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Exam 12: Corporate Formations and Operations

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Question 21

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Rapidpro Inc.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?

A) Rapidpro may use the prior year tax liability to determine its first and second quarter estimated tax payments only since it is a large corporation.
B) To avoid penalty,the second quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its first quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment) .
C) To avoid penalty,the third quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its third quarter estimated taxable income (assume it does not rely on its current year actual tax liability to determine its estimated tax payment) .
D) None of the choices are true.

E) A) and B)
F) None of the above

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Question 22

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A taxpayer always will have a tax basis in boot received in a section 351 transaction equal to its fair market value.

A) True
B) False

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Question 23

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For a corporation,purchased goodwill generally leads to temporary book-tax differences.

Corporate taxable income is subject to a flat 21% tax rate.

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 percent of the CSLabs Inc.stock?

Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $750 and $50 cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $100 on the property transferred.What is Rachelle's tax basis in the stock received in the exchange?

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

Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

Ken and Jim agree to go into business together selling old comic books and records.According to the agreement,Ken will contribute inventory valued at $200,000 in return for 80 percent of the stock in the corporation.Ken's tax basis in the inventory is $120,000.Jim will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures).The accounting services are valued at $50,000. Please answer the following questions about the tax consequences of the transaction to Jim. a.What amount of income,gain or loss does Jim realize on the formation of the corporation? b.What amount of gain or loss,if any,does he recognize? c.What is Jim's tax basis in the stock he receives in return for his contribution of services to the corporation?

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

WFO Corporation has gross receipts according to the following schedule: $\begin{array}{ll}\text { Year 1 } & \$ 22 \text { million } \\\text { Year 2 } & \$ 24 \text { million } \\\text { Year 3 } & \$ 26 \text { million } \\\text { Year 4 } & \$ 24.5 \text { million } \\\text { Year 5 } & \$ 25 \text { million } \\\text { Year 6 } & \$ 27 \text { million }\end{array}$ 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 corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.

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

AR Systems Inc.(AR)had $120,000 of tax liability last year.It anticipates a current-year tax liability of $500,000.Assuming AR is considered a large corporation for purposes of estimating tax liability,what are the minimum estimated tax payments it should make to avoid underpayment penalties? Ignore the annualized income method.

Pure Action Cycles Inc.,a bicycle manufacturer,has a net capital loss in 2018 of $64,000.It had net capital gains of $21,500 in 2017,$45,000 in 2016,$0 in 2015,and $8,000 of net capital gain in 2014.What is the net capital gain in 2017 after the carryback is applied?

For book purposes,RadioAircast Inc.reported $15,000 of income from municipal bonds.It also expensed $12,000 of radio station filing fines paid to the FCC (a governmental agency)the same year.What is the total book-tax difference associated with these items? Is it favorable or unfavorable? What amount of the total adjustment is permanent and what amount is temporary?

GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank,a qualified non-profit organization,in November of 2018.GenerUs made payment to FoodBank on February 2,2019.GenerUs Inc.(a calendar-year corporation)may claim a deduction for the contribution on its 2018 tax return.

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

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

Corporations compute their dividends received deduction by multiplying the dividend amount by 50 percent,65 percent,or 100 percent depending on their ownership in the distributing corporation's stock.