Exam 16: Corporate Operations

Corporations are not allowed to deduct charitable contributions in excess of 10% of the corporation's taxable income (before the charitable contribution and certain other deductions).

In general, all C corporations can elect to use either the accrual or cash method of accounting.

In January 2017, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company did 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 2018, the company experienced a surge in its stock price, and Ms. Svaro exercised the options. The total bargain element at the time of exercise was $60,000. For 2018, what is the book-tax difference due to the options exercised?

Calendar-year corporations that request an extension for filing their 2018 tax returns will have a tax return due date of October 15.

Bingo Corporation incurred a $10 million net operating loss in 2019. Bingo reported taxable income of $12 million in 2020. Bingo can offset the entire $10 million NOL carryover against taxable income in 2020.

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income.

In 2018, 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 2018?

The dividends received deduction cannot create a net operating loss. The deduction can reduce income to zero but not below zero.

Most corporations use the annualized income method to determine their required annual payment for purposes of making quarterly estimated payments.

GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank, a qualified non-profit organization, in November of 2018. GenerUs made the payment to FoodBank on February 2, 2019. GenerUs Inc. (a calendar-year corporation) may claim a deduction for the contribution on its 2018 tax return.

Which of the following statements is false regarding consolidated tax returns?

Which of the following statements regarding charitable contributions is false?

During 2018, Hughes Corporation sold a portfolio of stock it had held for five years at a loss of $200,000. It also sold some investment land and recognized a capital gain of $180,000. In 2016, Hughes reported a net capital gain of $12,000 and in 2017 it recognized a net capital gain of $6,000. What is the amount of its net capital loss carryover to 2019?

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

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?

Federal income tax expense reported on a corporation's books generates a temporary book-tax difference for Schedule M-3 purposes.

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

For 2018, accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

WFO Corporation has gross receipts according to the following schedule: If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?