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Exam 5: Corporate Operations

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Question 51

Multiple Choice

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Which of the following is not required to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity for a calendar year-end corporation?

A) Approval of the payment from the board of directors.
B) Approval from the IRS prior to making the contribution.
C) Payment made within three and one-half months of the tax year-end.
D) All of the choices are necessary.

E) None of the above
F) A) and B)

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Question 52

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A corporation generally will report a favorable, temporary book-tax difference when it deducts a charitable contribution carryover.

A) True
B) False

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Question 53

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

For a corporation, goodwill created in an asset acquisition generally leads to temporary book-tax differences.

AmStore Incorporated sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation andimmediate expensing 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?

Netgate Corporation's gross regular tax liability for 2020 was $189,000. What was its taxable income?

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?

Federal income tax expense reported on a corporation's books generates a temporary book-tax difference for ScheduleM-1 and Schedule M-3 purposes.

iScope Incorporated paid $3,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book-tax difference relating to this expense?

Net capital loss carryovers are deductible againstnet capital gains in determining a corporation's net operating loss for the year.

Corporations compute their dividends received deduction by multiplying the dividend amount by 10 percent, 50 percent, or 100percent, depending on their ownership in the distributing corporation's stock.

Schedule M-1 reconciles from book income to bottom line taxable income (the taxable income that is applied to the tax rates to determine the corporation's gross tax liability).

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

WFO Corporation has gross receipts according to the following schedule: If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?

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?

Jazz Corporation owns 10 percent of the Mitchell Corporation stock. Mitchell distributed a $11,800 dividend to Jazz Corporation. Jazz Corporation's taxable income (loss) before the dividend was ($6,600) . What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

Coop Incorporated owns 38 percent of Chicken Incorporated. Both Coop and Chicken are corporations. Chicken pays Coop a dividend of $18,000 in the current year. Chicken also reports financial accounting earnings of $28,000 for that year. Assume Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction) ?

Tatoo Incorporated reported a net capital loss of $13,000 in 2020. The company had a net capital gain of $4,300 in 2018 and $3,000 in 2017. In 2019, although the company suffered a net operating loss, it had net capital gains of $1,000. What is the amount of Tatoo's capital loss carryover to 2021 remaining after it applies the carryback?

Atom Ventures Incorporated (AV) owns stock in the Primo and Faraday corporations. The following summarizes information relating to AV's investment in Primo and Faraday as follows: Assuming that AV follows the general rules for reporting its income from these investments and the value of AV's stock investments in Primo and Faraday is equal to AV's basis in these investments, what is the amount of AV's book-tax difference associated with the investment in these corporations (disregarding the dividends received deduction)? Is it favorable or unfavorable? Is it permanent or temporary?

Orange Incorporated issued 20,000 nonqualified stock options valued at $40,000 (in total) . The options vest over two years-half in 2020 (the year of issue) and half in 2020. One thousand options are exercised in 2021 with a bargain element on each option of $6. What is the 2021 book-tax difference associated with the stock options?