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Exam 16: Corporate Operations

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Question 21

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Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs) that were granted when ASC 718 (a codification of FAS 123R) applies?

A) Financial-no expense; tax-no deduction
B) Financial-no expense; tax-deduct bargain element at exercise
C) Financial-expense value over vesting period; tax-no deduction
D) Financial-expense value over vesting period; tax-deduct bargain element at exercise

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

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Question 22

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

A) Dividends are taxed at preferential rates for corporations as well as for individuals.
B) The DRD can increase the net operating loss of a corporation.
C) Corporations are allowed to deduct from a dividend received the product of the dividend and the percentage of the receiving corporation's ownership in the distributing corporation's stock.
D) The DRD allows corporations to deduct the amount of dividends that they distribute.

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

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Question 23

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Calendar-year corporations that request an extension for filing their tax returns will have a tax return due date of September 15.

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

Three brothers each own 20% of the stock in three corporations. Because no single brother owns more than 50% of a corporation, the tax law would not treat the corporations as a controlled group.

Volos Company (a calendar-year corporation) began operations in March of 2012 and was not profitable through December of 2013. Volos has been profitable for the first quarter of 2014 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement in 2014 because it had no tax liability for the 2013 tax year and has been in business for at least 12 months.

Remsco 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?

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

Federal income tax expense reported on a corporation's books generates a temporary book-tax difference for Schedule M-3 purposes.

In January 2013, Khors Company issues nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2014, the company experiences a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $60,000. For 2014, what is the book-tax difference due to the options exercised?

In 2014, Datasoft Inc. received $350,000 in dividends from CSLabs Inc. Datasoft's taxable income before the dividends received deduction and $20,000 charitable contribution deduction is $300,000. What is Datasoft's DRD assuming it owns 15% of the CSLabs Inc. stock?

Assume a corporation is not required to pay AMT in the current year but will pay AMT next year. Also assume the corporation's regular marginal tax rate is 35%. Which tax planning strategy would minimize its after-tax cost of a charitable contribution it is considering paying to a qualified charity?

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

Corporation A receives a dividend from CorporationB. Corporation A includes the dividend in its gross income for tax and financial accounting purposes (no book-tax difference) . If A has accounted for the dividend correctly (following the general rule) , how much of B stock does A own?

Over what time period do corporations amortize purchased goodwill for tax purposes?

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

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

GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank, a qualified non-profit organization, in November of 2014. GenerUs made payment to FoodBank on February 2, 2015. GenerUs Inc. (a calendar-year corporation) may claim a deduction for the contribution on its 2014 tax return.

Which of the following statements regarding controlled groups is false?

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