Test bank taxation of individuals and business entities 2015 6e by brian c spilker chap016

Chapter 16
Corporate Operations
True / False Questions
1. In general, a corporation can elect to use either the accrual or cash method of
accounting no matter how large the corporation.
True

False

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

False

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

False

4. Large corporations are allowed to use the cash method of accounting for at least the
first two years of their existence.
True

False

5. Although a corporation may report a temporary book-tax difference for an item of
income or deduction for a given year, over the long term the total amount of income
or deduction it reports with respect to that item will be the same for both book and
tax purposes.
True

False

6. An unfavorable temporary book-tax difference is so named because it causes taxable
income to decrease relative to book income.
True

False

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

False

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

False

16-1
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9. For a corporation, goodwill created in an asset acquisition generally leads to
temporary book-tax differences.
True

False

10. 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.
True

False

11. 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.
True

False

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

False

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

False

14. In contrast to an individual, a corporation may deduct the entire amount of a net
capital loss.

True

False

15. A corporation may carry a net capital loss forward five years to offset capital gains in
future years but it may not carry a net capital loss back to offset capital gains in
previous years.
True

False

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

False

17. A corporation may carry a net capital loss back three years and forward five years.
True

False

18. Corporations can carry net operating loss sustained in 2014 back two years and
forward 20 years.
True

False

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19. 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.
True

False

20. Net operating losses generally create permanent book-tax differences.
True

False

21. Net capital loss carryovers but not carrybacks are deductible against capital gains in
determining a corporation's net operating loss for the year.
True

False

22. Accrual-method corporations cannot deduct charitable contributions until they
actually make payment to the charity.
True

False

23. 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.

True

False

24. NOL and capital loss carryovers are deductible in calculating the charitable
contribution limit modified taxable income, while NOL and capital loss carrybacks are
not.
True

False

25. Corporations may carry excess charitable contributions forward five years, but they
may not carry them back.
True

False

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

False

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

False

28. The dividends received deduction is designed to mitigate the extent to which
corporate earnings are subject to more than two levels of taxation.
True

False

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29. 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.
True

False

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

False

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

False

32. Taxable income of the most profitable corporations is subject to a flat 35% tax rate.
True

False

33. Controlled group provisions in the tax law prevent taxpayers from splitting a
corporation into several smaller corporations to take advantage of low marginal
corporate tax rates at low levels of income.
True

False

34. 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.
True

False

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

False

36. 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).
True

False

37. Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as
either temporary or permanent.
True

False

38. An affiliated group must file a consolidated tax return.
True

False

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

False

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

False

41. 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.
True

False

42. Most corporations use the annualized income method to determine their required
annual payment for purposes of making quarterly estimated payments.
True

False

43. Large corporations (corporations with over $1,000,000 in taxable income in any of
the three years prior to the current year) can use their prior tax year liability to
determine all required estimated quarterly payments for the current year.
True

False

44. 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.
True

False

45. Small corporations (in terms of average annual gross receipts) are exempt from the
alternative minimum tax.
True

False

46. Urban Corporation receives tax-exempt income from Denver municipal bonds. All the
proceeds from the bonds were used to fund public projects. In computing its AMT
base, Urban must add back the interest income from its municipal bonds to taxable
income.
True

False

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

False

48. The tax rate for the corporate alternative minimum tax is a flat 26%.
True

False

49. 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.
True

False

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

False

51. A corporation with an AMTI of $400,000 will have all of its AMT exemption phasedout.
True

False

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

False

53. A corporation with a minimum tax credit carryover may reduce regular tax down to
the amount of its tentative minimum tax when its regular tax exceeds its tentative
minimum tax.
True

False

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

True

False

Multiple Choice Questions
55. Which of the following is not calculated in the corporate income tax formula?

A. Gross
income
B. Adjusted gross
income
C. Taxable
income
D. Regular tax
liability

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56. 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?

A. Year
3
B. Year
4

C. Year
5
D. Year
6
E. None of
these.
57. Which of the following does NOT create a permanent book-tax difference?

A. Organizational and start-up
expenses
B. Key employee death benefit
income
C. Fines and penalties
expenses
D. Municipal bond interest
income
58. Which of the following does NOT create a temporary book-tax difference?

A. Deferred
compensation
B. Bad-debt
expense
C. Depreciation
expense
D. Domestic production activities
deduction

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

A. Corporations are not required to report book-tax differences on their income
tax returns.
B. Corporations will eventually recognize the same amount of income for book and
tax purposes for income-related temporary book-tax differences.
C. Income excludable for tax purposes usually creates a temporary book-tax
difference.
D. None of these is
true.
60. It is important to distinguish between temporary and permanent book-tax differences
for which of the following reasons?

