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Exam 5: Corporate Operations

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Question 21

True/False

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Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues. Corporations do not have standard deductions.

A) True
B) False

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Question 22

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For corporations, which of the following regarding net capital losses is true?

A) A corporation that experiences a net capital loss has a favorable book-tax difference in the year of the loss.
B) A corporation that experiences a net capital loss in year 4 first carries the loss back to year 3, then year 2, and then year 1 before carrying it forward.
C) Net capital loss carrybacks are deductible in determining a corporation's net operating loss.
D) Net capital loss carrybacks and carryovers create temporary book-tax differences if they are used before they expire.

E) A) and B)
F) All of the above

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Question 23

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

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

Together, Kurt and Esmeralda own 60% of three corporations: RAZ, DVA, and TRE. The three corporations would be considered as what kind of controlled group for tax purposes?

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 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. A corporation carries a net capital loss back 3 years (required) and forward 5 years.

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

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

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

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 does not apply?

BTW Corporation has taxable income in the current year that can be offset with an NOL 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?

Corporation A receives a dividend from Corporation B. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference) . If A has accounted for the dividend correctly (following the general rule) , how much of B stock does A own?

Flywest Airlines, Inc. has regular taxable income of $190 million. It also has $10 million of AMT preference items, a $5 million unfavorable depreciation adjustment, and a $2 million favorable ACE adjustment (after the 75% adjustment) . What is Flywest's alternative minimum tax income (AMTI) ?

An affiliated group must file a consolidated tax return. Filing a consolidated tax return is an election in the first year, after which it is mandatory on a going forward basis.

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

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

Which of the following is not an AMT adjustment?

A C corporation reports its taxable income or loss on Form 1065. Form 1120

Bingo Corporation incurred a net operating loss in 2016. If Bingo carries the loss back, it must first carry the loss back to offset its 2015 taxable income and then carry any remaining loss back to offset its 2014 taxable income. The NOL offsets the income in the second previous year (2014) before it offsets income in the first previous year (2015).