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Exam 13: Corporate Formations and Operations

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Question 21

True/False

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

A) True
B) False

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Question 22

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

A) True
B) False

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Question 23

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If a corporation's cash charitable contributions exceed the charitable contribution deduction limit, what kind of book-tax difference is created for that year?

Which of the following statements regarding book-tax differences is true?

Which of the following statements best describes the concept of control as it applies to a section 351 transaction?

Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs) ?

Don and Marie formed Paper Lilies Corporation on January 2.Don contributed cash of $400,000 in return for 50 percent of the corporation's stock.Marie contributed a building and land with the following fair market values and tax bases in return for 50 percent of the corporation's stock. $\begin{array} { l r r r r } & \text { FMV } & \text { Tax Basis } \\\text { Buildirg } & 180,000 & 120,000 \\\text { Land } & \underline{270,000} & \underline{80,000} \\\text { Total } &\underline{ \$ 450,000} & \underline{\$ 200,000}\end{array}$ To equalize the exchange, Paper Lilies Corporation paid Marie $50,000 in addition to her stock. a.What amount of gain or loss does Marie realize on the formation of the corporation? b.What amount of gain or loss, if any, does she recognize? c.What is Marie's tax basis in the stock she receives in return for her contribution of property to the corporation? d.What tax basis does Paper Lilies Corporation take in the land and building received from Marie?

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

For book purposes, RadioAircast Inc.reported $15,000 of income from municipal bonds.It also expensed $12,000 of radio station filing fines paid to the FCC (a governmental agency)the same year.What is the total book-tax difference associated with these items? Is it favorable or unfavorable? What amount of the total adjustment is permanent and what amount is temporary?

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

Schedule M-1 reconciles book income to the taxable income that is applied to the tax rate to determine the corporation's gross tax liability.

Han transferred land he held as an investment to his corporation in a section 351 transaction.Han had held the land for two years prior to the transfer.Han's holding period in the stock he received in the exchange includes the period for which he held the land before transferring it to the corporation.

Corporations can carry net operating losses occurring in 2019 back two years and forward 20 years.

On January 1, 2016, Credit Inc.recorded goodwill valued at $270,000 when it acquired the assets of another company.At the end of 2017, the auditors of Credit Inc.determined that the goodwill had been impaired by $50,000 and Credit Inc.wrote down the book value of the goodwill by $50,000.During 2018, the goodwill was not impaired.In 2019, goodwill was impaired and was written down another $18,000 for financial reporting purposes.What is the temporary book-tax difference associated with the purchased goodwill in 2017, 2018, and 2019? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock with a fair market value of $2,000 and $500 cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $500 on the property transferred.What is Ashley's tax basis in the stock received in the exchange?

Antoine transfers property with a tax basis of $500 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $550 in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $50 on the property transferred.What is Antoine's tax basis in the stock received in the exchange?

Over what time period do corporations amortize purchased goodwill for tax purposes?

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 expects a tax liability for the year of over $30,000).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.

Corporations compute their dividends received deduction by multiplying the dividend amount by 50 percent, 65 percent, or 100 percent depending on their ownership in the distributing corporation's stock.

Which of the following statements regarding charitable contributions is false?