Question 1

Which of the following class of stock is not allowed to be used in a section 351 transaction?

Accepted Answer

A)  Voting common stock 
B)  Voting preferred stock 
C)  Nonvoting preferred stock 
D)  All of the above classes of stock can be used in a section 351 transaction. 
A)  Voting common stock 
B)  Voting preferred stock 
C)  Nonvoting preferred stock 
D)  All of the above classes of stock can be used in a section 351 transaction.

Question 2

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?

Accepted Answer

A)  $24,000 favorable 
B)  $24,000 unfavorable 
C)  $32,000 favorable 
D)  $32,000 unfavorable 
A)  $24,000 favorable 
B)  $24,000 unfavorable 
C)  $32,000 favorable 
D)  $32,000 unfavorable

Question 3

Which of the following describes the correct treatment of incentive stock options (ISOs)?

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 4

In the current year, Auto Rent Corporation reported the following taxable income at the end of its first, second, and third quarters: $$\begin{array} { | l | r | } 
\hline \text { Fair market value of stock received } & \$ 400,000 \
\hline \text { Cash received trom Paper Lilies } & 50,000 \
\hline \text { Amount realiz ed } & \$ 450,000 \
\hline \text {-Adjusted tax basis of the property transterred } & 200,000 \
\hline \text { Gain realized } & \$ 250,000 \
\hline
\end{array}$$ 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?

Accepted Answer

First quarter $510,000; ($1,500,000 × 4

Question 5

Which of the following is not an AMT adjustment?

Accepted Answer

A)  Adjustment for depreciation 
B)  Adjustment of gain or loss on sale of depreciable assets 
C)  Adjustment for adjusted current earnings (AC
E)  
D)  Adjustment for domestic production activities deduction 
A)  Adjustment for depreciation 
B)  Adjustment of gain or loss on sale of depreciable assets 
C)  Adjustment for adjusted current earnings (AC
E)  
D)  Adjustment for domestic production activities deduction

Question 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 cash in a transaction that qualifies as a section 351 transfer. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange?

Accepted Answer

A)  $6,000 
B)  $5,000 
C)  $4,000 
D)  $3,000 
A)  $6,000 
B)  $5,000 
C)  $4,000 
D)  $3,000

Question 12

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?

Accepted Answer

A)  Rapidpro may use the prior year tax liability to determine its first and second quarter estimated tax payments only since it is a large corporation. 
B)  To avoid penalty, the second quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its first quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment). 
C)  To avoid penalty, the third quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its third quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment). 
D)  None of these is true. 
A)  Rapidpro may use the prior year tax liability to determine its first and second quarter estimated tax payments only since it is a large corporation. 
B)  To avoid penalty, the second quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its first quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment). 
C)  To avoid penalty, the third quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its third quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment). 
D)  None of these is true.

Question 13

For incentive stock options, the value of the options that is expensed as compensation in a given year creates a permanent, unfavorable book-tax difference.

Accepted Answer

A) True 
 B)False

Question 14

ValuCo gives you the following information: $$\begin{array} { | l | r | } 
\hline \text { Tax basis of property transterred } & \$ 200,000 \
\hline \text { Gain rec ognized } & 50,000 \
\hline \text { Less boot received } & ( 50,000 ) \
\hline \text {-Adjusted tax basis of the stock received } & 200,000 \
\hline
\end{array}$$ What is its ACE adjustment for the year? Is it favorable or unfavorable?

Accepted Answer

$55,500, unfavorable
Explanation: Two of

Question 15

Accrual-method corporations are not allowed to deduct charitable contributions unless they actually make payment to the charity by year end.

Accepted Answer

A) True 
 B)False

Question 16

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 17

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

Accepted Answer

A)  ISOs that vest create solely permanent book-tax differences. 
B)  For ISOs, book-tax differences are always unfavorable. 
C)  For books, the initial estimated value of the ISOs is expensed pro-rata over the vesting period. 
D)  Book-tax differences associated with ISOs may be either permanent or temporary. 
A)  ISOs that vest create solely permanent book-tax differences. 
B)  For ISOs, book-tax differences are always unfavorable. 
C)  For books, the initial estimated value of the ISOs is expensed pro-rata over the vesting period. 
D)  Book-tax differences associated with ISOs may be either permanent or temporary.

Question 18

Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is Roy's tax basis in the stock received in the exchange?

Accepted Answer

A)  $800 
B)  $750 
C)  $700 
D)  $500 
A)  $800 
B)  $750 
C)  $700 
D)  $500

Question 19

Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock with a fair market value of $600. In addition, Sami received stock with a fair market value of $50 in exchange for services she provided to the corporation in the incorporation process. Which of the following statements best describes the tax result to Sami as a result of the exchanges?

Accepted Answer

A)  Sami will recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351. 
B)  Sami will recognize $50 of compensation income, but she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351. 
C)  Sami will not recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351. 
D)  Sami will not recognize $50 of compensation income, and she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351. 
A)  Sami will recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351. 
B)  Sami will recognize $50 of compensation income, but she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351. 
C)  Sami will not recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for services in determining if the control test is met under section 351. 
D)  Sami will not recognize $50 of compensation income, and she cannot count the shares of stock she receives in exchange for services in determining if the control test is met under section 351.

Question 20

Corporations can carry net operating losses back two years and forward 20 years.

Accepted Answer

A) True 
 B)False

Which of the following class of stock is not allowed to be used in a section 351 transaction?

Which of the following describes the correct treatment of incentive stock options (ISOs)?

Which of the following is not an AMT adjustment?

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

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

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

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?

For incentive stock options, the value of the options that is expensed as compensation in a given year creates a permanent, unfavorable book-tax difference.

ValuCo gives you the following information: Tax basis of property transterred \ 200,000 Gain rec ognized 50,000 Less boot received (50,000) -Adjusted tax basis of the stock received 200,000 What is its ACE adjustment for the year? Is it favorable or unfavorable?

Accrual-method corporations are not allowed to deduct charitable contributions unless they actually make payment to the charity by year end.

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.

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

Corporations can carry net operating losses back two years and forward 20 years.

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 for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters

Exam 13: Corporate Formations and Operations

Which of the following class of stock is not allowed to be used in a section 351 transaction?

Which of the following describes the correct treatment of incentive stock options (ISOs)?

Which of the following is not an AMT adjustment?

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

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

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

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?

For incentive stock options, the value of the options that is expensed as compensation in a given year creates a permanent, unfavorable book-tax difference.

ValuCo gives you the following information: Tax basis of property transterred \ 200,000 Gain rec ognized 50,000 Less boot received (50,000) -Adjusted tax basis of the stock received 200,000 What is its ACE adjustment for the year? Is it favorable or unfavorable?

Accrual-method corporations are not allowed to deduct charitable contributions unless they actually make payment to the charity by year end.

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.

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

Corporations can carry net operating losses back two years and forward 20 years.

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 for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters