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Exam 16: Corporate Operations

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Question 51

Multiple Choice

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Corporation A receives a dividend from CorporationB. 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?

A) A owns less than 20 percent of the stock of B
B) A owns at least 20 but not more than 50 percent of the stock of B
C) A owns more than 50 percent of the stock of B
D) Cannot be determined

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

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Question 52

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

A) Deferred compensation
B) Bad-debt expense
C) Depreciation expense
D) Domestic production activities deduction

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

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Question 53

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

Omnidata uses the annualized income method to determine its quarterly federal income tax payments. It had $100,000, $50,000, and $90,000 of taxable income for the first, second, and third quarters, respectively ($240,000 in total through the first three quarters) . What is Omnidata's annual estimated taxable income as of the end of the third quarter?

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

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

Minimum tax credits generated by the corporate AMT can be carried forward indefinitely.

Which of the following statements regarding the dividends and/or the dividends received deduction (DRD) 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.?

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?

It is important to distinguish between temporary and permanent book-tax differences for which of the following reasons?

A corporation may carry a net capital loss back two years and forward 20 years.

iScope Inc. paid $3,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book-tax difference relating to this expense?

A C corporation reports its taxable income or loss on Form 1065.

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

For 2014, SRH's taxable income is $35,000 and JHH's taxable income is $45,000. Together, Scott and Jackson Howard own 100 percent of both corporations. What is the combined tax liability of the two corporations?

A corporation generally will report a favorable, temporary book-tax difference when it deducts a charitable contribution carryover.

Which of the following is not calculated in the corporate income tax formula?

A nonqualified stock option will create a permanent book-tax difference in a given year if it vests during the year but is exercised in a later year.

Corporations calculate adjusted gross income (AGI) in the same way as individuals.