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Exam 5: Corporate Operations

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Question 61

Multiple Choice

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Which of the following is deductible in calculating DRD modified taxable income?

A) Charitable contribution deduction.
B) Net capital loss carrybacks.
C) NOL carryovers.
D) Dividends received deduction.

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

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Question 62

Multiple Choice

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Jazz Corporation owns 50percent of the Mitchell Corporation stock. Mitchell distributed a $10,000 dividend to Jazz Corporation. Jazz Corporations taxable income before the dividend was $100,000. What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

A) $0.
B) $5,000.
C) $6,500.
D) $10,000.

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

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Question 63

Multiple Choice

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Jazz Corporation owns 50 percent of the Mitchell Corporation stock. Mitchell distributed a $17,000 dividend to Jazz Corporation. Jazz Corporations taxable income before the dividend was $100,700. What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

For Corporation P to file a consolidated tax return with Corporation S, P must own what percentage of S's voting stock?

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

LuxAir Incorporated (LA) has book income of $163,000. Included in this figure is income generated from ownership in JRC, of which LA owns 30 percent. JRC has $271,500 in earnings for the year and pays $32,225 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?

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?

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.

In 2020, US Sys Corporation received $268,000 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 $38,000. In addition, for book purposes, it expensed $28,000 of business 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?

Jazz Corporation owns 10 percent of the Mitchell Corporation stock. Mitchell distributed a $11,000 dividend to Jazz Corporation. Jazz Corporation's taxable income (loss) before the dividendincome was ($2,100) . What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

Corporations and individuals are allowed to claim the qualified business income deduction.

AB Incorporated received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent) on the dividend received (after taking the DRD into account)?

Which of the following statements regarding net operating losses generated in 2020 is true?

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

In the current year, Auto Rent Corporation reported the following taxable income at the end of its first, second, and third quarters: (Use Exhibit 16-10) What amount of estimated tax payments would Auto Rent pay each quarter to avoid estimated tax penalties under the annualized income method of computing estimated tax payments?

For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are exercised.

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

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?

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?

Corporations are not allowed to deduct charitable contributions in excess of a percentage of modified taxable income limitation (before the charitable contribution and certain other deductions).