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Exam 16: Corporate Operations

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Question 41

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On January 1, 2015, Credit Inc. recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2016, 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 2017, the goodwill was not further impaired. In 2018, 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 2016, 2017, and 2018? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

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2016: $32,000 unfavorable, tem...

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Question 42

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Corporations are not allowed to deduct charitable contributions in excess of 10% of the corporation's taxable income (before the charitable contribution and certain otherdeductions).

A) True
B) False

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Question 43

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Large corporations (gross receipts of $5 million or more) are allowed to use the cashmethod of accounting for at least the first two years of their existence.

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?

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

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).

The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes.

What is the unextended due date of the tax return of a calendar-year corporation for2017?

A corporation generally will report a favorable, temporary book-tax difference when it deducts a charitable contribution carryover.

Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total) . The options vest over two years-half in 2017 (the year of issue) and half in 2018. One thousand options are exercised in 2018 with a bargain element on each option of $6. What is the 2018 book-tax difference associated with the stock options?

Which of the following statements regarding incentive stock options (ISOs) is false?

For estimated tax purposes, a "large" corporation is any corporation with average annual gross receipts of $5,000,000 in the three years prior to the current year.

Which of the following statements regarding book-tax differences is true?

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.

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

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

An affiliated group must file a consolidated tax return.

Urban Corporation receives tax-exempt income from Denver municipal bonds. All the proceeds from the bonds were used to fund public projects. In computing adjustedcurrent earnings in its AMT computation, Urban must add back the interest income from its municipal bonds.

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

The dividends received deduction is subject to a limitation based on modified taxable income.