Exam 16: Corporate Operations

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.

Corporations may carry a net operating loss sustained in 2019 back two years and forward 20 years.

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

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.?

For book purposes, RadioAircast Inc. reported $15,000 of income from municipal bonds in 2018. 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?

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

Tatoo Inc. reported a net capital loss of $13,000 in 2018. The company had a net capital gain of $4,300 in 2016 and $3,000 in 2015. In 2017, although the company suffered a net operating loss, it had net capital gains of $1,000. What is the amount of Tatoo's capital loss carryover remaining after it applies the carryback?

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

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?

A corporation generally will report a favorable, temporary book-tax difference when it deducts a charitable contribution carryover.

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

An affiliated group must file a consolidated tax return.

Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total). The options vest over two years-half in 2018 (the year of issue) and half in 2019. One thousand options are exercised in 2019 with a bargain element on each option of $6. What is the 2019 book-tax difference associated with the stock options?

Corporations calculate adjusted gross income (AGI) in the same way as individuals.

It is important to distinguish between temporary and permanent book-tax differences for which of the following reasons?

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

Minimum tax credits generated by the pre-2018 corporate alternative minimum tax can be carried forward to offset regular tax in post-2017 years.

Volos Company (a calendar-year corporation) began operations in March of 2016 and was not profitable through December of 2017. Volos has been profitable for the first quarter of 2018 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement in 2018 because it had no tax liability for the 2017 tax year and has been in business for at least 12 months.

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.

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