portion of B's earnings in its financial accounting income. If A has accounted for the dividend correctly (using the general rule), how much of B's stock does A own?

Accepted Answer

A)  A owns less than 20 percent of the stock of B 
B)  A owns at least 20 but not more than 50 percent of the stock of B 
C)  A owns more than 50 percent of the stock of B 
D)  Cannot be determined 
A)  A owns less than 20 percent of the stock of B 
B)  A owns at least 20 but not more than 50 percent of the stock of B 
C)  A owns more than 50 percent of the stock of B 
D)  Cannot be determined

Question 11

Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as either temporary or permanent.

Accepted Answer

A) True 
 B)False

Question 12

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 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 13

A nonqualified stock option will create a permanent book-tax difference in a given year if it vests during the year but is exercised in a later year.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

In general, a corporation can elect to use either the accrual or cash method of accounting no matter how large the corporation.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  Dividends are taxed at preferential rates for corporations as well as for 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 as well as for 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 17

A corporation may carry a net capital loss back two years and forward 20 years.

Accepted Answer

A) True 
 B)False

Question 18

A C corporation reports its taxable income or loss on Form 1065.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following does NOT create a temporary book-tax difference?

Accepted Answer

A)  Deferred compensation 
B)  Bad-debt expense 
C)  Depreciation expense 
D)  Domestic production activities deduction 
A)  Deferred compensation 
B)  Bad-debt expense 
C)  Depreciation expense 
D)  Domestic production activities deduction

Question 20

For 2014, SRH's taxable income is $35,000 and JHH's taxable income is $45,000. Together, Scott and Jackson Howard own 100 percent of both corporations. What is the combined tax liability of the two corporations?

Accepted Answer

$15,450; SRC and JHH are a brother-siste

Exam 16: Corporate Operations

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

Z Corporation has AMTI of $250,000, which exceeds the AMT exemption phase-out threshold by $100,000. What is Z's tentative minimum tax?

Minimum tax credits generated by the corporate AMT can be carried forward indefinitely.

A corporation generally will report a favorable, temporary book-tax difference when it deducts a charitable contribution carryover.

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

iScope Inc. paid $3,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book-tax difference relating to this expense?

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

Jazz Corporation owns 50% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income before the dividend was $100,000. What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.

Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as either temporary or permanent.

A nonqualified stock option will create a permanent book-tax difference in a given year if it vests during the year but is exercised in a later year.

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

In general, a corporation can elect to use either the accrual or cash method of accounting no matter how large the corporation.

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

A corporation may carry a net capital loss back two years and forward 20 years.

A C corporation reports its taxable income or loss on Form 1065.

Which of the following does NOT create a temporary book-tax difference?

For 2014, SRH's taxable income is $35,000 and JHH's taxable income is $45,000. Together, Scott and Jackson Howard own 100 percent of both corporations. What is the combined tax liability of the two corporations?

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

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