Question 1

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

Accepted Answer

A) True 
 B)False

Question 2

Atom Ventures Inc. (AV) owns stock in the Primo and Faraday corporations. The following summarizes information relating to AV's investment in Primo and Faraday as follows: $$\begin{array} { | c | r | c | r | } 
\hline \text { Corporation } & \begin{array} { c } 
\text { Corporation's } \
\text { earnings for year }
\end{array} & \text { Atom's ownership } & \begin{array} { c } 
\text { Dividends distributed } \
\text { to Atom during year }
\end{array} \
\hline \text { Primo } & \$ 625,000 & 35 \% & \$ 125,000 \
\hline \text { Faraday } & \$ 940,000 & 10 \% & \$ 50,000 \
\hline
\end{array}$$ Assuming that AV follows the general rules for reporting its income from these investments, what is the amount of AV's book-tax difference associated with the investment in these corporations (disregarding the dividends received deduction)? Is it favorable or unfavorable? Is it permanent or temporary?

Accepted Answer

$93,750, favorable,

Question 3

Which of the following statements is false regarding consolidated tax returns?

Accepted Answer

A)  An affiliated group can file a consolidated tax return only if it elects to do so. 
B)  To file a consolidated tax return, one corporation must own at least 50% of the stock of another corporation. 
C)  For a group of corporations filing a consolidated tax return, an advantage is that losses of one group member may offset gains of another group member. 
D)  For a group of corporations filing a consolidated tax return, losses from certain intercompany transactions are deferred until realized through a transaction outside of the group. 
A)  An affiliated group can file a consolidated tax return only if it elects to do so. 
B)  To file a consolidated tax return, one corporation must own at least 50% of the stock of another corporation. 
C)  For a group of corporations filing a consolidated tax return, an advantage is that losses of one group member may offset gains of another group member. 
D)  For a group of corporations filing a consolidated tax return, losses from certain intercompany transactions are deferred until realized through a transaction outside of the group.

Question 4

Corporations compute their dividends received deduction by multiplying the dividend amount by 10%, 50%, or 100% depending on their ownership in the distributing corporation's stock.

Accepted Answer

A) True 
 B)False

Question 5

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?

Accepted Answer

2013: $32,000 unfavorable, tem

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

For corporations, which of the following regarding net capital losses is true?

Accepted Answer

A)  A corporation that experiences a net capital loss has a favorable book-tax difference in the year of the loss. 
B)  A corporation that experiences a net capital loss in year 4 first carries the loss back to year 3, then year 2, and then year 1 before carrying it forward. 
C)  Net capital loss carrybacks are deductible in determining a corporation's net operating loss. 
D)  Net capital loss carrybacks and carryovers create temporary book-tax differences if they are used before they expire. 
A)  A corporation that experiences a net capital loss has a favorable book-tax difference in the year of the loss. 
B)  A corporation that experiences a net capital loss in year 4 first carries the loss back to year 3, then year 2, and then year 1 before carrying it forward. 
C)  Net capital loss carrybacks are deductible in determining a corporation's net operating loss. 
D)  Net capital loss carrybacks and carryovers create temporary book-tax differences if they are used before they expire.

Question 8

For incentive stock options granted when ASC 718 (a codification of FAS 123R) applies, the value of the options that vest in a given year always creates a permanent, unfavorable book-tax difference.

Accepted Answer

A) True 
 B)False

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Corporations are allowed to deduct at least some AMT exemption regardless of profitability.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Question 14

XPO Corporation has a minimum tax credit of $51,000 from 2013. If its 2014 tentative minimum tax is $211,000 and its regular tax liability is $250,000, what is its minimum tax credit carryover to 2015?

Accepted Answer

A)  $51,000 
B)  $39,000 
C)  $12,000 
D)  $0 
A)  $51,000 
B)  $39,000 
C)  $12,000 
D)  $0

Question 15

Bingo Corporation incurred a net operating loss in 2014. If it carries the loss back, it must first carry the loss back to offset its 2013 taxable income and then it carries any remaining loss back to offset its 2012 taxable income.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

Accepted Answer

A)  Charitable contribution deduction 
B)  Domestic production activities deduction 
C)  Net capital loss carryback 
D)  Net operating losses from other years 
A)  Charitable contribution deduction 
B)  Domestic production activities deduction 
C)  Net capital loss carryback 
D)  Net operating losses from other years

Question 17

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 18

Which of the following is deductible in calculating the charitable contribution limit modified taxable income?

Accepted Answer

A)  Net capital loss carrybacks 
B)  NOL carrybacks 
C)  NOL carryovers 
D)  Charitable contributions 
A)  Net capital loss carrybacks 
B)  NOL carrybacks 
C)  NOL carryovers 
D)  Charitable contributions

Question 19

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 20

In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. It has a favorable temporary book-tax difference for that year.

Accepted Answer

A) True 
 B)False

Exam 16: Corporate Operations

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

Which of the following statements is false regarding consolidated tax returns?

Corporations compute their dividends received deduction by multiplying the dividend amount by 10%, 50%, or 100% depending on their ownership in the distributing corporation's stock.

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

For corporations, which of the following regarding net capital losses is true?

For incentive stock options granted when ASC 718 (a codification of FAS 123R) applies, the value of the options that vest in a given year always creates a permanent, unfavorable book-tax difference.

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.

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

Corporations are allowed to deduct at least some AMT exemption regardless of profitability.

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

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?

XPO Corporation has a minimum tax credit of $51,000 from 2013. If its 2014 tentative minimum tax is $211,000 and its regular tax liability is $250,000, what is its minimum tax credit carryover to 2015?

Bingo Corporation incurred a net operating loss in 2014. If it carries the loss back, it must first carry the loss back to offset its 2013 taxable income and then it carries any remaining loss back to offset its 2012 taxable income.

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

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 is deductible in calculating the charitable contribution limit modified taxable income?

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?

In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. It has a favorable temporary book-tax difference for that year.

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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