Question 1

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

Question 2

Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $750 and $50 cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $100 on the property transferred.What is the corporation's tax basis in the property received in the exchange?

Accepted Answer

A)  $900.
B)  $850.
C)  $800.
D)  $750.E) B) and C)
F) A) and D)

Question 3

Which of the following statements regarding nonqualified stock options (NQOs) is false?

Accepted Answer

A)  Book-tax differences associated with NQOs may be either permanent or temporary.
B)  If the initial estimated value of the options that are exercised during the year is greater than the bargain element of those options, the book-tax difference for that year is unfavorable.
C)  If the initial estimated value of the options that are exercised during the year is greater than the bargain element of those options, the book-tax difference for that year is entirely temporary.
D)  None of these choices are false (all of these choices are true) .E) C) and D)
F) B) and C)

Question 4

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

Accepted Answer

A)  Deferred compensation.
B)  Bad debt expense.
C)  Depreciation expense.
D)  Dividends received deductionE) A) and D)
F) A) and B)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements best describes the "built-in loss" rules that apply to the basis of property transferred to a corporation under section 351?

Accepted Answer

A)  If the basis of a property transferred to a corporation under section 351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the property's fair market value.
B)  If the basis of a property transferred to a corporation under section 351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the property's tax basis in the hands of the shareholder.
C)  If the aggregate basis of all property transferred to a corporation under section 351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate fair market value of the property.
D)  If the aggregate basis of all property transferred to a corporation under section 351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate tax basis of the property.E) None of the above
F) A) and D)

Question 7

AB Inc.received a dividend from CD Corporation and is able to claim the dividends received deduction without limitation.AB owns 30 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)?

Accepted Answer

[7.35 perc...

Question 8

GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank, a qualified nonprofit organization, in November of 2019.GenerUs made payment to FoodBank on February 2, 2020.GenerUs Inc.(a calendar-year corporation)may claim a deduction for the contribution on its 2019 tax return.

Accepted Answer

A) True 
 B)False

Question 9

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000.Its charitable contributions for the year were $7,500.What is Remsco's current-year charitable contribution deduction and contribution carryover?

Accepted Answer

A)  $6,000 current-year deduction; $1,500 carryover.
B)  $7,500 current-year deduction; $0 carryover.
C)  $1,200 current-year deduction; $6,300 carryover.
D)  $7,200 current-year deduction; $300 carryover.E) B) and C)
F) A) and D)

Question 10

TrendSetter Inc.paid $50,000 in premiums for life insurance coverage for its key employees.What is the nature of the book-tax difference created by this expense?

Accepted Answer

A)  Permanent; favorable.
B)  Permanent; unfavorable.
C)  Temporary; favorable.
D)  Temporary; unfavorable.E) A) and B)
F) A) and C)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

What is the unextended due date of the tax return of a calendar-year corporation?

Accepted Answer

A)  February 15.
B)  March 15.
C)  April 15.
D)  October 15.E) A) and B)
F) B) and C)

Question 13

A corporation may carry a net capital loss back three years and forward five years.

Accepted Answer

A) True 
 B)False  True

Question 14

Which of the following classes of stock is not allowed to be used in a section 351 transaction?

Accepted Answer

A)  Voting common stock.
B)  Voting preferred stock.
C)  Nonvoting preferred stock.
D)  All of these classes of stock can be used in a section 351 transaction.E) None of the above
F) A) and B)

Question 15

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?

Accepted Answer

A)  The shareholder recognizes gain and loss on the transfer and the corporation's basis in the property transferred equals its fair market value.
B)  The shareholder does not recognize gain and loss on the transfer and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred.
C)  The shareholder recognizes gain and loss on the transfer and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred.
D)  The shareholder does not recognize gain and loss on the transfer and the corporation's basis in the property transferred equals zero.E) A) and B)
F) B) and D)

Question 16

AmStore Inc.sold some of its heavy machinery at a gain.AmStore used the straight-line method for financial accounting depreciation and MACRS for tax cost recovery.If accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes, what is the nature of the book-tax difference associated with the gain on the sale?