A. Temporary book-tax differences will reverse in future years whereas permanent
differences will not.
B. Certain corporations are required to disclose book-tax differences as permanent or
temporary on their tax returns.
C. Temporary book-tax differences will reverse in future years whereas permanent
differences will not, and certain corporations are required to disclose book-tax
differences as permanent or temporary on their tax returns.
D. Neither temporary nor permanent book-tax differences will reverse in future years
nor are certain corporations required to disclose book-tax differences as
permanent or temporary on their tax returns.
61. 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?

A. Permanent;
favorable

B. Permanent;
unfavorable
C. Temporary;
favorable
D. Temporary;
unfavorable
62. iScope Inc. paid $3,000 in interest on a loan it used to purchase municipal bonds.
What is the nature of the book-tax difference relating to this expense?

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

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63. AmStore Inc. sold some of its heavy machinery at a gain. AmStore used the straightline method for financial accounting depreciation and MACRS for tax cost-recovery. If
accumulated depreciation for financial accounting purposes is less than accumulated
depreciation for tax reporting purposes, what is the nature of the book-tax difference
associated with the gain on the sale?

A. Permanent;
favorable

B. Permanent;
unfavorable
C. Temporary;
favorable
D. Temporary;
unfavorable
64. Corporation A receives a dividend from Corporation B. 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?

A. A owns less than 20 percent of the
stock of B
B. A owns at least 20 but not more than 50 percent of the
stock of B
C. A owns more than 50 percent of the
stock of B
D. Cannot be
determined
65. Corporation A receives a dividend from Corporation B. It includes the dividend in
gross income for tax purposes but includes a pro-rata portion of B's earnings in its
financial accounting income. If A has accounted for the dividend correctly (using the
general rule), how much of B's stock does A own?

A. A owns less than 20 percent of the
stock of B
B. A owns at least 20 but not more than 50 percent of the
stock of B
C. A owns more than 50 percent of the
stock of B

D. Cannot be
determined

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66. Coop Inc. owns 40% of Chicken Inc., both Coop and Chicken are corporations. Chicken
pays Coop a dividend of $10,000 in 2014. 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)?

A. $2,000
unfavorable
B. $2,000
favorable
C. $10,000
unfavorable
D. $10,000
favorable
E. None of
these
67. Over what time period do corporations amortize purchased goodwill for tax
purposes?

A. 180
months

B. 150
months
C. 60
months
D. None of
these
68. Which of the following statements regarding book-tax differences associated with
purchased goodwill is false?

A. It is possible to have no book-tax difference in a year when there is no goodwill
amortization for tax purposes.
B. In a year when goodwill is impaired and yet fully amortized for tax purposes (so no
tax amortization of the goodwill for that year), the book-tax difference will be
unfavorable.
C. Temporary book-tax differences associated with goodwill are always
favorable.
D. If goodwill has been fully amortized for tax purposes in a previous year, the booktax difference is equal to the amount of impairment recognized.

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69. Which of the following describes the correct treatment of incentive stock options
(ISOs) granted when ASC 718 (a codification of FAS 123R) applies?

A. Financial accounting—no expense; tax—no
deduction
B. Financial accounting—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
70. Which of the following describes the correct treatment of incentive stock options
(ISOs) granted when ASC 718 (a codification of FAS 123R) does not apply?

A. Financial accounting—no expense; tax—no
deduction
B. Financial accounting—no expense; tax—deduct bargain element at
exercise
C. Financial accounting—expense value over vesting period; tax—no
deduction
D. Financial accounting—expense value over vesting period; tax—deduct bargain
element at exercise
71. 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
72. Which of the following describes the correct treatment of nonqualified stock options
(NQOs) granted when ASC 718 (a codification of FAS 123R) did not apply?

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

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73. Which of the following statements regarding nonqualified stock options (NQOs) is
false?

A. If ASC 718 (a codification of FAS 123R) applies, book-tax differences associated
with NQOs may be either permanent or temporary.
B. In a given year when ASC 718 applies, if the value of the options that vest is
greater than the bargain element of options exercised, the book-tax difference for
that year is unfavorable.
C. Before ASC 718 applied, no expense recognition was required for NQOs for
financial accounting purposes.
D. If ASC 718 does not apply, all stock option-related book-tax differences are
temporary.
74. Which of the following statements regarding incentive stock options (ISOs) is false?

