Question 1

Which of the following describes the correct treatment of nonqualified stock options (NQOs) granted when ASC 718 (a codification of FAS 123R) did not apply?

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 2

WFO Corporation has gross receipts according to the following schedule: $$\begin{array} { | l | l | } 
\hline \text { Year } 1 & \$ 2 \text { million } \
\hline \text { Year } 2 & \$ 4 \text { million } \
\hline \text { Year } 3 & \$ 6 \text { million } \
\hline \text { Year } 4 & \$ 4.5 \text { million } \
\hline \text { Year 5 } & \$ 5 \text { million } \
\hline \text { Year } 6 & \$ 7 \text { million } \
\hline
\end{array}$$ If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?

Accepted Answer

A)  Year 3 
B)  Year 4 
C)  Year 5 
D)  Year 6 
E)  None of these. 
A)  Year 3 
B)  Year 4 
C)  Year 5 
D)  Year 6 
E)  None of these.

Question 3

Which of the following statements regarding capital gains and losses is false?

Accepted Answer

A)  In terms of tax treatment, corporations generally prefer capital gains to ordinary income. 
B)  Like individuals, corporations can deduct $3,000 of net capital losses against ordinary income in a given year. 
C)  C corporations can carry back net capital losses three years and they can carry them forward for five years. 
D)  Corporations must apply capital loss carrybacks and carryovers in a particular order. 
A)  In terms of tax treatment, corporations generally prefer capital gains to ordinary income. 
B)  Like individuals, corporations can deduct $3,000 of net capital losses against ordinary income in a given year. 
C)  C corporations can carry back net capital losses three years and they can carry them forward for five years. 
D)  Corporations must apply capital loss carrybacks and carryovers in a particular order.

Question 4

Which of the following statements regarding the alternative minimum tax is false?

Accepted Answer

A)  Corporations compute the AMT by multiplying their AMT base by 35% and subtracting their regular tax liability. 
B)  Small corporations are exempt from the AMT. 
C)  All first-year corporations are exempt from the AMT. 
D)  None of these is false (choose if you believe All of these are true). 
A)  Corporations compute the AMT by multiplying their AMT base by 35% and subtracting their regular tax liability. 
B)  Small corporations are exempt from the AMT. 
C)  All first-year corporations are exempt from the AMT. 
D)  None of these is false (choose if you believe All of these are true).

Question 5

Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total). The options vest over two years - half in 2014 (the year of issue) and half in 2015. One thousand options are exercised in 2015 with a bargain element on each option of $6. What is the 2015 book-tax difference associated with the stock options?

Accepted Answer

A)  $14,000 unfavorable 
B)  $14,000 favorable 
C)  $20,000 unfavorable 
D)  $20,000 favorable 
E)  None of these 
A)  $14,000 unfavorable 
B)  $14,000 favorable 
C)  $20,000 unfavorable 
D)  $20,000 favorable 
E)  None of these

Question 6

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

Question 7

Which of the following statements regarding AMT is true?

Accepted Answer

A)  Only very profitable companies (AMTI greater than $1 million) have their AMT exemption phased out. 
B)  The AMT exemption is phased out dollar for dollar as AMTI increases. 
C)  Minimum tax credits are generated whenever regular tax liability exceeds tentative minimum tax. 
D)  Minimum tax credits can be carried forward indefinitely. 
A)  Only very profitable companies (AMTI greater than $1 million) have their AMT exemption phased out. 
B)  The AMT exemption is phased out dollar for dollar as AMTI increases. 
C)  Minimum tax credits are generated whenever regular tax liability exceeds tentative minimum tax. 
D)  Minimum tax credits can be carried forward indefinitely.

Question 8

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

Accepted Answer

A) True 
 B)False

Question 9

Studios reported a net capital loss of $30,000 in year 5. It reported net capital gains of $14,000 in year 4 and $27,000 in year 6. What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover?

Accepted Answer

A)  $11,000 unfavorable 
B)  $11,000 favorable 
C)  $16,000 unfavorable 
D)  $16,000 favorable 
A)  $11,000 unfavorable 
B)  $11,000 favorable 
C)  $16,000 unfavorable 
D)  $16,000 favorable

Question 10

Which of the following statements regarding nonqualified stock options (NQOs) is false?

Accepted Answer

A)  If ASC 718 (a codification of FAS 123R) applies, book-tax differences associated with NQOs may be either permanent or temporary. 
B)  In a given year when ASC 718 applies, if the value of the options that vest is greater than the bargain element of options exercised, the book-tax difference for that year is unfavorable. 
C)  Before ASC 718 applied, no expense recognition was required for NQOs for financial accounting purposes. 
D)  If ASC 718 does not apply, all stock option-related book-tax differences are temporary. 
A)  If ASC 718 (a codification of FAS 123R) applies, book-tax differences associated with NQOs may be either permanent or temporary. 
B)  In a given year when ASC 718 applies, if the value of the options that vest is greater than the bargain element of options exercised, the book-tax difference for that year is unfavorable. 
C)  Before ASC 718 applied, no expense recognition was required for NQOs for financial accounting purposes. 
D)  If ASC 718 does not apply, all stock option-related book-tax differences are temporary.

