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Exam 16: Corporate Operations

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Question 31

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Assume a corporation is not required to pay AMT in the current year but will pay AMT next year. Also assume the corporation's regular marginal tax rate is 35%. Which tax planning strategy would minimize its after-tax cost of a charitable contribution it is considering paying to a qualified charity?

A) Pay the contribution this year.
B) Wait until next year to pay the contribution.
C) The after-tax cost of the contribution will be the same no matter which year it makes the contribution.
D) None of thesE.The marginal tax rate is higher in the current year (35%) than it will be next year (20%) .Consequently, the after-tax cost of the contribution will be lower if the contribution is made in the current year.

E) All of the above
F) B) and C)

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Question 32

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

A) True
B) False

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Question 33

Multiple Choice

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Which of the following is deductible in calculating the charitable contribution limit modified taxable income?

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

The adjusted current earnings (ACE) adjustment is 75% of the difference between a corporation's alternative minimum taxable income before the ACE adjustment and its ACE.

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) assuming its ordinary marginal tax rate is 34%?

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.

Z Corporation has AMTI of $250,000, which exceeds the AMT exemption phase-out threshold by $100,000. What is Z's tentative minimum tax?

Which of the following statements regarding AMT is true?

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

During 2016, Hughes Corporation sold a portfolio of stock it had held for five years at a loss of $200,000. It also sold some investment land and recognized a capital gain of $180,000. In 2014, Hughes reported a net capital gain of $12,000 and in 2015 it recognized a net capital gain of $6,000. What is the amount of its net capital loss carryover to 2017?

Which of the following statements regarding incentive stock options (ISOs) is false?

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

Bingo Corporation incurred a net operating loss in 2016. If Bingo carries the loss back, it must first carry the loss back to offset its 2015 taxable income and then carry any remaining loss back to offset its 2014 taxable income.

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

In 2016, AutoUSA Inc. received $4,600,000 of book income, including $20,000 of interest income from tax-exempt municipal bonds. AutoUSA reported $3,600,000 of regular business expenses. If it made $350,000 of estimated tax payments (prepayments) throughout the tax year, what is its tax due or tax refund when it files its return? Assume AutoUSA pays taxes at a flat 34 percent rate and disregard the alternative minimum tax.

TerraWise Inc. reported the following information for 2016: What is TerraWise Inc.'s AMTI?

AmStore Inc. sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation and MACRS 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?

Volos Company (a calendar-year corporation) began operations in March of 2014 and was not profitable through December of 2015. Volos has been profitable for the first quarter of 2016 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement in 2016 because it had no tax liability for the 2015 tax year and has been in business for at least 12 months.

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