A. If ASC 718 (a codification of FAS 123R) does not apply, ISOs do not create book-tax
differences.

B. For ISOs granted when ASC 718 applies, book-tax differences are always
unfavorable.
C. If ASC 718 applies, the value expensed for book purposes in a given year is the
value of the options that vest.
D. If ASC 718 applies, book-tax differences associated with ISOs may be either
permanent or temporary.
75. Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total).
The options vest over two years - half in 2014 (the year of issue) and half in 2015.
One thousand options are exercised in 2015 with a bargain element on each option of
$6. What is the 2015 book-tax difference associated with the stock options?

A. $14,000
unfavorable
B. $14,000
favorable
C. $20,000
unfavorable
D. $20,000
favorable
E. None of
these

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76. 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?

A. 10,000
unfavorable
B. 10,000
favorable
C. 50,000
unfavorable
D. 60,000
favorable
77. In January 2014, 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 2015, 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 $40,000. For 2015,
what is the nature of the book-tax difference due to the options exercised?

A. Favorable and
temporary
B. Favorable and
permanent
C. Unfavorable and
temporary
D. Unfavorable and
permanent
E. Not enough information to
determine.
78. Which of the following statements regarding capital gains and losses is false?

A. In terms of tax treatment, corporations generally prefer capital gains to
ordinary income.
B. Like individuals, corporations can deduct $3,000 of net capital losses against
ordinary income in a given year.
C. C corporations can carry back net capital losses three years and they can carry
them forward for five years.
D. Corporations must apply capital loss carrybacks and carryovers in a
particular order.

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

A. A corporation that experiences a net capital loss has a favorable book-tax
difference in the year of the loss.
B. A corporation that experiences a net capital loss in year 4 first carries the loss back
to year 3, then year 2, and then year 1 before carrying it forward.
C. Net capital loss carrybacks are deductible in determining a corporation's net
operating loss.
D. Net capital loss carrybacks and carryovers create temporary book-tax differences if
they are used before they expire.
80. 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?

A. $11,000

unfavorable
B. $11,000
favorable
C. $16,000
unfavorable
D. $16,000
favorable
81. Tatoo Inc. reported a net capital loss of $13,000 in 2014. It had a net capital gain of
$4,300 in 2012 and $3,000 in 2011. In 2013, although the company suffered a net
operating loss, it had net capital gains of $1,000. What is the amount of the Tatoo's
capital loss carryover remaining after it applies the carryback?

A. $4,70
0
B. $5,70
0
C. $8,70
0
D. $13,00
0

16-14
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82. BTW Corporation has taxable income in the current year that can be offset with an
NOL from a previous year. What is the nature of the book-tax difference created by
the net operating loss carryover deduction in the current year?

A. Permanent;
favorable
B. Permanent;
unfavorable
C. Temporary;
favorable
D. Temporary;
unfavorable
83. Which of the following is allowable as a deduction in calculating a corporation's net
operating loss?

A. Charitable contribution
deduction
B. Domestic production activities
deduction
C. Net capital loss
carryback
D. Net operating losses from other
years
84. Which of the following statements regarding net operating losses generated in 2013
is true?

A. Corporations can carry net operating losses back two years and forward up
to 15 years.
B. A corporation may elect to forgo carrying a net operating loss back and instead
carry it over to future years.
C. When a corporation applies a net operating loss carryover, it reports a favorable,
permanent book-tax difference in the amount of the applied carryover.
D. Marginal tax rates are irrelevant in determining the tax benefit of applying a net
operating loss carryback or carryover.

E. None of these is a true
statement.
85. Which of the following statements regarding charitable contributions is false?

A. Only contributions made to qualified charitable organizations are
deductible.
B. Charitable contribution deductions are subject to a limitation based on the
corporation's taxable income (before certain deductions).
C. Corporations can qualify to deduct a contribution before actually paying the
contribution to the charity.
D. The amount deductible for non-cash contributions is always the adjusted basis of
the property donated.
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86. Which of the following is unnecessary to allow an accrual-method corporation to
deduct charitable contributions before actually paying the contribution to charity?

A. Approval of the payment from the board of
directors.
B. Approval from the IRS prior to making the
contribution.
C. Payment made within two and one-half months of the tax
year end.
D. All of these are
necessary.
87. Canny Foods Co. is considering three ways it could contribute to a local, qualified
charity. First, it could give $5,000 in cash. Second, it could give stock it initially

purchased two years ago for $4,000 but is now worth $6,000. Third, it could give
items of inventory with a fair market value of $7,000 but with an adjusted basis of
$3,000. Which of the following correctly describes the relation among possible
charitable contributions in terms of amount deductible for tax purposes?

