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Exam 12: Corporate Formations and Operations

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Question 41

True/False

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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.

A) True
B) False

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Question 42

Multiple Choice

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

A) Net capital loss carrybacks.
B) Charitable contributions.
C) NOL carryovers.
D) None of the choices are correct.

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

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Question 43

Multiple Choice

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Which of the following statements regarding capital gains and losses is false?

In 2018,Smith Traders Inc.reported a net operating loss of $100,000.In 2019,before the NOL deduction,it reported taxable income of $50,000.What is Smith Traders' 2019 taxable income after the NOL deduction and what is its NOL carryover to 2020?

Which of the following is not calculated in the corporate income tax formula?

The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes.

Corporations may carry excess charitable contributions forward five years,but they may not carry them back.

During the year,AutoUSA Inc.received $4,600,000 of book income,including $20,000 of interest income from tax-exempt municipal bonds.AutoUSA reported $3,600,000 of regular business expenses.If it made $200,000 of estimated tax payments (prepayments)throughout the tax year,what is its tax due or tax refund when it files its return?

Netgate Corporation's gross regular tax liability for the year was $95,375.What was its taxable income? Note: New Corporate income tax rate has been mentioned as "21% on all taxable income" as per the recent change.

Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock with a fair market value of $600.In addition,Sami received stock with a fair market value of $50 in exchange for services she provided to the corporation in the incorporation process.Which of the following statements best describes the tax result to Sami as a result of the exchanges?

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

A nonqualified stock option will create a permanent book-tax difference in the year it is exercised if the bargain element is different from the estimated value of the option for financial accounting purposes when it was issued.

Keegan incorporated his sole proprietorship by transferring inventory,a building,and land to the corporation in return for 100 percent of the corporation's stock.The property transferred to the corporation had the following fair market values and tax bases. $\begin{array} { l r r r r } & \text { FMV } & \text { Tax Basis } \\\text { Irventory } & \$ 20,000 & \$ 14,000 \\\text { Buildirin } & 70,000 & 50,000 \\\text { Land } &\underline { 150,000 }&\underline {100,000} \\\text { Total } &\underline { \$ 240,000 }& \underline {\$ 164,000}\end{array}$ The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Keegan. What amount of gain or loss does Keegan realize on the transfer of the property to his corporation?

Which of the following statements regarding charitable contributions is false?

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

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

The dividends received deduction cannot cause a net operating loss.The deduction can reduce income to zero but not below zero.

iScope Inc.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?

To meet the control test under section 351,a taxpayer transferring property to a corporation must by himself own 80 percent or more of the corporation's voting stock and 80 percent of each class of nonvoting stock after the transfer even if there are other transferors of property.

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.