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Exam 16: Corporate Operations

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Question 71

Multiple Choice

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

A) Permanent; favorable.
B) Permanent; unfavorable.
C) Temporary; favorable.
D) Temporary; unfavorable.

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

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Question 72

Multiple Choice

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Coop Incorporated owns 10 percent of Chicken Incorporated. At the end of the year, Coop has $100,000 in invested Chicken stock and Coop's Chicken stock is worth $115,000. 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 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) ?

A) $1000 unfavorable.
B) $10,000 favorable.
C) $15,000 unfavorable.
D) $15,000 favorable.
E) None of the choices is correct.

F) A) and E)
G) C) and E)

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Question 73

Multiple Choice

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For Corporation P to file a consolidated tax return with Corporation S, P must own what percentage of S's voting stock?

On January 1, 2020, Credit Incorporated recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2020, the auditors of Credit Incorporated determined that the goodwill had been impaired by $50,000, and Credit Incorporated wrote down the book value of the goodwill by $50,000. During 2021, the goodwill was not further impaired. In 2022, additional 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 2020, 2021, and 2022? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

In January 2020, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Miss Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2020, the company experienced a decline in its stock price, and Miss Svaro exercises the options. The total bargain element at the time of exercise is $40,000. For 2020, what is the nature of the book-tax difference due to the options exercised?

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 deduction?