A. Cash > Stock >
Inventory
B. Stock > Cash >
Inventory
C. Inventory > Stock >
Cash
D. Inventory > Cash >
Stock
88. Which of the following is deductible in calculating the charitable contribution limit
modified taxable income?

A. Net capital loss
carrybacks
B. NOL
carrybacks
C. NOL
carryovers
D. Charitable
contributions

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89. 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?

A. $6,000 current-year deduction; $1,500
carryover
B. $7,500 current-year deduction; $0
carryover
C. $1,200 current-year deduction; $6,300
carryover
D. $7,200 current-year deduction; $300
carryover
90. If a corporation's cash charitable contributions exceed the charitable contribution
deduction limit, what kind of book-tax difference is created?

A. Permanent;
favorable
B. Permanent;
unfavorable
C. Temporary;
favorable
D. Temporary;
unfavorable
91. Which of the following statements regarding excess charitable contributions
(contributions in excess of the modified taxable income limitation) by corporations is
true?

A. Corporations may not carry over or carry back excess charitable
contributions.

B. Corporations can carry excess charitable contributions over to a future year or
back to a prior year.
C. Corporations can carry excess charitable contributions over to a future year but
not back to a prior year.
D. Corporations can carry excess charitable contributions back to a prior year but not
over to a future year.

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92. 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.
93. Which of the following is deductible in calculating DRD modified taxable income?

A. Charitable contribution
deduction
B. NOL
carrybacks

C. NOL
carryovers
D. Dividends received
deduction
94. Jazz Corporation owns 50% of the Williams Corp. stock. Williams distributed a
$10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income before the dividend
was $100,000. What is the amount of Jazz's dividends received deduction on the
dividend it received from Williams Corp.?

A. $
0
B. $7,00
0
C. $8,00
0
D. $10,00
0

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95. 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 ($2,000). What is the amount of Jazz's dividends received deduction on
the dividend it received from Williams Corp.?

A. $
0

B. $5,60
0
C. $7,00
0
D. $8,00
0
E. None of
these.
96. 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. $
0
B. $2,80
0
C. $4,20
0
D. $7,00
0
E. None of
these.
97. Which of the following is not a type of controlled group as defined in the Internal
Revenue Code?

A. Parentsubsidiary
B. Brothersister
C. Combine
d

D. All of these are types of controlled
groups.

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98. 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?

A. Parentsubsidiary
B. Brothersister
C. Combine
d
D. None of
these
99. Together, Kurt and Esmeralda own 60% of three corporations: RAZ, DVA, and TRE.
The three corporations would be considered as what kind of controlled group for tax
purposes?

A. Parentsubsidiary
B. Brothersister
C. Combine
d
D. The three corporations would not be considered to be a controlled group for
tax purposes.
100 Which of the following statements regarding controlled groups is false?
.
A. The purpose of the controlled group rules is to essentially treat the group as

though it were one entity for purposes of determining certain tax benefits.
B. Having several entities treated as a controlled group is advantageous for tax
purposes because each corporation in the group is allowed to use the 15% tax
bracket in the corporate tax rate schedule in computing its regular income tax
liability.
C. Lauren owns 100% of Corporation A stock and 100% of Corporation B stock.
Corporation A and Corporation B form a controlled group.
D. Corporation A owns 100% of Corporation B. Corporation A and Corporation B form
a controlled group.
101 Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is
.
false?

A. In general, smaller corporations are required to complete Schedule M-1 while
larger corporations are required to complete Schedule M-3.
B. Schedule M-3 lists more book-tax differences than
Schedule M-1.
C. Both Schedules M-1 and M-3 reconcile to a corporation's bottom line
taxable income.
D. Schedule M-1 does not distinguish between temporary and permanent book-tax
differences whereas Schedule M-3 does.
16-20
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102 Which of the following statements is false regarding consolidated tax returns?
.
A. An affiliated group can file a consolidated tax return only if it
elects to do so.

B. To file a consolidated tax return, one corporation must own at least 50% of the
stock of another corporation.
C. For a group of corporations filing a consolidated tax return, an advantage is that
losses of one group member may offset gains of another group member.
D. For a group of corporations filing a consolidated tax return, losses from certain
intercompany transactions are deferred until realized through a transaction
outside of the group.
103 What is the unextended due date of the tax return of a calendar-year corporation?
.
A. February
15.
B. March
15.
C. April
15.
D. September
15.
104 Which of the following is not an acceptable method of determining the required
.
annual payment of federal income tax for corporations?

