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Exam 16: Corporate Operations

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Question 71

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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 these are types of controlled groups.

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

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Question 72

Multiple Choice

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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.

E) A) and C)
F) A) and D)

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Question 73

Multiple Choice

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Which of the following is unnecessary to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity?

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

AB Inc. received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent) on the dividends received (after taking the DRD into account) assuming its ordinary marginal tax rate is 34%?

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?

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

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

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

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?

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

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

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.?

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

In 2014, 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 2014 (see corporate tax schedule)?

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?

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.

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?

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

IndusTree Inc. received $1,800,000 from the sale of a property in 2014. 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?