Question 1

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

Accepted Answer

A)  100 percent of the prior year's tax liability (with a few exceptions) 
B)  100 percent of the current year's tax liability 
C)  100 percent of the estimated current year tax liability using the annualized income method 
D)  All of these are acceptable methods of determining the required annual payment of federal income tax for corporations 
A)  100 percent of the prior year's tax liability (with a few exceptions) 
B)  100 percent of the current year's tax liability 
C)  100 percent of the estimated current year tax liability using the annualized income method 
D)  All of these are acceptable methods of determining the required annual payment of federal income tax for corporations

Question 2

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 3

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

Accepted Answer

A)  Organizational and start-up expenses 
B)  Key employee death benefit income 
C)  Fines and penalties expenses 
D)  Municipal bond interest income 
A)  Organizational and start-up expenses 
B)  Key employee death benefit income 
C)  Fines and penalties expenses 
D)  Municipal bond interest income

Question 4

A corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.

Accepted Answer

A) True 
 B)False

Question 5

Tatoo Inc. reported a net capital loss of $13,000 in 2014. It had a net capital gain of $4,300 in 2012 and $3,000 in 2011. In 2013, although the company suffered a net operating loss, it had net capital gains of $1,000. What is the amount of the Tatoo's capital loss carryover remaining after it applies the carryback?

Accepted Answer

A)  $4,700 
B)  $5,700 
C)  $8,700 
D)  $13,000 
A)  $4,700 
B)  $5,700 
C)  $8,700 
D)  $13,000

Question 6

For a corporation, goodwill created in an asset acquisition generally leads to temporary book-tax differences.

Accepted Answer

A) True 
 B)False

Question 7

ValuCo gives you the following information: $$\begin{array} { | l | c | } 
\hline \text { Current year items } & \text { Amount } \
\hline \begin{array} { l } 
\text { Interest from tax-exempt bonds funding a public } \
\text { activity }
\end{array} & \$ 14,000 \
\hline 70 \text { percent dividends received deduction } & \$ 60,000 \
\hline 80 \text { percent dividends received deduction } & \$ 40,000 \
\hline
\end{array}$$ What is its ACE adjustment for the year? Is it favorable or unfavorable?

Accepted Answer

$55,500, unfavorable; two of the three i

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

AmStore Inc. sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation and MACRS for tax cost-recovery. If accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes, what is the nature of the book-tax difference associated with the gain on the sale?

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 10

Coop Inc. owns 40% of Chicken Inc., both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in 2014. Chicken also reports financial accounting earnings of $20,000 for that year. Assume that Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction)?

Accepted Answer

A)  $2,000 unfavorable 
B)  $2,000 favorable 
C)  $10,000 unfavorable 
D)  $10,000 favorable 
E)  None of these 
A)  $2,000 unfavorable 
B)  $2,000 favorable 
C)  $10,000 unfavorable 
D)  $10,000 favorable 
E)  None of these

Question 11

The dividends received deduction cannot cause a net operating loss. The deduction can reduce income to zero but not below zero.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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 14

During 2014, Hughes Corporation sold a portfolio of stock it had held for five years at a loss of $200,000. It also sold some investment land and recognized a capital gain of $180,000. In 2012, Hughes reported a net capital gain of $12,000 and in 2013 it recognized a net capital gain of $6,000. What is the amount of its net capital loss carryover to 2015?

Accepted Answer

$2,000, co

Question 15

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?

Accepted Answer

A)  Favorable and temporary 
B)  Favorable and permanent 
C)  Unfavorable and temporary 
D)  Unfavorable and permanent 
E)  Not enough information to determine. 
A)  Favorable and temporary 
B)  Favorable and permanent 
C)  Unfavorable and temporary 
D)  Unfavorable and permanent 
E)  Not enough information to determine.

Question 16

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

Accepted Answer

A)  Corporations may not carry over or carry back excess charitable contributions. 
B)  Corporations can carry excess charitable contributions over to a future year or back to a prior year. 
C)  Corporations can carry excess charitable contributions over to a future year but not back to a prior year. 
D)  Corporations can carry excess charitable contributions back to a prior year but not over to a future year. 
A)  Corporations may not carry over or carry back excess charitable contributions. 
B)  Corporations can carry excess charitable contributions over to a future year or back to a prior year. 
C)  Corporations can carry excess charitable contributions over to a future year but not back to a prior year. 
D)  Corporations can carry excess charitable contributions back to a prior year but not over to a future year.

Question 17

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) applies?

Accepted Answer

A)  Financial accounting-no expense; tax-no deduction 
B)  Financial accounting-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 accounting-no expense; tax-no deduction 
B)  Financial accounting-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

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.

Accepted Answer

A) True 
 B)False

Question 19

In contrast to an individual, a corporation may deduct the entire amount of a net capital loss.

Accepted Answer

A) True 
 B)False

Question 20

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.

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

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 does NOT create a permanent book-tax difference?

A corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.

For a corporation, goodwill created in an asset acquisition generally leads to temporary book-tax differences.

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

The dividends received deduction cannot cause a net operating loss. The deduction can reduce income to zero but not below zero.

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?

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) applies?

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.

In contrast to an individual, a corporation may deduct the entire amount of a net capital loss.

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

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

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

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 does NOT create a permanent book-tax difference?

A corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.

For a corporation, goodwill created in an asset acquisition generally leads to temporary book-tax differences.

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

The dividends received deduction cannot cause a net operating loss. The deduction can reduce income to zero but not below zero.

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) applies?

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.

In contrast to an individual, a corporation may deduct the entire amount of a net capital loss.

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

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