Accepted Answer

A)  Permanent; favorable.
B)  Permanent; unfavorable.
C)  Temporary; favorable.
D)  Temporary; unfavorable.E) B) and C)
F) A) and B) D

Question 17

Ken and Jim agree to go into business together selling old comic books and records.According to the agreement, Ken will contribute inventory valued at $200,000 in return for 80 percent of the stock in the corporation.Ken's tax basis in the inventory is $120,000.Jim will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures).The accounting services are valued at $50,000.
Please answer the following questions about the tax consequences of the transaction to Ken.
a.What amount of gain or loss does Ken realize on the formation of the corporation?
b.What amount of gain or loss, if any, does he recognize?
c.What is Ken's tax basis in the stock he receives in return for his contribution of property to the corporation?

Accepted Answer

a.$80,000 gain

b.Ken does not recogniz...

Question 18

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

Accepted Answer

A)  Net capital loss carrybacks.
B)  Charitable contributions.
C)  NOL carryovers.
D)  None of these choices are correct.E) B) and C)
F) A) and B)

Question 19

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

Accepted Answer

A) True 
 B)False  True

Question 20

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

Accepted Answer

A)  Temporary book-tax differences will reverse in future years whereas permanent differences will not.
B)  Certain corporations are required to disclose book-tax differences as permanent or temporary on their tax returns.
C)  Both "Temporary book-tax differences will reverse in future years whereas permanent differences will not." and "Certain corporations are required to disclose book-tax differences as permanent or temporary on their tax returns." are the reasons.
D)  Neither "Temporary book-tax differences will reverse in future years whereas permanent differences will not." nor "Certain corporations are required to disclose book-tax differences as permanent or temporary on their tax returns." is the reason.E) A) and D)
F) A) and B)

Exam 13: Corporate Formations and Operations

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.

Correct Answer
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Correct Answer
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Which of the following statements regarding nonqualified stock options (NQOs) is false?

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

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

Correct Answer
verified

Which of the following statements best describes the "built-in loss" rules that apply to the basis of property transferred to a corporation under section 351?

Correct Answer
verified

AB Inc.received a dividend from CD Corporation and is able to claim the dividends received deduction without limitation.AB owns 30 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)?

Correct Answer
verified
[7.35 perc...
View Answer

Correct Answer
verified

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000.Its charitable contributions for the year were $7,500.What is Remsco's current-year charitable contribution deduction and contribution carryover?

Correct Answer
verified

TrendSetter Inc.paid $50,000 in premiums for life insurance coverage for its key employees.What is the nature of the book-tax difference created by this expense?

Correct Answer
verified

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

Correct Answer
verified

What is the unextended due date of the tax return of a calendar-year corporation?

Correct Answer
verified

A corporation may carry a net capital loss back three years and forward five years.

Correct Answer
verified
True

Which of the following classes of stock is not allowed to be used in a section 351 transaction?

Correct Answer
verified

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?

Correct Answer
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Correct Answer
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D

Correct Answer
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a.$80,000 gain
b.Ken does not recogniz...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified
True

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

Correct Answer
verified

Exam 13: Corporate Formations and Operations

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements regarding nonqualified stock options (NQOs) is false?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements best describes the "built-in loss" rules that apply to the basis of property transferred to a corporation under section 351?

Correct AnswerverifiedShow Answer

AB Inc.received a dividend from CD Corporation and is able to claim the dividends received deduction without limitation.AB owns 30 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)?

Correct Answerverified[7.35 perc...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000.Its charitable contributions for the year were $7,500.What is Remsco's current-year charitable contribution deduction and contribution carryover?

Correct AnswerverifiedShow Answer

TrendSetter Inc.paid $50,000 in premiums for life insurance coverage for its key employees.What is the nature of the book-tax difference created by this expense?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is the unextended due date of the tax return of a calendar-year corporation?

Correct AnswerverifiedShow Answer

A corporation may carry a net capital loss back three years and forward five years.

Correct AnswerverifiedTrue

Which of the following classes of stock is not allowed to be used in a section 351 transaction?

Correct AnswerverifiedShow Answer

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

Correct Answerverifieda.$80,000 gain b.Ken does not recogniz...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTrue

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
[7.35 perc...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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True

Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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a.$80,000 gain
b.Ken does not recogniz...
View Answer

Correct Answer
verified

Correct Answer
verified
True

Correct Answer
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