Exam 16: Corporate Operations

In 2014, LuxAir Inc. (LA) has book income of $160,000. Included in this figure is income generated from ownership in Jet Repair Corporation (JRC), of which LA owns 30%. JRC has $270,000 in earnings for the year and pays $32,000 in dividends to LA. Assuming accounting for the investment in JRC (income from JRC and the DRD) are its only book-tax differences, what is LA's tax liability for 2014 (see corporate tax schedule)?

Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as either temporary or permanent.

Which of the following is unnecessary to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity?

Which of the following is not a type of controlled group as defined in the Internal Revenue Code?

Which of the following statements regarding incentive stock options (ISOs) is false?

IndusTree Inc. received $1,800,000 from the sale of a property in 2014. The property's adjusted basis for regular tax purposes was $200,000 at the time of the sale. The property's adjusted basis for AMT purposes was $290,000. What is the amount of the AMT adjustment due to the sale of the asset? Does it increase or decrease AMTI?

The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes.

The dividends received deduction is designed to mitigate the extent to which corporate earnings are subject to more than two levels of taxation.

Rapidpro Inc. had more than $1,000,000 of taxable income two years prior to the current year. It would like to use its prior year tax liability (which was very low but above zero) to determine its quarterly estimated payments this year. Which of the following statements is true?

Omnidata uses the annualized income method to determine its quarterly federal income tax payments. It had $100,000, $50,000, and $90,000 of taxable income for the first, second, and third quarters, respectively ($240,000 in total through the first three quarters). What is Omnidata's annual estimated taxable income as of the end of the third quarter?

Which of the following statements regarding book-tax differences associated with purchased goodwill is false?

Controlled group provisions in the tax law prevent taxpayers from splitting a corporation into several smaller corporations to take advantage of low marginal corporate tax rates at low levels of income.

In the current year, FurnitureKing Corporation recognized $32,000 of income from an installment sale it made in a previous tax year. If installment sales are the only difference between ACE and alternative minimum taxable income (before the ACE adjustment), what is the amount and nature of the ACE adjustment for the current tax year?

For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are exercised.

The tax rate for the corporate alternative minimum tax is a flat 26%.

Which of the following statements is false regarding corporate estimated tax payments?

AB Inc. received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent) on the dividends received (after taking the DRD into account) assuming its ordinary marginal tax rate is 34%?

Jazz Corporation owns 50% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income before the dividend was $100,000. 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 DRD modified taxable income?

iScope Inc. paid $3,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book-tax difference relating to this expense?