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Exam 16: Corporate Operations

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Question 61

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

A) True
B) False

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Question 62

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Depreciation adjustments can increase or decrease the AMT base relative to taxable income.

A) True
B) False

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Question 63

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

On January 1, 2014, Credit Inc. recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2015, 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 2016, the goodwill was not further impaired. In 2017, 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 in 2015, 2016, and 2017? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

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?

Calendar-year corporations that request an extension for filing their 2016 tax returns will have a tax return due date of September 15.

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 applies?

Which of the following is not a type of controlled group as defined in the Internal Revenue Code?

In 2016, LuxAir Inc. (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%. 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 2016 (see corporate tax schedule)?

Corporations may carry net operating loss sustained in 2015 back two years and forward 20 years.

If a corporation's cash charitable contributions exceed the charitable contribution deduction limit, what kind of book-tax difference is created?

Schedule M-1 reconciles from book income to bottom line taxable income (the taxable income that is applied to the tax rates to determine the corporation's gross tax liability).

Coop Inc. owns 40% of Chicken Inc., both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in 2016. Chicken also reports financial accounting earnings of $20,000 for that year. Assume that Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction) ?

Rapidpro Inc. had more than $1,000,000 of taxable income two years prior to the current year. It would like to use its prior year tax liability (which was very low but above zero) to determine its quarterly estimated payments this year. Which of the following statements is true?

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

On January 1, 2005 [before the adoption of ASC 718], Net Optimizers Inc. granted 1,000 nonqualified stock options (NQOs) valued at $.05 per option. Each option entitles the owner to purchase one share of stock for $1. These options vest at 10 percent per year for ten years. On December 31, 2016, 300 options are exercised when the stock price is $5. In 2016, what is the book-tax difference associated with the stock options? Is it favorable or unfavorable? Is it permanent or temporary?

For book purposes, RadioAircast Inc. reported $15,000 of income from municipal bonds in 2016. 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?

An affiliated group must file a consolidated tax return.

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

Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total) . The options vest over two years-half in 2016 (the year of issue) and half in 2017. One thousand options are exercised in 2017 with a bargain element on each option of $6. What is the 2017 book-tax difference associated with the stock options?