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Exam 16: Corporate Operations

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Question 41

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

A) True
B) False

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Question 42

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For incentive stock options, the value of the options that vest in a given year always creates a permanent, unfavorable book-tax difference.

A) True
B) False

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Question 43

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Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

Jazz Corporation owns 10 percent of the Mitchell Corporation stock. Mitchell distributed a $21,000 dividend to Jazz Corporation. Jazz Corporation's taxable income (loss) before the dividendincome was ($3,100) . What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

In 2020 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 Corporations charitable contribution deductionassuming it does not elect to apply the 25% of modified taxable income limitation in determining its charitable contribution deduction?

Schedule M-1 reconciles from book income to bottom line taxable income (the taxable income that is applied to the tax rates to determine the corporation's gross tax liability).

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

Which of the following statements regarding book-tax differences associated with purchased goodwill is false?

During 2020, 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 2018, Hughes reported a net capital gain of $12,000 and in 2019 it recognized a net capital gain of $6,000. What is the amount of its net capital loss carryover to 2021?

Corporation A receives a dividend from Corporation B. It includes the dividend in gross income for tax purposes but includes a pro-rata portion of B's earnings in its financial accounting income. If A has accounted for the dividend correctly (using the general rule) , how much of B's stock does A own?

In 2020, AutoUSA Incorporated reported $4,900,000 of book income, including $23,000 of interest income from tax-exempt bonds. AutoUSA reported $3,900,000 of regular business expenses. If it made $213,000 of estimated tax payments (prepayments)throughout the tax year, what is its tax due or tax refund when it files its return?

In the current year, Auto Rent Corporation reported the following taxable income at the end of its first, second, and third quarters: (Use Exhibit 16-10) What amount of estimated tax payments would Auto Rent pay each quarter to avoid estimated tax penalties under the annualized income method of computing estimated tax payments?

Rapidpro Incorporated had more than $1,000,000 of taxable income two years prior to the current year. It would like to use its prior-year tax liability (which was very low but above zero) to determine its quarterly estimated payments this year. Which of the following statements is true?

Federal income tax expense reported on a corporation's books generates a temporary book-tax difference for ScheduleM-1 and Schedule M-3 purposes.

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

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

In 2020, US Sys Corporation received $269,000 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 $39,000. In addition, for book purposes, it expensed $29,000 of business 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?

C corporations with annual average gross receipts of $26 million or more are allowed to use the cash method of accounting for at least the first two years of their existence.

Bingo Corporation incurred a $10 million net operating loss in 2020. Bingo reported taxable income of $12 million in 2021. Bingo can offset the entire $10 million NOL carryover against taxable income in 2021.