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Exam 12: Corporate Formations and Operations

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Question 1

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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?

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

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

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Question 2

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Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock with a fair market value of $2,000 and $500 cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $500 on the property transferred.What is Ashley's tax basis in the stock received in the exchange?

A) $5,000.
B) $4,000.
C) $3,000.
D) $2,000.

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

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Question 3

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During 2018,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 2016,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 2019?

Which of the following statements regarding book-tax differences associated with purchased goodwill is false?

Corporations are not allowed to deduct charitable contributions in excess of 10% of the corporation's taxable income (before the charitable contribution and certain other deductions).

By default,an affiliated group must file a consolidated tax return.

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?

Bingo Corporation incurred a net operating loss in 2017.He may carry the loss forward and offset up to 100% of the corporation's taxable income in 2018.

Which of the following statements is false regarding consolidated tax returns?

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 the corporation's tax basis in the property received in the exchange?

In a given year,Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes.It has a favorable temporary book-tax difference for that year.

Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as either temporary or permanent.

In contrast to an individual,a corporation may deduct the entire amount of a net capital loss.

Remsco Inc.,has taxable income of $60,000 and a charitable contribution limit modified taxable income of $72,000.Its charitable contributions for the year were $7,500.What is Remsco's current-year charitable contribution deduction and contribution carryover?

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a section 351 transaction.The assumed liability will,as a general rule,be treated as boot received by Jane.

Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 cash in a transaction that qualifies as a section 351 transfer.The corporation assumed a liability of $1,000 on the property transferred.What is Sybil's tax basis in the stock received in the exchange?

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

Which of the following statements regarding nonqualified stock options (NQOs) is false?

In general,a corporation can choose to use either the accrual or cash method of accounting no matter how large the corporation.

For corporations,which of the following regarding net capital losses is true?