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Exam 16: Corporate Operations

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Question 31

True/False

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Taxable income of all C corporations is subject to a flat 21 percent tax rate.

A) True
B) False

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Question 32

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BTW Corporation has taxable income in the current year that can be offset with an NOL carryover from a previous year.What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?

A) Permanent; favorable.
B) Permanent; unfavorable.
C) Temporary; favorable.
D) Temporary; unfavorable.

E) B) and D)
F) B) and C)

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Question 33

Multiple Choice

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Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

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

A nonqualified stock option will create a permanent book-tax difference in a given year if it accrues during the year but is exercised in a later year.

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

For incentive stock options,the value of the options that accrue in a given year always creates a permanent,unfavorable book-tax difference.

In January 2018,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 2019,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 2019,what is the book-tax difference due to the options exercised?

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

AB Inc.received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation.AB owns 10 percent of CD.What is AB's marginal tax rate (to the nearest tenth of a percent)on the dividends received (after taking the DRD into account)?

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

In 2019,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?

Jazz Corporation owns 10 percent 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.?

Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.

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).

Orange Inc.issued 20,000 nonqualified stock options valued at $40,000 (in total) .The options vest over two years-half in 2019 (the year of issue) and half in 2020.One thousand options are exercised in 2020 with a bargain element on each option of $6.What is the 2020 book-tax difference associated with the stock options?

Which of the following statements regarding net operating losses generated in 2020 is true?

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.

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.