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Exam 5: Corporate Operations

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Question 41

Multiple Choice

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Which of the following statements regarding charitable contributions is false?

A) Only contributions made to qualified charitable organizations are deductible.
B) Charitable contribution deductions are subject to a limitation based on the corporation's taxable income (before certain deductions) .
C) Corporations can qualify to deduct a contribution before actually paying the contribution to the charity.
D) The amount deductible for noncash contributions is always the adjusted basis of the property donated.

E) B) and C)
F) A) and D)

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Question 42

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The dividends received deduction is designed to mitigate the extent to which corporate earnings are subject to more than two levels of taxation.

A) True
B) False

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Question 43

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An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income in the current year.

Omnidata uses the annualized income method to determine its quarterly federal income tax payments. It had $100,000, $50,000, and $90,000 of taxable income for the first, second, and third quarters, respectively ($240,000 in total through the first three quarters) . What is Omnidata's annual estimated taxable income as of the end of the third quarter?

Volos Company (a calendar-year corporation) began operations in March of 2018 and was not profitable through December of 2019. Volos has been profitable for the first quarter of 2020 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement in 2020 because it had no tax liability for the 2019 tax year and has been in business for at least 12 months.

Tatoo Incorporated reported a net capital loss of $13,000 in 2020. The company had a net capital gain of $4,300 in 2018 and $3,000 in 2017. In 2019, although the company suffered a net operating loss, it had net capital gains of $1,000. What is the amount of Tatoo's capital loss carryover to 2021 remaining after it applies the carryback?

What is the unextended due date of the tax return of a calendar-year C corporation for 2020?

Orange Incorporated issued 20,000 nonqualified stock options valued at $40,000 (in total) . The options vest over two years-half in 2020 (the year of issue) and half in 2020. One thousand options are exercised in 2021 with a bargain element on each option of $6. What is the 2021 book-tax difference associated with the stock options?

Accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

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

Net operating losses generally create permanent book-tax differences.

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.

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

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

Remsco has taxable income of $69,000 and a charitable contribution limit modified taxable income of $76,500. Its charitable contributions for the year were $7,860. What is Remsco's current-year charitable contribution deduction and contribution carryover(assuming Remsco does not elect to use the 25% of modified taxable income to determine its charitable contribution deduction) ?

Coop Incorporated owns 10 percent of Chicken Incorporated. At the end of the year, Coop has $100,000 in invested Chicken stock and Coop's Chicken stock is worth $115,000. Both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in the current year. Chicken also reports financial accounting earnings of $20,000 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) ?

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

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

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

BTW Corporation has taxable income in the current year that can be offset with an NOL carryover from a previous year. What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?