Question 1

Which of the following statements regarding net operating losses generated in 2019 is true?

Accepted Answer

A)  Corporations can carry NOLs back two years and forward up to 20 years. 
B)  A corporation can carryover the NOL indefinitely. 
C)  A corporation can carry NOLs back two years and forward indefinitely. 
D)  When a corporation applies a net operating loss carryover, it reports a favorable, permanent book-tax difference in the amount of the applied carryover. 
E)  None of these is a true statement. 
A)  Corporations can carry NOLs back two years and forward up to 20 years. 
B)  A corporation can carryover the NOL indefinitely. 
C)  A corporation can carry NOLs back two years and forward indefinitely. 
D)  When a corporation applies a net operating loss carryover, it reports a favorable, permanent book-tax difference in the amount of the applied carryover. 
E)  None of these is a true statement.

Question 2

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

Accepted Answer

A)  In general, smaller corporations are required to complete Schedule M-1 while larger corporations are required to complete Schedule M-3. 
B)  Schedule M-3 lists more book-tax differences than Schedule M-1. 
C)  Both Schedules M-1 and M-3 reconcile to a corporation's bottom line taxable income. 
D)  Schedule M-1 does not distinguish between temporary and permanent book-tax differences whereas Schedule M-3 does. 
A)  In general, smaller corporations are required to complete Schedule M-1 while larger corporations are required to complete Schedule M-3. 
B)  Schedule M-3 lists more book-tax differences than Schedule M-1. 
C)  Both Schedules M-1 and M-3 reconcile to a corporation's bottom line taxable income. 
D)  Schedule M-1 does not distinguish between temporary and permanent book-tax differences whereas Schedule M-3 does.

Question 3

Pure Action Cycles Inc., a bicycle manufacturer, has a net capital loss in 2018 of $(64,000). It had net capital gains of $21,500 in 2017, $45,000 in 2016, $10,000 in 2015 (but suffered a net operating loss in 2015), and $8,000 of net capital gain in 2014. What is the net capital gain in 2017 after the carryback is applied?

Accepted Answer

$2,500 cap

Question 4

In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. Adams has a favorable temporary book-tax difference for that year.

Accepted Answer

A) True 
 B)False

Question 5

For incentive stock options, the value of the options that accrue in a given year always creates a permanent, unfavorable book-tax difference.

Accepted Answer

A) True 
 B)False

Question 6

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 the choices are 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 the choices are true.

Question 7

Imperial Construction Inc. (IC) issued 100,000 incentive stock options (ISOs) to its employees on January 1, 2018 with an estimated value of $5.50 per option. The options vest (accrue) at 25 percent per year for four years (beginning in 2018). Each option allows the holder to purchase one share of stock at $8. On January 1, 2019, employees exercised 12,500 options as IC's stock price reached $14.72. What is the amount of the book-tax difference in 2019 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

Accepted Answer

$137,500 unfavorable

Question 8

Net operating losses generally create permanent book-tax differences.

Accepted Answer

A) True 
 B)False

Question 9

For corporations, which of the following regarding net capital losses is true?

Accepted Answer

A)  A corporation that experiences a net capital loss has a favorable book-tax difference in the year of the loss. 
B)  A corporation that experiences a net capital loss in year 4 first carries the loss back to year 3, then year 2, and then year 1 before carrying it forward. 
C)  Net capital loss carrybacks are deductible in determining a corporation's net operating loss. 
D)  Net capital loss carrybacks and carryovers create temporary book-tax differences if they are used before they expire. 
A)  A corporation that experiences a net capital loss has a favorable book-tax difference in the year of the loss. 
B)  A corporation that experiences a net capital loss in year 4 first carries the loss back to year 3, then year 2, and then year 1 before carrying it forward. 
C)  Net capital loss carrybacks are deductible in determining a corporation's net operating loss. 
D)  Net capital loss carrybacks and carryovers create temporary book-tax differences if they are used before they expire.

Question 10

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

Question 11

A corporation may carry a net capital loss back two years and forward 20 years.

Accepted Answer

A) True 
 B)False

Question 12

Corporation A receives a dividend from Corporation B. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference). If A has accounted for the dividend correctly (following the general rule), how much of B stock does A own?

Accepted Answer

A)  A owns less than 20 percent of the stock of B. 
B)  A owns at least 20 but not more than 50 percent of the stock of B. 
C)  A owns more than 50 percent of the stock of B. 
D)  Cannot be determined. 
A)  A owns less than 20 percent of the stock of B. 
B)  A owns at least 20 but not more than 50 percent of the stock of B. 
C)  A owns more than 50 percent of the stock of B. 
D)  Cannot be determined.

Question 13

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000. Its charitable contributions for the year were $7,500. What is Remsco's current-year charitable contribution deduction and contribution carryover?

Accepted Answer

A)  $6,000 current-year deduction; $1,500 carryover. 
B)  $7,500 current-year deduction; $0 carryover. 
C)  $1,200 current-year deduction; $6,300 carryover. 
D)  $7,200 current-year deduction; $300 carryover. 
A)  $6,000 current-year deduction; $1,500 carryover. 
B)  $7,500 current-year deduction; $0 carryover. 
C)  $1,200 current-year deduction; $6,300 carryover. 
D)  $7,200 current-year deduction; $300 carryover.

