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Exam 16: Corporate Operations

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Question 1

Multiple Choice

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Which of the following describes the correct treatment of incentive stock options (ISOs) ?

A) Financial accounting-no expense; tax-no deduction.
B) Financial accounting-no expense; tax-deduct bargain element at exercise.
C) Financial-expense value over vesting period; tax-no deduction.
D) Financial-expense value over vesting period; tax-deduct bargain element at exercise.

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

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Question 2

True/False

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For estimated tax purposes, a "large" corporation is any corporation with average annual gross receipts of $5,000,000 in the three years prior to the current year.

A) True
B) False

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Question 3

Multiple Choice

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Which of the following is not required to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity?

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

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

AmStore Inc. sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation and expensing for tax cost-recovery. If accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes, what is the nature of the book-tax difference associated with the gain on the sale?

For tax purposes, a corporation may deduct the entire amount of a net capital loss in the year incurred.

In the current year, Auto Rent Corporation reported the following taxable income at the end of its first, second, and third quarters: (Use Exhibit 16-10) What amount of estimated tax payments would Auto Rent pay each quarter to avoid estimated tax penalties under the annualized income method of computing estimated tax payments?

Corporation A receives a dividend from Corporation B. It includes the dividend in gross income for tax purposes but includes a pro-rata portion of B's earnings in its financial accounting income. If A has accounted for the dividend correctly (using the general rule) , how much of B's stock does A own?

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes.

Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.

The dividends received deduction is subject to a limitation based on modified taxable income.

Which of the following statements regarding book-tax differences is true?

Jazz Corporation owns 50% of the 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.?

In 2018, 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 Corp.'s charitable contribution deduction?

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

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

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

AB Inc. received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent) on the dividends received (after taking the DRD into account)?