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Exam 5: Corporate Operations

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Question 41

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In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. Adams has a favorable temporary book-tax difference for that year.

A) True
B) False

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Question 42

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For book purposes, RadioAircast Incorporated reported $15,000 of income from municipal bonds in 2020. It also expensed $12,000 of radio station filing fines paid to the FCC 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?

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$3,000, favorable bo...

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Question 43

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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?

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?

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

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.

AR Systems Incorporated (AR) had $120,000 of tax liability last year. It anticipates a current-year tax liability of $500,000. Assuming AR is considered a large corporation for purposes of estimating tax liability, what are the minimum estimated tax payments it should make to avoid underpayment penalties? Ignore the annualized income method.

Corporations may carry a net operating loss sustained in 2020 back two years and forward 20 years.

Net operating losses generally create permanent book-tax differences.

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?

Accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

GenerUs Incorporated board of directors approved a charitable cash contribution to FoodBank, a qualified nonprofit organization, in November of 2020. GenerUs made the payment to FoodBank on February 2, 2021. GenerUs Incorporated (a calendar-year corporation) may claim a deduction for the contribution on its 2020 tax return.

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

Remsco has taxable income of $67,000 and a charitable contribution limit modified taxable income of $75,500. Its charitable contributions for the year were $7,780. What is Remsco's current-year charitable contribution deduction and contribution carryover?

Bingo Corporation incurred a $10 million net operating loss in 2020. Bingo reported taxable income of $12 million in 2021. Bingo can offset the entire $10 million NOL carryover against taxable income in 2021.

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

Calendar-year C corporations that request an extension for filing their 2019 tax returns will have a tax return due date of October 15.

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?

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) ?

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