Question 14

In 2018, 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 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?

Accepted Answer

$225,000 favorable;

Question 15

Coop Inc. owns 40% of Chicken Inc., both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in the current year. Chicken also reports financial accounting earnings of $20,000 for that year. Assume Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction)?

Accepted Answer

A)  $2,000 unfavorable. 
B)  $2,000 favorable. 
C)  $10,000 unfavorable. 
D)  $10,000 favorable. 
E)  None of the choices are correct. 
A)  $2,000 unfavorable. 
B)  $2,000 favorable. 
C)  $10,000 unfavorable. 
D)  $10,000 favorable. 
E)  None of the choices are correct.

Question 16

Canny Foods Co. is considering three ways it could contribute to a local, qualified charity. First, it could give $10,000 in cash. Second, it could give stock it initially purchased two years ago for $8,000 but is now worth $12,000. Third, it could give items of inventory with a fair market value of $7,000 but with an adjusted basis of $3,000. Which of the following correctly describes the relation among possible charitable contributions in terms of amount deductible for tax purposes?

Accepted Answer

A)  Cash > Stock > Inventory. 
B)  Stock > Cash > Inventory. 
C)  Inventory > Stock > Cash. 
D)  Inventory > Cash > Stock. 
A)  Cash > Stock > Inventory. 
B)  Stock > Cash > Inventory. 
C)  Inventory > Stock > Cash. 
D)  Inventory > Cash > Stock.

Question 17

On January 1, 2017, GrowCo issued 50,000 nonqualified stock options (NQOs) valued at $1 per option. Each option entitles the owner to purchase one share of stock for $4. These options vest (accrue) at 20 percent per year for five years beginning in 2017. By the end of 2017, 20,000 of the options had vested. At the end of 2018, these options were exercised when the stock price is $6.25. What is the total book-tax difference associated with the stock options for 2018? Is it favorable or unfavorable? How much of the adjustment is permanent and how much is temporary?

Accepted Answer

$35,000, favorable. $25,000 of the adjus

Question 18

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

Accepted Answer

A)  The due dates for estimated tax payments are the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. 
B)  Corporations must pay estimated taxes only if they have a federal income tax liability greater than $10,000 (including the alternative minimum tax). 
C)  Even though a corporation extends its tax return, it still must pay its tax liability for the year by three and one-half months after year-end. 
D)  Corporations using the annualized income method for determining estimated tax payments project their tax liability for the year based on income from the first, second, and third quarters. 
A)  The due dates for estimated tax payments are the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. 
B)  Corporations must pay estimated taxes only if they have a federal income tax liability greater than $10,000 (including the alternative minimum tax). 
C)  Even though a corporation extends its tax return, it still must pay its tax liability for the year by three and one-half months after year-end. 
D)  Corporations using the annualized income method for determining estimated tax payments project their tax liability for the year based on income from the first, second, and third quarters.

Question 19

Taxable income of the all C corporations is subject to a flat 21% tax rate.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is deductible in calculating DRD modified taxable income?

Accepted Answer

A)  Charitable contribution deduction. 
B)  Net capital loss carrybacks. 
C)  NOL carryovers. 
D)  Dividends received deduction. 
A)  Charitable contribution deduction. 
B)  Net capital loss carrybacks. 
C)  NOL carryovers. 
D)  Dividends received deduction.

Which of the following statements regarding net operating losses generated in 2019 is true?

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. Adams has a favorable temporary book-tax difference for that year.

For incentive stock options, the value of the options that accrue in a given year always creates a permanent, unfavorable book-tax difference.

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?

Net operating losses generally create permanent book-tax differences.

For corporations, which of the following regarding net capital losses is true?

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.

A corporation may carry a net capital loss back two years and forward 20 years.

Corporation A receives a dividend from Corporation B. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference). If A has accounted for the dividend correctly (following the general rule), how much of B stock does A own?

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000. Its charitable contributions for the year were $7,500. What is Remsco's current-year charitable contribution deduction and contribution carryover?

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

Taxable income of the all C corporations is subject to a flat 21% tax rate.

Which of the following is deductible in calculating DRD modified taxable income?

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

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

Filters

Exam 16: Corporate Operations

Which of the following statements regarding net operating losses generated in 2019 is true?

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. Adams has a favorable temporary book-tax difference for that year.

For incentive stock options, the value of the options that accrue in a given year always creates a permanent, unfavorable book-tax difference.

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?

Net operating losses generally create permanent book-tax differences.

For corporations, which of the following regarding net capital losses is true?

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.

A corporation may carry a net capital loss back two years and forward 20 years.

Corporation A receives a dividend from Corporation B. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference). If A has accounted for the dividend correctly (following the general rule), how much of B stock does A own?

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000. Its charitable contributions for the year were $7,500. What is Remsco's current-year charitable contribution deduction and contribution carryover?

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

Taxable income of the all C corporations is subject to a flat 21% tax rate.

Which of the following is deductible in calculating DRD modified taxable income?

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

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

Filters