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Exam 5: Corporate Operations

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Question 41

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For tax purposes,a corporation may deduct the entire amount of a net capital loss in the year incurred.

A) True
B) False

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Question 42

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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?

A) Year 3.
B) Year 4.
C) Year 5.
D) Year 6.
E) None of the choices are correct.

F) B) and C)
G) C) and D)

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Question 43

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Controlled group provisions in the tax law prevent taxpayers from splitting a corporation into several smaller corporations to take advantage of low marginal corporate tax rates at low levels of income.

An affiliated group must file a consolidated tax return.

TireShop,Inc.owns 85% of Rubber Supply Co.'s voting stock throughout the tax year.TireShop and Rubber Supply would be considered as what kind of controlled group?

Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year,over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

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

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

Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.

VitalJuice Corporation reports the following schedule of prior year taxes it owed: What is VitalJuice's tax liability for Year 4?

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

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?

The adjusted current earnings (ACE)adjustment is 75% of the difference between a corporation's alternative minimum taxable income before the ACE adjustment and its ACE.

Volos Company (a calendar-year corporation)began operations in March of 2015 and was not profitable through December of 2016.Volos has been profitable for the first quarter of 2017 and is trying to determine its first quarter estimated tax payment.It will have no estimated tax payment requirement in 2017 because it had no tax liability for the 2016 tax year and has been in business for at least 12 months.

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

AR Systems Inc.(AR)had $120,000 of tax liability last year.It anticipates a current-year tax liability of $500,000.Assuming AR is considered a large corporation for purposes of estimating tax liability,what are the minimum estimated tax payments it should make to avoid underpayment penalties? Ignore the annualized income method.

Z Corporation has AMTI of $250,000,which exceeds the AMT exemption phase-out threshold by $100,000.What is Z's tentative minimum tax?

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

Imperial Construction Inc.(IC)issued 100,000 incentive stock options (ISOs)to its employees on January 1,2017 with an estimated value of $5.50 per option.The options vest (accrue)at 25 percent per year for four years (beginning in 2017).Each option allows the holder to purchase one share of stock at $8.On January 1,2018,employees exercised 12,500 options as IC's stock price reached $14.72.What is the amount of the book-tax difference in 2018 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

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