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Exam 16: Corporate Operations

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Question 61

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In 2014, Carbonfab Manufacturers Inc. 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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Question 62

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

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B) False

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Question 63

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TireShop, Inc. owns 85% of Rubber Supply Co.'s voting stock throughout the tax year. TireShop and Rubber Supply would be considered as what kind of controlled group?

WFO Corporation has gross receipts according to the following schedule: $\begin{array} { | l | l | } \hline \text { Year } 1 & \$ 2 \text { million } \\\hline \text { Year } 2 & \$ 4 \text { million } \\\hline \text { Year } 3 & \$ 6 \text { million } \\\hline \text { Year } 4 & \$ 4.5 \text { million } \\\hline \text { Year 5 } & \$ 5 \text { million } \\\hline \text { Year } 6 & \$ 7 \text { million } \\\hline\end{array}$ If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?

Studios reported a net capital loss of $30,000 in year 5. It reported net capital gains of $14,000 in year 4 and $27,000 in year 6. What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover?

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?

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) does not apply?

Which of the following describes the correct treatment of nonqualified stock options (NQOs) granted when ASC 718 (a codification of FAS 123R) did not apply?

The amount of a corporation's AMT is the amount of its tentative minimum tax in excess of its regular tax.

AR Systems Inc. (AR) had $120,000 of tax liability last year. It anticipates a current-year tax liability of $500,000. Assuming AR is considered a large corporation for purposes of estimating tax liability, what are the minimum estimated tax payments it should make to avoid underpayment penalties? Ignore the annualized income method.

A corporation with a minimum tax credit carryover may reduce regular tax down to the amount of its tentative minimum tax when its regular tax exceeds its tentative minimum tax.

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.

Flywest Airlines, Inc. has regular taxable income of $190 million. It also has $10 million of AMT preference items, a $5 million unfavorable depreciation adjustment, and a $2 million favorable ACE adjustment. What is Flywest's alternative minimum tax income (AMTI) ?

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

Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total) . The options vest over two years - half in 2014 (the year of issue) and half in 2015. One thousand options are exercised in 2015 with a bargain element on each option of $6. What is the 2015 book-tax difference associated with the stock options?

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

For book purposes, RadioAircast Inc. reported $15,000 of income from municipal bonds in 2013. 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?

Which of the following statements regarding the alternative minimum tax is false?

Which of the following statements regarding AMT is true?

Accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.