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Exam 5: Corporate Operations

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Question 1

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In 2018, AutoUSA Inc. received $4,600,000 of book income, including $20,000 of interest income from tax-exempt bonds. AutoUSA reported $3,600,000 of regular business expenses. If it made $210,000 of estimated tax payments (prepayments) throughout the tax year, what is its tax due or tax refund when it files its return?

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Question 2

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Net operating losses generally create permanent book-tax differences.

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B) False

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Question 3

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In 2018, Carbonfab Manufacturers Inc. expensed $125,000 of depreciation for book purposes, but for tax purposes, it deducted $179,000. Carbonfab also sold equipment for $500,000. The book adjusted basis of the equipment sold was $350,000, while the adjusted basis for tax purposes was $210,000. What is the total book-tax difference associated with depreciation and the gain on sale? Is it favorable or unfavorable? What amount of the book-tax difference is permanent and what amount is temporary?

In January 2017, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company did not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2018, the company experienced a surge in its stock price, and Ms. Svaro exercised the options. The total bargain element at the time of exercise was $60,000. For 2018, what is the book-tax difference due to the options exercised?

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

Which of the following statements regarding net operating losses generated in 2019 is True?

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,000) . What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

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

Jazz Corporation owns 50% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income before the dividend was $100,000. What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

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

Canny Foods Co. is considering three ways it could contribute to a local, qualified charity. First, it could give $10,000 in cash. Second, it could give stock it initially purchased two years ago for $8,000 but is now worth $12,000. Third, it could give items of inventory with a fair market value of $7,000 but with an adjusted basis of $3,000. Which of the following correctly describes the relation among possible charitable contributions in terms of amount deductible for tax purposes?

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

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

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

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.

Volos Company (a calendar-year corporation) began operations in March of 2016 and was not profitable through December of 2017. Volos has been profitable for the first quarter of 2018 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement in 2018 because it had no tax liability for the 2017 tax year and has been in business for at least 12 months.

During 2018, Hughes Corporation sold a portfolio of stock it had held for five years at a loss of $200,000. It also sold some investment land and recognized a capital gain of $180,000. In 2016, Hughes reported a net capital gain of $12,000 and in 2017 it recognized a net capital gain of $6,000. What is the amount of its net capital loss carryover to 2019?

GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank, a qualified non-profit organization, in November of 2018. GenerUs made the payment to FoodBank on February 2, 2019. GenerUs Inc. (a calendar-year corporation) may claim a deduction for the contribution on its 2018 tax return.

Over what time period do corporations amortize purchased goodwill for tax purposes?

In general, all C corporations can elect to use either the accrual or cash method of accounting.