Question 1

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

Accepted Answer

A)  In general, smaller corporations are required to complete Schedule M-1 while larger corporations are required to complete Schedule M-3. 
B)  Schedule M-3 lists more book-tax differences than Schedule M-1. 
C)  Both Schedules M-1 and M-3 reconcile to a corporation's bottom line taxable income. 
D)  Schedule M-1 does not distinguish between temporary and permanent book-tax differences whereas Schedule M-3 does. 
A)  In general, smaller corporations are required to complete Schedule M-1 while larger corporations are required to complete Schedule M-3. 
B)  Schedule M-3 lists more book-tax differences than Schedule M-1. 
C)  Both Schedules M-1 and M-3 reconcile to a corporation's bottom line taxable income. 
D)  Schedule M-1 does not distinguish between temporary and permanent book-tax differences whereas Schedule M-3 does.

Question 2

GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank, a qualified non-profit organization, in November of 2014. GenerUs made payment to FoodBank on February 2, 2015. GenerUs Inc. (a calendar-year corporation) may claim a deduction for the contribution on its 2014 tax return.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000. Its charitable contributions for the year were $7,500. What is Remsco's current-year charitable contribution deduction and contribution carryover?

Accepted Answer

A)  $6,000 current-year deduction; $1,500 carryover 
B)  $7,500 current-year deduction; $0 carryover 
C)  $1,200 current-year deduction; $6,300 carryover 
D)  $7,200 current-year deduction; $300 carryover 
A)  $6,000 current-year deduction; $1,500 carryover 
B)  $7,500 current-year deduction; $0 carryover 
C)  $1,200 current-year deduction; $6,300 carryover 
D)  $7,200 current-year deduction; $300 carryover

Question 6

In January 2013, 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 2014, 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 $60,000. For 2014, what is the book-tax difference due to the options exercised?

Accepted Answer

A)  10,000 unfavorable 
B)  10,000 favorable 
C)  50,000 unfavorable 
D)  60,000 favorable 
A)  10,000 unfavorable 
B)  10,000 favorable 
C)  50,000 unfavorable 
D)  60,000 favorable

Question 7

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 8

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 9

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 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

Volos Company (a calendar-year corporation) began operations in March of 2012 and was not profitable through December of 2013. Volos has been profitable for the first quarter of 2014 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement in 2014 because it had no tax liability for the 2013 tax year and has been in business for at least 12 months.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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?

Accepted Answer

$196,000, computed as follows: \[\begin{

Question 15

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

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

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?

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 18

Three brothers each own 20% of the stock in three corporations. Because no single brother owns more than 50% of a corporation, the tax law would not treat the corporations as a controlled group.

Accepted Answer

A) True 
 B)False

Question 19

Corporation A receives a dividend from CorporationB. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference). If A has accounted for the dividend correctly (following the general rule), how much of B 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 20

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.

Exam 16: Corporate Operations

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

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

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

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000. Its charitable contributions for the year were $7,500. What is Remsco's current-year charitable contribution deduction and contribution carryover?

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

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

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

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?

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

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

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.

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

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?

Three brothers each own 20% of the stock in three corporations. Because no single brother owns more than 50% of a corporation, the tax law would not treat the corporations as a controlled group.

Corporation A receives a dividend from CorporationB. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference). If A has accounted for the dividend correctly (following the general rule), how much of B stock does A own?

Which of the following statements regarding controlled groups is false?

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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