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Exam 5: Corporate Operations

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Question 1

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In 2020, Carbonfab Manufacturers Incorporated expensed $125,000 of depreciation for book purposes, but for tax purposes, it deducted $179,000. Carbonfab also sold equipment for $500,000. The book-adjusted basis of the equipment sold was $350,000, while the adjusted basis for tax purposes was $210,000. What is the total book-tax difference associated with depreciation and the gain on sale? Is it favorable or unfavorable? What amount of the book-tax difference is permanent and what amount is temporary?

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$86,000, unfavorable...

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In 2020, US Sys Corporation received $250,000 in death benefits after its CEO (a key employee) died (it included this amount in book income). For book purposes, US Sys also expensed life insurance premiums for other key employees in the amount of $20,000. In addition, for book purposes, it expensed $10,000 ofbusiness meals expenditures. What is the total book-tax difference associated with these items? Is it favorable or unfavorable? What amount of the book-tax difference is temporary and what amount is permanent?

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$225,000 favorable; ...

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Question 3

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Netgate Corporation's gross regular tax liability for 2020 was $189,000. What was its taxable income?

Coop Incorporated owns 38 percent of Chicken Incorporated. Both Coop and Chicken are corporations. Chicken pays Coop a dividend of $18,000 in the current year. Chicken also reports financial accounting earnings of $28,000 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 corporation may carry a net capital loss forward five years to offsetnet capital gains in future years but it may not carry a net capital loss back to offsetnet capital gains in previous years.

For book purposes, RadioAircast Incorporated reported $15,000 of income from municipal bonds in 2020. It also expensed $12,000 of radio station filing fines paid to the FCC 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?

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

Most corporations use the annualized income method to determine their required annual payment for purposes of making quarterly estimated payments.

For a corporation, goodwill created in an asset acquisition generally leads to temporary book-tax differences.

In January 2019, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company did not expect Miss Svaro to leave the company, the options vested at the time they were granted with a total value of $50,000. In December of 2020, the company experienced a surge in its stock price, and Miss Svaro exercised the options. The total bargain element at the time of exercise was $60,000. For 2020, what is the book-tax difference due to the options exercised?

Calendar-year C corporations that request an extension for filing their 2019 tax returns will have a tax return due date of October 15.

During 2020, 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 2018, Hughes reported a net capital gain of $12,000 and in 2019 it recognized a net capital gain of $6,000. What is the amount of its net capital loss carryover to 2021?

LuxAir Incorporated (LA) has book income of $160,000. Included in this figure is income generated from ownership in Jet Repair Corporation (JRC), of which LA owns 30 percent. JRC has $270,000 in earnings for the year and pays $32,000 in dividends to LA. Assuming accounting for the investment in JRC (income from JRC and the DRD) are its only book-tax differences, what is LA's tax liability for the year?

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

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

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

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?

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

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

Which of the following statements regarding capital gains and losses is false?