Question 11

TireShop, Inc. owns 85% of Rubber Supply Co.'s voting stock throughout the tax year. TireShop and Rubber Supply would be considered as what kind of controlled group?

Accepted Answer

A)  Parent-subsidiary 
B)  Brother-sister 
C)  Combined 
D)  None of these 
A)  Parent-subsidiary 
B)  Brother-sister 
C)  Combined 
D)  None of these

Question 12

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 13

The amount of a corporation's AMT is the amount of its tentative minimum tax in excess of its regular tax.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) does not apply?

Accepted Answer

A)  Financial accounting-no expense; tax-no deduction 
B)  Financial accounting-no expense; tax-deduct bargain element at exercise 
C)  Financial accounting-expense value over vesting period; tax-no deduction 
D)  Financial accounting-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 accounting-expense value over vesting period; tax-no deduction 
D)  Financial accounting-expense value over vesting period; tax-deduct bargain element at exercise

Question 15

A corporation with a minimum tax credit carryover may reduce regular tax down to the amount of its tentative minimum tax when its regular tax exceeds its tentative minimum tax.

Accepted Answer

A) True 
 B)False

Question 16

AR Systems Inc. (AR) had $120,000 of tax liability last year. It anticipates a current-year tax liability of $500,000. Assuming AR is considered a large corporation for purposes of estimating tax liability, what are the minimum estimated tax payments it should make to avoid underpayment penalties? Ignore the annualized income method.

Accepted Answer

Q1: $30,000, Q2: $220,000, Q3: $125,000,

Question 17

For book purposes, RadioAircast Inc. reported $15,000 of income from municipal bonds in 2013. It also expensed $12,000 of radio station filing fines paid to the FCC the same year. What is the total book-tax difference associated with these items? Is it favorable or unfavorable? What amount of the total adjustment is permanent and what amount is temporary?

Accepted Answer

$3,000, favorable bo

Question 18

Accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

Accepted Answer

A) True 
 B)False

Question 19

In 2014, Carbonfab Manufacturers Inc. expensed $125,000 of depreciation for book purposes, but for tax purposes, it deducted $179,000. Carbonfab also sold equipment for $500,000. The book adjusted basis of the equipment sold was $350,000, while the adjusted basis for tax purposes was $210,000. What is the total book-tax difference associated with depreciation and the gain on sale? Is it favorable or unfavorable? What amount of the book-tax difference is permanent and what amount is temporary?

Accepted Answer

$86,000, unfavorable

Question 20

Flywest Airlines, Inc. has regular taxable income of $190 million. It also has $10 million of AMT preference items, a $5 million unfavorable depreciation adjustment, and a $2 million favorable ACE adjustment. What is Flywest's alternative minimum tax income (AMTI)?

Accepted Answer

A)  $177 million 
B)  $183 million 
C)  $197 million 
D)  $203 million 
A)  $177 million 
B)  $183 million 
C)  $197 million 
D)  $203 million

Which of the following describes the correct treatment of nonqualified stock options (NQOs) granted when ASC 718 (a codification of FAS 123R) did not apply?

Which of the following statements regarding capital gains and losses is false?

Which of the following statements regarding the alternative minimum tax is false?

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?

Which of the following statements regarding AMT is true?

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

Studios reported a net capital loss of $30,000 in year 5. It reported net capital gains of $14,000 in year 4 and $27,000 in year 6. What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover?

Which of the following statements regarding nonqualified stock options (NQOs) is false?

TireShop, Inc. owns 85% of Rubber Supply Co.'s voting stock throughout the tax year. TireShop and Rubber Supply would be considered as what kind of controlled group?

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

The amount of a corporation's AMT is the amount of its tentative minimum tax in excess of its regular tax.

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) does not apply?

A corporation with a minimum tax credit carryover may reduce regular tax down to the amount of its tentative minimum tax when its regular tax exceeds its tentative minimum tax.

Accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

Flywest Airlines, Inc. has regular taxable income of $190 million. It also has $10 million of AMT preference items, a $5 million unfavorable depreciation adjustment, and a $2 million favorable ACE adjustment. What is Flywest's alternative minimum tax income (AMTI)?

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 describes the correct treatment of nonqualified stock options (NQOs) granted when ASC 718 (a codification of FAS 123R) did not apply?

Which of the following statements regarding capital gains and losses is false?

Which of the following statements regarding the alternative minimum tax is false?

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?

Which of the following statements regarding AMT is true?

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

Studios reported a net capital loss of $30,000 in year 5. It reported net capital gains of $14,000 in year 4 and $27,000 in year 6. What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover?

Which of the following statements regarding nonqualified stock options (NQOs) is false?

TireShop, Inc. owns 85% of Rubber Supply Co.'s voting stock throughout the tax year. TireShop and Rubber Supply would be considered as what kind of controlled group?

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

The amount of a corporation's AMT is the amount of its tentative minimum tax in excess of its regular tax.

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) does not apply?

A corporation with a minimum tax credit carryover may reduce regular tax down to the amount of its tentative minimum tax when its regular tax exceeds its tentative minimum tax.

Accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

Flywest Airlines, Inc. has regular taxable income of $190 million. It also has $10 million of AMT preference items, a $5 million unfavorable depreciation adjustment, and a $2 million favorable ACE adjustment. What is Flywest's alternative minimum tax income (AMTI)?

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