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Exam 5: Corporate Operations

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Question 21

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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 D)
F) C) and D)

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Question 22

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

A) A corporation that experiences a net capital loss has a favorable book-tax difference in the year of the loss.
B) A corporation that experiences a net capital loss in Year 4 first carries the loss back to Year 3, then Year 2, and then Year 1 before carrying it forward.
C) Net capital loss carrybacks are deductible in determining a corporation's net operating loss.
D) Net capital loss carrybacks and carryovers create temporary book-tax differences if they are used before they expire.

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

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Question 23

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

In 2020 Webtel Corporation donated $59,000 to a qualifying charity. For the year, it reported taxable income of $400,000, which included the following: the $59,000 charitable contribution (before limitation), a $118,000 dividends received deduction, and a $21,800 net operating loss carryover. What is Webtel Corporations charitable contribution deductionassuming it does not elect to apply the 25% of modified taxable income limitation in determining its charitable contribution deduction?

For estimated tax purposes, a "large" corporation is any corporation with average annual gross receipts of $5,000,000 in the three years prior to the current year.

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 theywere granted with a total value of $54,500. 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 $69,000. For 2020, what is the book-tax difference due to the options exercised?

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

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

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.

Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

Imperial Construction Incorporated (IC) issued 100,000 incentive stock options (ISOs) to its employees on January 1, 2019, with an estimated value of $5.50 per option. The options vest (accrue) at 25 percent per year for four years (beginning in 2020). Each option allows the holder to purchase one share of stock at $8. On January 1, 2021, employees exercised 12,500 options as IC's stock price reached $14.72. What is the amount of the book-tax difference in 2021 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

Studios reported a net capital loss of $39,000 in Year 5. It reported net capital gains of $32,000 in Year 4 and $45,000 in Year 6. What is the amount and nature of the book-tax difference in Year 6 related to the net capital carryover?

Corporations may carry a net operating loss sustained in 2020 forward 20 years but it cannot carry it back.

In 2020 Webtel Corporation donated $58,500 to a qualifying charity. For the year, it reported taxable income of $395,000, which included the following: the $58,500 charitable contribution (before limitation), a $117,000 dividends received deduction, and a $21,700 net operating loss carryover. What is Webtel Corporations charitable contribution deduction?

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

Large corporations (corporations with more than $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year.

Remsco has taxable income of $69,000 and a charitable contribution limit modified taxable income of $76,500. Its charitable contributions for the year were $7,860. What is Remsco's current-year charitable contribution deduction and contribution carryover(assuming Remsco does not elect to use the 25% of modified taxable income to determine its charitable contribution deduction) ?

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

Jazz Corporation owns 10percent of the Mitchell Corporation stock. Mitchell distributed a $10,000 dividend to Jazz Corporation. Jazz Corporation's taxable income (loss) before the dividend was ($6,000) . What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

Tatoo Incorporated reported a net capital loss of $14,900 in 2020. The company had a net capital gain of $6,200 in 2018 and $4,900 in 2017. In 2019, although the company suffered a net operating loss, it had net capital gains of $2,900. What is the amount of Tatoo's capital loss carryover to 2021 remaining after it applies the carryback?