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Exam 16: Corporate Operations

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Question 1

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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?

A) A owns less than 20 percent of the stock of B.
B) A owns at least 20 but not more than 50 percent of the stock of B.
C) A owns more than 50 percent of the stock of B.
D) Cannot be determined.

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

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Question 2

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Volos Company (a calendar-year corporation)began operations in March of 2018 and was not profitable through December of 2019. Volos has been profitable for the first quarter of 2020 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement in 2020 because it had no tax liability for the 2019 tax year and has been in business for at least 12 months.

A) True
B) False

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Question 3

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On January 1, 2019, GrowCo issued 50,000 nonqualified stock options (NQOs)valued at $1 per option. Each option entitles the owner to purchase one share of stock for $4. These options vest (accrue)at 20 percent per year for five years beginning in 2019. By the end of 2019, 20,000 of the options had vested. At the end of 2020, these options were exercised when the stock price is $6.25. What is the total book-tax difference associated with the stock options for 2020? Is it favorable or unfavorable? How much of the adjustment is permanent and how much is temporary?

Datasoft Incorporated received $350,000 in dividends from CSLabs Incorporated Datasoft's taxable income before the dividends received deduction and $20,000 charitable contribution deduction is $300,000. What is Datasoft's DRD assuming it owns 15 percent of the CSLabs Incorporated stock?

Which of the following describes the correct treatment of incentive stock options (ISOs) ?

Pure Action Cycles Incorporated, a bicycle manufacturer, has a net capital loss in 2020 of $(64,000). It had net capital gains of $21,500 in 2019, $45,000 in 2018, $10,000 in 2017 (but suffered a net operating loss in 2017), and $8,000 of net capital gain in 2016. What is the net capital gain in 2019 after the carryback is applied?

An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income in the current year.

Remsco has taxable income of $74,000 and a charitable contribution limit modified taxable income of $79,000. Its charitable contributions for the year were $8,060. What is Remsco's current-year charitable contribution deduction and contribution carryover?

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

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

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(assuming Remsco does not elect to use the 25% of modified taxable income to determine its charitable contribution deduction) ?

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

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 statements regarding nonqualified stock options (NQOs) is false?

Which of the following is deductible in calculating DRD modified taxable income?

An affiliated group must file a consolidated tax return.

Tatoo Incorporated reported a net capital loss of $14,800 in 2020. The company had a net capital gain of $6,100 in 2018 and $4,800 in 2017. In 2019, although the company suffered a net operating loss, it had net capital gains of $2,800. What is the amount of Tatoo's capital loss carryover to 2021 remaining after it applies the carryback?

For tax purposes, a corporation may deduct the entire amount of a net capital loss in the year incurred.

Which of the following statements is false regarding corporate estimated tax payments?

Pure Action Cycles Incorporated, a bicycle manufacturer, has a net capital loss in 2020 of $(67,000). It had net capital gains of $21,350 in 2019, $46,500 in 2018, $10,300 in 2017 (but suffered a net operating loss in 2017), and $8,300 of net capital gain in 2016. What is the net capital gain in 2019 after the carryback is applied?