Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

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.

Accepted Answer

A) True 
 B)False  False

Question 3

The tax rate for the corporate alternative minimum tax is a flat 26%.

Accepted Answer

A) True 
 B)False  False

Question 4

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).

Accepted Answer

A) True 
 B)False

Question 5

On January 1,2016,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 2016.By the end of 2016,20,000 of the options had vested.At the end of 2017,these options were exercised when the stock price is $6.25.What is the total value of the book-tax difference associated with the stock options for 2017? Is it favorable or unfavorable? How much of the adjustment is permanent and how much is temporary? (Note that ASC 718 applies to these transactions.)

Accepted Answer

The answer of On January 1,2016,GrowCo issued 50,000 nonqualified stock...

Question 6

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

Accepted Answer

A)   If ASC 718 does not apply, ISOs do not create book-tax differences.
B)   For ISOs granted when ASC 718 applies, book-tax differences are always unfavorable.
C)   If ASC 718 applies, the value expensed for book purposes in a given year is the value of the options that accrue.
D)   If ASC 718 applies, book-tax differences associated with ISOs may be either permanent or temporary.

Question 7

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?

Accepted Answer

A)   $11,000 unfavorable.
B)   $11,000 favorable.
C)   $16,000 unfavorable.
D)   $16,000 favorable.

Question 8

Net capital loss carryovers but not carrybacks are deductible against capital gains in determining a corporation's net operating loss for the year.

Accepted Answer

A) True 
 B)False

Question 9

Minimum tax credits generated by the corporate AMT can be carried forward indefinitely.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is not an AMT adjustment?

Accepted Answer

A)   Adjustment for depreciation.
B)   Adjustment of gain or loss on sale of depreciable assets.
C)   Adjustment for adjusted current earnings (AC
E)  .
D)   Adjustment for domestic production activities deduction.

Question 12

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 13

Corporation A receives a dividend from Corporation B.It includes the dividend in gross income for tax purposes but includes a pro-rata portion of B's earnings in its financial accounting income.If A has accounted for the dividend correctly (using the general rule),how much of B's 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.

Question 14

Which of the following is not a type of controlled group as defined in the Internal Revenue Code?

Accepted Answer

A)   Parent-subsidiary.
B)   Brother-sister.
C)   Combined.
D)   All of the choices are types of controlled groups.

Question 15

Which of the following statements regarding AMT is true?

Accepted Answer

A)   Only very profitable companies (AMTI greater than $1 million)  have their AMT exemption phased out.
B)   The AMT exemption is phased out dollar for dollar as AMTI increases.
C)   Minimum tax credits are generated whenever regular tax liability exceeds tentative minimum tax.
D)   Minimum tax credits can be carried forward indefinitely.

Question 16

Which of the following describes the correct treatment of nonqualified stock options (NQOs)granted when ASC 718 did not apply?

Accepted Answer

A)   Financial-no expense; tax-no deduction.
B)   Financial-no expense; tax-deduct bargain element at exercise.
C)   Financial-expense value over vesting period; tax-no deduction.
D)   Financial-expense value over vesting period; tax-deduct bargain element at exercise.

Question 17

Bingo Corporation incurred a net operating loss in 2017.If Bingo carries the loss back,it must first carry the loss back to offset its 2016 taxable income and then carry any remaining loss back to offset its 2015 taxable income.

Accepted Answer

A) True 
 B)False

Question 18

IndusTree Inc.received $1,800,000 from the sale of a property in 2017.The property's adjusted basis for regular tax purposes was $200,000 at the time of the sale.The property's adjusted basis for AMT purposes was $290,000.What is the amount of the AMT adjustment due to the sale of the asset? Does it increase or decrease AMTI?

Accepted Answer

The answer of IndusTree Inc.received $1,800,000 from the sale of...

Question 19

Which of the following statements regarding charitable contributions is false?

Accepted Answer

A)   Only contributions made to qualified charitable organizations are deductible.
B)   Charitable contribution deductions are subject to a limitation based on the corporation's taxable income (before certain deductions) .
C)   Corporations can qualify to deduct a contribution before actually paying the contribution to the charity.
D)   The amount deductible for non-cash contributions is always the adjusted basis of the property donated.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 5: Corporate Operations

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

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.

The tax rate for the corporate alternative minimum tax is a flat 26%.

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 statements regarding incentive stock options (ISOs) is false?

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?

Net capital loss carryovers but not carrybacks are deductible against capital gains in determining a corporation's net operating loss for the year.

Minimum tax credits generated by the corporate AMT can be carried forward indefinitely.

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

Which of the following is not an AMT adjustment?

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.

Corporation A receives a dividend from Corporation B.It includes the dividend in gross income for tax purposes but includes a pro-rata portion of B's earnings in its financial accounting income.If A has accounted for the dividend correctly (using the general rule) ,how much of B's stock does A own?

Which of the following is not a type of controlled group as defined in the Internal Revenue Code?

Which of the following statements regarding AMT is true?

Which of the following describes the correct treatment of nonqualified stock options (NQOs) granted when ASC 718 did not apply?

Bingo Corporation incurred a net operating loss in 2017.If Bingo carries the loss back,it must first carry the loss back to offset its 2016 taxable income and then carry any remaining loss back to offset its 2015 taxable income.

Which of the following statements regarding charitable contributions is false?

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