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Exam 5: Corporate Operations

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Question 1

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

A) Parent-subsidiary.
B) Brother-sister.
C) Combined.
D) All of the choices are types of controlled groups.

E) A) and B)
F) A) and C)

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Question 2

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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.

E) All of the above
F) A) and B)

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Question 3

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Which of the following statements regarding charitable contributions is false?

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).

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

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.

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

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

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.

Which of the following describes the correct treatment of nonqualified stock options (NQOs) granted when ASC 718 did not apply?

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

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

Bingo Corporation incurred a net operating loss in 2017.If Bingo carries the loss back,it must first carry the loss back to offset its 2016 taxable income and then carry any remaining loss back to offset its 2015 taxable income.

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 an AMT adjustment?

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

Which of the following statements regarding AMT is true?

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

On January 1,2016,GrowCo issued 50,000 nonqualified stock options (NQOs)valued at $1 per option.Each option entitles the owner to purchase one share of stock for $4.These options vest (accrue)at 20 percent per year for five years beginning in 2016.By the end of 2016,20,000 of the options had vested.At the end of 2017,these options were exercised when the stock price is $6.25.What is the total value of the book-tax difference associated with the stock options for 2017? Is it favorable or unfavorable? How much of the adjustment is permanent and how much is temporary? (Note that ASC 718 applies to these transactions.)

IndusTree Inc.received $1,800,000 from the sale of a property in 2017.The property's adjusted basis for regular tax purposes was $200,000 at the time of the sale.The property's adjusted basis for AMT purposes was $290,000.What is the amount of the AMT adjustment due to the sale of the asset? Does it increase or decrease AMTI?