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Exam 5: Corporate Operations

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Question 51

True/False

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A C corporation reports its taxable income or loss on Form 1065.

A) True
B) False

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Question 52

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

A) True
B) False

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Question 53

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

Corporations may carry a net operating loss sustained in 2020 back two years and forward 20 years.

Net capital loss carryovers are deductible againstnet capital gains in determining a corporation's net operating loss for the year.

Remsco has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000. Its charitable contributions for the year were $7,500. 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) ?

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).

Over what time period do corporations amortize purchased goodwill for tax purposes?

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?

Datasoft Incorporated received $350,000 in dividends from CSLabs Incorporated 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 percent of the CSLabs Incorporated stock?

A corporation may carry a net capital loss back two years and forward 20 years.

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 statements regarding incentive stock options (ISOs) is false?

Remsco has taxable income of $67,000 and a charitable contribution limit modified taxable income of $75,500. Its charitable contributions for the year were $7,780. What is Remsco's current-year charitable contribution deduction and contribution carryover?

Pure Action Cycles Incorporated, a bicycle manufacturer, has a net capital loss in 2020 of $(64,000). It had net capital gains of $21,500 in 2019, $45,000 in 2018, $10,000 in 2017 (but suffered a net operating loss in 2017), and $8,000 of net capital gain in 2016. What is the net capital gain in 2019 after the carryback is applied?

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

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.

Which of the following statements regarding nonqualified stock options (NQOs) is false?

Jazz Corporation owns 10 percent of the Mitchell Corporation stock. Mitchell distributed a $11,800 dividend to Jazz Corporation. Jazz Corporation's taxable income (loss) before the dividend was ($6,600) . What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

Corporation A receives a dividend from Corporation B. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference) . If A has accounted for the dividend correctly (following the general rule) , how much of B stock does A own?