Exam 16: Corporate Operations

Studios reported a net capital loss of $30,000 in year 5. It reported net capital gains of $14,000 in year 4 and $27,000 in year 6. What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover?

Which of the following is not calculated in the corporate income tax formula?

A corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.

For a corporation, goodwill created in an asset acquisition generally leads to temporary book-tax differences.

For Corporation P to file a consolidated tax return with Corporation S, P must own what percentage of P's voting stock?

On January 1, 2016, Credit Inc. recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2017, the auditors of Credit Inc. determined that the goodwill had been impaired by $50,000 and Credit Inc. wrote down the book value of the goodwill by $50,000. During 2018, the goodwill was not further impaired. In 2019, additional goodwill was impaired and was written down another $18,000 for financial reporting purposes. What is the temporary book-tax difference associated with the purchased goodwill in 2017, 2018, and 2019? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

Over what time period do corporations amortize purchased goodwill for tax purposes?

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

Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as either temporary or permanent.

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?

Schedule M-1 reconciles from book income to bottom line taxable income (the taxable income that is applied to the tax rates to determine the corporation's gross tax liability).

Which of the following is deductible in calculating the charitable contribution limit modified taxable income?

C corporations with annual average gross receipts of $25 million or more are allowed to use the cash method of accounting for at least the first two years of their existence.

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

A C corporation reports its taxable income or loss on Form 1065.

Large corporations (corporations with more than $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year.

In January 2018, Khors Company issued 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 2018, the company experienced a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $40,000. For 2018, what is the nature of the book-tax difference due to the options exercised?

Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs)?

In 2018, 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?