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Exam 5: Corporate Operations

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Question 21

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In 2017,AutoUSA Inc.received $4,600,000 of book income,including $20,000 of interest income from tax-exempt municipal bonds.AutoUSA reported $3,600,000 of regular business expenses.If it made $350,000 of estimated tax payments (prepayments)throughout the tax year,what is its tax due or tax refund when it files its return? Assume AutoUSA pays taxes at a flat 34 percent rate and disregard the alternative minimum tax.

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Question 22

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In the current year,Auto Rent Corporation reported the following taxable income at the end of its first,second,and third quarters: (Use Exhibit 5-11) 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? (Use Corporate Tax Rate Schedule.)

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First quarter $510,000; ($1,500,000 × 4 ...

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Question 23

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In 2017,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?

GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank,a qualified non-profit organization,in November of 2017.GenerUs made payment to FoodBank on February 2,2018.GenerUs Inc.(a calendar-year corporation)may claim a deduction for the contribution on its 2017 tax return.

Pure Action Cycles Inc.,a bicycle manufacturer,has a net capital loss in 2017 of $64,000.It had net capital gains of $21,500 in 2016,$45,000 in 2015,$10,000 in 2014 (but suffered a net operating loss in 2014),and $8,000 of net capital gain in 2012.What is the net capital gain in 2016 after the carryback is applied?

Flywest Airlines,Inc.has regular taxable income of $190 million.It also has $10 million of AMT preference items,a $5 million unfavorable depreciation adjustment,and a $2 million favorable ACE adjustment (after the 75% adjustment) .What is Flywest's alternative minimum tax income (AMTI) ?

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.

QDP Corporation's AMTI is $569,000 for 2017.Its regular tax liability is $110,000.What is its AMT?

For corporations,which of the following regarding net capital losses is true?

In 2017,LuxAir Inc.(LA)has book income of $160,000.Included in this figure is income generated from ownership in Jet Repair Corporation (JRC),of which LA owns 30%.JRC has $270,000 in earnings for the year and pays $32,000 in dividends to LA.Assuming accounting for the investment in JRC (income from JRC and the DRD)are its only book-tax differences,what is LA's tax liability for 2017? (Use Corporate Tax Rate Schedule.)

Orange Inc.issued 20,000 nonqualified stock options valued at $40,000 (in total) .The options vest over two years-half in 2017 (the year of issue) and half in 2018.One thousand options are exercised in 2018 with a bargain element on each option of $6.What is the 2018 book-tax difference associated with the stock options?

In the current year,FurnitureKing Corporation recognized $32,000 of income from an installment sale it made in a previous tax year.If installment sales are the only difference between ACE and alternative minimum taxable income (before the ACE adjustment) ,what is the amount and nature of the ACE adjustment for the current tax year?

Coop Inc.owns 40% of Chicken Inc.,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 that 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) ?

For a corporation,goodwill created in an asset acquisition generally leads to temporary book-tax differences.

In 2017,Datasoft Inc.received $350,000 in dividends from CSLabs Inc.Datasoft's taxable income before the dividends received deduction and $20,000 charitable contribution deduction is $300,000.What is Datasoft's DRD assuming it owns 15% of the CSLabs Inc.stock?

BTW Corporation has taxable income in the current year that can be offset with an NOL 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?

Assume a corporation is not required to pay AMT in the current year but will pay AMT next year.Also assume the corporation's regular marginal tax rate is 35%.Which tax planning strategy would minimize its after-tax cost of a charitable contribution it is considering paying to a qualified charity?

Atom Ventures Inc.(AV)owns stock in the Primo and Faraday corporations.The following summarizes information relating to AV's investment in Primo and Faraday as follows: Assuming that AV follows the general rules for reporting its income from these investments,what is the amount of AV's book-tax difference associated with the investment in these corporations (disregarding the dividends received deduction)? Is it favorable or unfavorable? Is it permanent or temporary?

Which of the following is deductible in calculating DRD modified taxable income?

Urban Corporation receives tax-exempt income from Denver municipal bonds.All the proceeds from the bonds were used to fund public projects.In computing adjusted current earnings in its AMT computation,Urban must add back the interest income from its municipal bonds.