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Exam 16: Corporate Operations

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Question 51

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

A) True
B) False

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Question 52

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In 2014, Webtel Corporation donated $50,000 to a qualifying charity. For the year, it reported taxable income of $310,000, which included the following: the $50,000 charitable contribution (before limitation), a $100,000 dividends received deduction, and a $20,000 net operating loss carryover. What is Webtel Corp's charitable contribution deduction?

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$46,000, c...

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Question 53

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In 2011, Smith Traders Inc. reported taxable income of $100,000. In 2012, it reported taxable income of $15,000. In 2013, it reported taxable income of $95,000. In 2014, Smith Traders experienced a net operating loss of $25,000. What amount of refund can Smith Traders receive if it does not elect to forgo the carry back (see the corporate income tax schedule)?

A nonqualified stock option will create a permanent book-tax difference in a given year if it vests during the year but is exercised in a later year.

Small corporations (in terms of average annual gross receipts) are exempt from the alternative minimum tax.

Together, Kurt and Esmeralda own 60% of three corporations: RAZ, DVA, and TRE. The three corporations would be considered as what kind of controlled group for tax purposes?

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

QDP Corporation's AMTI is $569,000 for 2014. Its regular tax liability is $110,000. What is its AMT?

In the current year, Auto Rent Corporation reported the following taxable income at the end of its first, second, and third quarters: $\begin{array} { | l | c | } \hline { \text { Quarter } } & \begin{array} { c } \text { Cumulative } \\\text { Taxable Income }\end{array} \\\hline \text { First } & \$ 1,500,000 \\\hline \text { Second } & \$ 2,800,000 \\\hline \text { Third } & \$ 3,600,000 \\\hline\end{array}$ What amount of estimated tax payments would Auto Rent pay each quarter in order to avoid estimated tax penalties under the annualized income method of computing estimated tax payments?

Large corporations are allowed to use the cash method of accounting for at least the first two years of their existence.

Pure Action Cycles Inc., a bicycle manufacturer, has a net capital loss in 2014 of $64,000. It had net capital gains of $21,500 in 2013, $45,000 in 2012, $10,000 in 2011 (but suffered a net operating loss in 2011), and $8,000 of net capital gain in 2010. What is the net capital gain in 2013 after the carryback is applied?

Corporations can carry net operating loss sustained in 2014 back two years and forward 20 years.

Large corporations (corporations with over $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year.

Taxable income of the most profitable corporations is subject to a flat 35% tax rate.

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

Depreciation adjustments can increase or decrease the AMT base relative to taxable income.

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

TerraWise Inc. reported the following information for 2014: $\begin{array} { | l | r | } \hline \text { Regular taxable income } & \$ 5,620,000 \\\hline \text { Regular depreciation } & \$ 810,000 \\\hline \text { AMT depreciation } & \$ 570,000 \\\hline \text { Adjusted basis of equipment sold - Regular } & \$ 100,000 \\\hline \text { Adjusted basis of equipment sold - AMT } & \$ 140,000 \\\hline \begin{array} { l } \text { Income from a private-activity municipal bond } \\\text { issued in 2006 }\end{array} & \$ 45,000 \\\hline \text { Unfavorable ACE adjustment } & \$ 35,000 \\\hline\end{array}$ What is TerraWise Inc.'s AMTI?

In 2014, 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 of meals and entertainment 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 is not an AMT adjustment?