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Exam 16: Corporate Operations

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Question 41

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

A) True
B) False

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Question 42

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Atom Ventures Inc. (AV) owns stock in the Primo and Faraday corporations. The following summarizes information relating to AV's investment in Primo and Faraday as follows: $\begin{array} { | c | r | c | r | } \hline \text { Corporation } & \begin{array} { c } \text { Corporation's } \\\text { earnings for year }\end{array} & \text { Atom's ownership } & \begin{array} { c } \text { Dividends distributed } \\\text { to Atom during year }\end{array} \\\hline \text { Primo } & \$ 625,000 & 35 \% & \$ 125,000 \\\hline \text { Faraday } & \$ 940,000 & 10 \% & \$ 50,000 \\\hline\end{array}$ Assuming that AV follows the general rules for reporting its income from these investments, what is the amount of AV's book-tax difference associated with the investment in these corporations (disregarding the dividends received deduction)? Is it favorable or unfavorable? Is it permanent or temporary?

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$93,750, favorable, ...

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Question 43

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For incentive stock options granted when ASC 718 (a codification of FAS 123R) applies, the value of the options that vest in a given year always creates a permanent, unfavorable book-tax difference.

In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. It has a favorable temporary book-tax difference for that year.

XPO Corporation has a minimum tax credit of $51,000 from 2013. If its 2014 tentative minimum tax is $211,000 and its regular tax liability is $250,000, what is its minimum tax credit carryover to 2015?

On January 1, 2012, Credit Inc. recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2013, the auditors of Credit Inc. determined that the goodwill had been impaired by $50,000 and Credit Inc. wrote down the book value of the goodwill by $50,000. During 2014, the goodwill was not further impaired. In 2015, additional goodwill was impaired and was written down another $18,000 for financial reporting purposes. What is the temporary book-tax difference associated with the purchased goodwill 2013, 2014, and 2015? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

Bingo Corporation incurred a net operating loss in 2014. If it carries the loss back, it must first carry the loss back to offset its 2013 taxable income and then it carries any remaining loss back to offset its 2012 taxable income.

The adjusted current earnings (ACE) adjustment is 75% of the difference between a corporation's alternative minimum taxable income before the ACE adjustment and its ACE.

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

Corporations compute their dividends received deduction by multiplying the dividend amount by 10%, 50%, or 100% depending on their ownership in the distributing corporation's stock.

Corporations are allowed to deduct at least some AMT exemption regardless of profitability.

TrendSetter Inc. paid $50,000 in premiums for life insurance coverage for its key employees. What is the nature of the book-tax difference created by this expense?

Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference.

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?

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'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 Williams Corp.?

A corporation with an AMTI of $400,000 will have all of its AMT exemption phased-out.

Which of the following is deductible in calculating the charitable contribution limit modified taxable income?

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

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

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