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Exam 12: Corporate Formations and Operations

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Question 61

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Carbonfab Manufacturers Inc.expensed $125,000 of depreciation for book purposes,but for tax purposes,it deducted $179,000.Carbonfab also sold equipment for $500,000.The book adjusted basis of the equipment sold was $350,000,while the adjusted basis for tax purposes was $210,000.What is the total book-tax difference associated with depreciation and the gain on sale? Is it favorable or unfavorable? What amount of the book-tax difference is permanent and what amount is temporary?

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$86,000,unfavorable,temporary book-tax d...

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Question 62

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Most corporations use the annualized income method to determine their required annual payment for purposes of making quarterly estimated payments.

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B) False

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Question 63

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Corporations can carry net operating losses occurring in 2018 back two years and forward 20 years.

Accrual-method corporations are not allowed to deduct charitable contributions unless they actually make payment to the charity by year-end.

Which of the following statements best describes the concept of control as it applies to a section 351 transaction?

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

Jazz Corporation owns 10% of Favors Corp.stock.Favors distributed a $10,000 dividend to Jazz Corporation.Jazz Corp.'s taxable income (loss) before the dividend was ($6,000) .What is the amount of Jazz's dividends received deduction on the dividend it received from Favors Corp.?

TrendSetter Inc.paid $50,000 in premiums for life insurance coverage for its key employees.What is the nature of the book-tax difference created by this expense?

If a corporation's cash charitable contributions exceed the charitable contribution deduction limit,what kind of book-tax difference is created for that year?

Which of the following statements best describes the tax results to a shareholder in a section 351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

Volos Company (a calendar-year corporation)began operations in March of 2016 and was not profitable through December of 2017.Volos has been profitable for the first quarter of 2018 and is trying to determine its first quarter estimated tax payment (it expects a tax liability for the year of over $30,000).It will have no estimated tax payment requirement in 2018 because it had no tax liability for the 2017 tax year and has been in business for at least 12 months.

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.

Studios reported a net capital loss of $30,000 in year 5.It reported net capital gains of $14,000 in year 4 and $27,000 in year 6.What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover?

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 meal expense.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?

Jazz Corporation owns 50% of Williams Corp.stock.Williams distributed a $10,000 dividend to Jazz Corporation.Jazz Corp.'s taxable income before the dividend was $100,000.What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

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

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

Which of the following requirements do not have to be met in a section 351 transaction?

On December 31,2017,Khors Company issued nonqualified stock options to its CEO.The options fully vest on December 31,2018 and the options were valued at $50,000 on the grant date.Ms.Svaro exercised the options on December 31,2018.The total bargain element at the time of exercise was $40,000.For 2018,what is the nature of the book-tax difference due to the options exercised?

On January 1,2015,Credit Inc.recorded goodwill valued at $270,000 when it acquired the assets of another company.At the end of 2016,the auditors of Credit Inc.determined that the goodwill had been impaired by $50,000 and Credit Inc.wrote down the book value of the goodwill by $50,000.During 2017,the goodwill was not impaired.In 2018,goodwill was impaired and was written down another $18,000 for financial reporting purposes.What is the temporary book-tax difference associated with the purchased goodwill in 2016,2017,and 2018? Are the differences favorable or unfavorable? Are the differences permanent or temporary?