Exam 16: Corporate Operations

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.

TerraWise Inc. reported the following information for 2014: Regular taxable income \ 5,620,000 Regular depreciation \ 810,000 AMT depreciation \ 570,000 Adjusted basis of equipment sold - Regular \ 100,000 Adjusted basis of equipment sold - AMT \ 140,000 Income from a private-activity municipal bond issued in 2006 \ 45,000 Unfavorable ACE adjustment \ 35,000 What is TerraWise Inc.'s AMTI?

QDP Corporation's AMTI is $569,000 for 2014. Its regular tax liability is $110,000. What is its AMT?

Together, Kurt and Esmeralda own 60% of three corporations: RAZ, DVA, and TRE. The three corporations would be considered as what kind of controlled group for tax purposes?

Depreciation adjustments can increase or decrease the AMT base relative to taxable income.

In 2011, Smith Traders Inc. reported taxable income of $100,000. In 2012, it reported taxable income of $15,000. In 2013, it reported taxable income of $95,000. In 2014, Smith Traders experienced a net operating loss of $25,000. What amount of refund can Smith Traders receive if it does not elect to forgo the carry back (see the corporate income tax schedule)?

In the current year, Auto Rent Corporation reported the following taxable income at the end of its first, second, and third quarters: Quarter Cumulative Taxable Income First \ 1,500,000 Second \ 2,800,000 Third \ 3,600,000 What amount of estimated tax payments would Auto Rent pay each quarter in order to avoid estimated tax penalties under the annualized income method of computing estimated tax payments?

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

Which of the following statements regarding book-tax differences is true?

Taxable income of the most profitable corporations is subject to a flat 35% tax rate.

Small corporations (in terms of average annual gross receipts) are exempt from the alternative minimum tax.

In 2014, Webtel Corporation donated $50,000 to a qualifying charity. For the year, it reported taxable income of $310,000, which included the following: the $50,000 charitable contribution (before limitation), a $100,000 dividends received deduction, and a $20,000 net operating loss carryover. What is Webtel Corp's charitable contribution deduction?

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

Large corporations (corporations with over $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year.

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

Which of the following is not an AMT adjustment?

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

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?

In 2014, US Sys Corporation received $250,000 in death benefits after its CEO (a key employee) died (it included this amount in book income). For book purposes, US Sys also expensed life insurance premiums for other key employees in the amount of $20,000. In addition, for book purposes, it expensed $10,000 of meals and entertainment expenditures. What is the total book-tax difference associated with these items? Is it favorable or unfavorable? What amount of the book-tax difference is temporary and what amount is permanent?

Corporations can carry net operating loss sustained in 2014 back two years and forward 20 years.