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Exam 16: Corporate Operations

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Question 1

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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?

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

E) A) and B)
F) A) and C)

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Question 2

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Netgate Corporation's gross regular tax liability for 2019 was $189,000.What was its taxable income?

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$900,000.{...

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Question 3

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

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

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

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

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 2019).Each option allows the holder to purchase one share of stock at $8.On January 1,2020,employees exercised 12,500 options as IC's stock price reached $14.72.What is the amount of the book-tax difference in 2020 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

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

Volos Company (a calendar-year corporation)began operations in March of 2017 and was not profitable through December of 2018.Volos has been profitable for the first quarter of 2019 and is trying to determine its first quarter estimated tax payment.It will have no estimated tax payment requirement in 2019 because it had no tax liability for the 2018 tax year and has been in business for at least 12 months.

C corporations with annual average gross receipts of $26 million or more are allowed to use the cash method of accounting for at least the first two years of their existence.

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

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

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?

Which of the following does NOT create a temporary book-tax difference?

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

An affiliated group must file a consolidated tax return.

In the current year,Auto Rent Corporation reported the following taxable income at the end of its first,second,and third quarters: (Use Exhibit 16-10) What amount of estimated tax payments would Auto Rent pay each quarter to avoid estimated tax penalties under the annualized income method of computing estimated tax payments?

Net capital loss carryovers are deductible against capital gains in determining a corporation's net operating loss for the year.

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

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