Question 1

A nonqualified stock option will create a permanent book-tax difference in a given year if it accrues during the year but is exercised in a later year.

Accepted Answer

A) True 
 B)False  False

Question 2

In January 2015, Khors Company issues nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2016, the company experiences a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $60,000. For 2016, what is the book-tax difference due to the options exercised?

Accepted Answer

A) 10,000 unfavorable 
B) 10,000 favorable 
C) 50,000 unfavorable 
D) 60,000 favorable 
A) 10,000 unfavorable 
B) 10,000 favorable 
C) 50,000 unfavorable 
D) 60,000 favorable D

Question 3

NOL and capital loss carryovers are deductible in calculating the charitable contribution limit modified taxable income, while NOL and capital loss carrybacks are not.

Accepted Answer

A) True 
 B)False  True

Question 4

In 2016, 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?

Accepted Answer

$46,000, c

Question 5

ValuCo gives you the following information:   
What is its ACE adjustment for the year? Is it favorable or unfavorable?

Accepted Answer

$55,500, unfavorable
Explanation: Two of

Question 6

A corporation may carry a net capital loss back three years and forward five years.

Accepted Answer

A) True 
 B)False

Question 7

QDP Corporation's AMTI is $569,000 for 2015. Its regular tax liability is $110,000. What is its AMT?

Accepted Answer

$3,800
Explanation: QDP's AMT exemption

Question 8

Which of the following statements regarding the dividends and/or the dividends received deduction (DRD) is true?

Accepted Answer

A) Dividends are taxed at preferential rates for corporations as well as for individuals. 
B) The DRD can increase the net operating loss of a corporation. 
C) Corporations are allowed to deduct from a dividend received the product of the dividend and the percentage of the receiving corporation's ownership in the distributing corporation's stock. 
D) The DRD allows corporations to deduct the amount of dividends that they distributE.The DRD limitation does not apply if the DRD creates or increases a corporation's net operating loss. 
A) Dividends are taxed at preferential rates for corporations as well as for individuals. 
B) The DRD can increase the net operating loss of a corporation. 
C) Corporations are allowed to deduct from a dividend received the product of the dividend and the percentage of the receiving corporation's ownership in the distributing corporation's stock. 
D) The DRD allows corporations to deduct the amount of dividends that they distributE.The DRD limitation does not apply if the DRD creates or increases a corporation's net operating loss.

Question 9

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 10

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 11

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 ($2,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Accepted Answer

A) $0 
B) $5,600 
C) $7,000 
D) $8,000 
E) None of these. 
A) $0 
B) $5,600 
C) $7,000 
D) $8,000 
E) None of these.

Question 12

BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year. What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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:   
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 18

What is the unextended due date of the tax return of a calendar-year corporation for 2016?

Accepted Answer

A) February 15. 
B) March 15. 
C) April 15. 
D) September 15. 
A) February 15. 
B) March 15. 
C) April 15. 
D) September 15.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Which of the following does NOT create a permanent book-tax difference?

Accepted Answer

A) Organizational and start-up expenses 
B) Key employee death benefit income 
C) Fines and penalties expenses 
D) Municipal bond interest income 
A) Organizational and start-up expenses 
B) Key employee death benefit income 
C) Fines and penalties expenses 
D) Municipal bond interest income

Exam 16: Corporate Operations

A nonqualified stock option will create a permanent book-tax difference in a given year if it accrues during the year but is exercised in a later year.

NOL and capital loss carryovers are deductible in calculating the charitable contribution limit modified taxable income, while NOL and capital loss carrybacks are not.

ValuCo gives you the following information: What is its ACE adjustment for the year? Is it favorable or unfavorable?

A corporation may carry a net capital loss back three years and forward five years.

QDP Corporation's AMTI is $569,000 for 2015. Its regular tax liability is $110,000. What is its AMT?

Which of the following statements regarding the dividends and/or the dividends received deduction (DRD) is true?

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.

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 ($2,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year. What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?

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

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

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

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

What is the unextended due date of the tax return of a calendar-year corporation for 2016?

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

Which of the following does NOT create a permanent book-tax difference?

An Introduction to Tax

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Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

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Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

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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

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The Us Taxation of Multinational Transactions

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