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Exam 16: Corporate Operations

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Question 31

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Coop Incorporated owns 36 percent of Chicken Incorporated. Both Coop and Chicken are corporations. Chicken pays Coop a dividend of $20,000 in the current year. Chicken also reports financial accounting earnings of $30,000 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) ?

A) $9,200 unfavorable.
B) $9,200 favorable.
C) $20,000 unfavorable.
D) $20,000 favorable.
E) None of the choices is correct.

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Question 32

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Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

A) 100 percent of the prior year's tax liability (with a few exceptions) .
B) 100 percent of the current year's tax liability.
C) 100 percent of the estimated current-year tax liability using the annualized income method.
D) All of the choices are acceptable methods of determining the required annual payment of federal income tax for corporations.

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Question 33

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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?

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

For corporations, which of the following regarding net capital losses is true?

A corporation may carry a net capital loss back two years and forward 20 years.

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

In 2020, US Sys Corporation received $250,000 in death benefits after its CEO (a key employee)died (it included this amount in book income). For book purposes, US Sys also expensed life insurance premiums for other key employees in the amount of $20,000. In addition, for book purposes, it expensed $10,000 ofbusiness meals expenditures. What is the total book-tax difference associated with these items? Is it favorable or unfavorable? What amount of the book-tax difference is temporary and what amount is permanent?

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

In 2020 Webtel Corporation donated $55,500 to a qualifying charity. For the year, it reported taxable income of $365,000, which included the following: the $55,500 charitable contribution (before limitation), a $111,000 dividends received deduction, and a $21,100 net operating loss carryover. What is Webtel Corporations charitable contribution deduction?

Which of the following does NOT create a temporary book-tax difference?

In 2020 Webtel Corporation donated $58,500 to a qualifying charity. For the year, it reported taxable income of $395,000, which included the following: the $58,500 charitable contribution (before limitation), a $117,000 dividends received deduction, and a $21,700 net operating loss carryover. What is Webtel Corporations charitable contribution deductionassuming it does not elect to apply the 25% of modified taxable income limitation in determining its charitable contribution deduction?

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

LuxAir Incorporated (LA)has book income of $160,000. Included in this figure is income generated from ownership in Jet Repair Corporation (JRC), of which LA owns 30 percent. JRC has $270,000 in earnings for the year and pays $32,000 in dividends to LA. Assuming accounting for the investment in JRC (income from JRC and the DRD)are its only book-tax differences, what is LA's tax liability for the year?

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

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

In January 2019, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company did not expect Miss Svaro to leave the company, the options vested at the time they were granted with a total value of $50,000. In December of 2020, the company experienced a surge in its stock price, and Miss Svaro exercised the options. The total bargain element at the time of exercise was $60,000. For 2020, what is the book-tax difference due to the options exercised?

Corporations may carry a net operating loss sustained in 2020 forward 20 years but it cannot carry it back.

Which of the following statements regarding net operating losses generated in 2020 is true?

AB Incorporated received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent)on the dividend received (after taking the DRD into account)?