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Exam 5: Corporate Operations

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Question 1

True/False

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An affiliated group must file a consolidated tax return.

A) True
B) False

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Question 2

Multiple Choice

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

A) Permanent; favorable.
B) Permanent; unfavorable.
C) Temporary; favorable.
D) Temporary; unfavorable.

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

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Question 3

Multiple Choice

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Coop Incorporated owns 40percent of Chicken Incorporated. Both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in the current year. Chicken also reports financial accounting earnings of $20,000 for that year. Assume 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) ?

Which of the following statements regarding excess charitable contributions (contributions in excess of the modified taxable income limitation) by corporations is true?

In 2020 Webtel Corporation donated $50,000 to a qualifying charity. For the year, it reported taxable income of $310,000, which included the following: the $50,000 charitable contribution (before limitation), a $100,000 dividends received deduction, and a $20,000 net operating loss carryover. What is Webtel Corporations charitable contribution deductionassuming it does not elect to apply the 25% of modified taxable income limitation in determining its charitable contribution deduction?

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

Which of the following statements regarding book-tax differences associated with purchased goodwill is false?

The dividends received deduction cannot create a net operating loss. The deduction can reduce income to zero but not below zero.

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

Rapidpro Incorporated 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?

In 2020, AutoUSA Incorporated reported $6,500,000 of book income, including $39,000 of interest income from tax-exempt bonds. AutoUSA reported $5,500,000 of regular business expenses. If it made $229,000 of estimated tax payments (prepayments) throughout the tax year, what is its tax due or tax refund when it files its return?

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

A nonqualified stock option will always create a permanent book-tax difference in a given year if it vests during the year but is exercised in a later year.

In 2020, US Sys Corporation received $250,000 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 $20,000. In addition, for book purposes, it expensed $10,000 ofbusiness 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?

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?

On January 1, 2020, Credit Incorporated recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2020, the auditors of Credit Incorporated determined that the goodwill had been impaired by $50,000, and Credit Incorporated wrote down the book value of the goodwill by $50,000. During 2021, the goodwill was not further impaired. In 2022, 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 2020, 2021, and 2022? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

Which of the following statements regarding charitable contributions is false?

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

What is the unextended due date of the tax return of a calendar-year C corporation for 2020?

WFO Corporation has gross receipts according to the following schedule: If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?