A. 100 percent of the prior year's tax liability (with a few
exceptions)
B. 100 percent of the current year's tax
liability
C. 100 percent of the estimated current year tax liability using the annualized
income method
D. All of these are acceptable methods of determining the required annual payment
of federal income tax for corporations
105 Which of the following statements is false regarding corporate estimated tax

.
payments?

A. The due dates for estimated tax payments are the 15th day of the 4th, 6th, 9th, and
12th months of the corporation's tax year.
B. Corporations must pay estimated taxes only if they have a federal income tax
liability greater than $10,000 (including the alternative minimum tax).
C. Even though a corporation extends its tax return it still must pay its tax liability for
the year by two and one half months after year end.
D. Corporations using the annualized income method for determining estimated tax
payments project their tax liability for the year based on income from the first,
second, and third quarters.

16-21
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106 Omnidata uses the annualized income method to determine its quarterly federal
.
income tax payments. It had $100,000, $50,000, and $90,000 of taxable income for
the first, second, and third quarters, respectively ($240,000 in total through the first
three quarters). What is Omnidata's annual estimated taxable income as of the end
of the third quarter?

A. $300,00
0
B. $320,00
0
C. $400,00

0
D. $480,00
0
107 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?

A. Rapidpro may use the prior year tax liability to determine its first and second
quarter estimated tax payments only since it is a large corporation.
B. To avoid penalty, the second quarter estimated payment must be large enough to
cover 50 percent of its estimated annual tax liability annualized from its first
quarter estimated taxable income (assume it does not rely on its current year
actual tax liability to determine its estimated tax payment).
C. To avoid penalty, the third quarter estimated payment must be large enough to
cover 50 percent of its estimated annual tax liability annualized from its third
quarter estimated taxable income (assume it does not rely on its current year
actual tax liability to determine its estimated tax payment).
D. None of these is
true.
108 Which of the following statements regarding the alternative minimum tax is false?
.
A. Corporations compute the AMT by multiplying their AMT base by 35% and
subtracting their regular tax liability.
B. Small corporations are exempt from the
AMT.
C. All first-year corporations are exempt from
the AMT.
D. None of these is false (choose if you believe All of these

are true).

16-22
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109 Which of the following is not an AMT adjustment?
.
A. Adjustment for
depreciation
B. Adjustment of gain or loss on sale of depreciable
assets
C. Adjustment for adjusted current earnings
(ACE)
D. Adjustment for domestic production activities
deduction
110 In the current year, FurnitureKing Corporation recognized $32,000 of income from an
.
installment sale it made in a previous tax year. If installment sales are the only
difference between ACE and alternative minimum taxable income (before the ACE
adjustment), what is the amount and nature of the ACE adjustment for the current
tax year?

A. $24,000
favorable
B. $24,000
unfavorable
C. $32,000
favorable

D. $32,000
unfavorable
111 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?

A. $51,00
0
B. $39,00
0
C. $12,00
0
D. $
0

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112 Flywest Airlines, Inc. has regular taxable income of $190 million. It also has $10
.
million of AMT preference items, a $5 million unfavorable depreciation adjustment,
and a $2 million favorable ACE adjustment. What is Flywest's alternative minimum
tax income (AMTI)?

A. $177
million
B. $183

million
C. $197
million
D. $203
million
113 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?

A. $47,00
0
B. $45,00
0
C. $40,00
0
D. $30,00
0
114 Which of the following statements regarding AMT is true?
.
A. Only very profitable companies (AMTI greater than $1 million) have their AMT
exemption phased out.
B. The AMT exemption is phased out dollar for dollar as AMTI
increases.
C. Minimum tax credits are generated whenever regular tax liability exceeds
tentative minimum tax.
D. Minimum tax credits can be carried forward
indefinitely.

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115 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?

A. Pay the contribution this
year.
B. Wait until next year to pay the
contribution.
C. The after-tax cost of the contribution will be the same no matter which year it
makes the contribution.
D. None of
these.

Essay Questions
116 In 2014, AutoUSA Inc. received $4,600,000 of book income, including $20,000 of
.
interest income from tax-exempt municipal bonds. AutoUSA reported $3,600,000 of
regular business expenses. If it made $350,000 of estimated tax payments
(prepayments) throughout the tax year, what is its tax due or tax refund when it files
its return? Assume AutoUSA pays taxes at a flat 34 percent rate and disregard the
alternative minimum tax.

117 For book purposes, RadioAircast Inc. reported $15,000 of income from municipal
.
bonds in 2013. 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?

16-25
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