Question 1

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.

Accepted Answer

The answer of Which of the following statements regarding the...

Question 2

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.

Accepted Answer

This creates a temporary, unfavorable book-tax difference because the excess contributions can be carried forward and deducted in future years, indicating the difference is not permanent but will reverse when the deduction is taken.

Question 3

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.

Accepted Answer

Charitable contributions are allowable deductions when calculating a corporation's net operating loss, while the other options are not.

Question 4

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.

Accepted Answer

Corporations can carry forward excess charitable contributions for up to five years, but they cannot carry them back to prior tax years.

Question 5

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.

Accepted Answer

Charitable contribution deduction is deductible in calculating DRD modified taxable income.

Question 6

Which of the following statements regarding net operating losses generated in 2017 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.

Accepted Answer

Corporations can carry net operating losses back up to two years and forward up to 20 years (not 15 years as stated in option A). Option C is incorrect because applying a net operating loss carryover does not create a permanent book-tax difference. Option D is incorrect because the tax benefit of applying a net operating loss carryback or carryover is dependent on the corporation's marginal tax rate. Therefore, the only true statement is option B, which states that a corporation may elect to forgo carrying a net operating loss back and instead carry it over to future years.

Question 7

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 three and one-half months of the tax year-end.
D) All of the choices are necessary.

Accepted Answer

Approval from the IRS prior to making the contribution is unnecessary to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity. However, approval of the payment from the board of directors and payment made within three and one-half months of the tax year-end are necessary.

Question 8

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) Parent-subsidiary.
B) Brother-sister.
C) Combined.
D) The three corporations would not be considered to be a controlled group for tax purposes.

Accepted Answer

Since Kurt and Esmeralda collectively own less than 80% of the three corporations, they would not be considered a parent-subsidiary group. Also, since there are no common owners among the three corporations, they would not be considered a combined group. Therefore, the three corporations would be considered a brother-sister group for tax purposes.

Question 9

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) $7,000.
C) $8,000.
D) $10,000.

Accepted Answer

The dividends received deduction for a corporation that owns between 20% and 80% of another corporation's stock is 80% of the dividend received. Therefore, Jazz Corporation's dividends received deduction on the $10,000 dividend it received from Williams Corp. would be $8,000 (80% of $10,000).

Question 10

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) $2,800.
C) $4,200.
D) $7,000.
E) None of the choices are correct.

Accepted Answer

The answer of Jazz Corporation owns 10% of the Williams...

Question 11

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.

Accepted Answer

The answer of Which of the following is deductible in...

Question 12

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.

Accepted Answer

This statement is false because the controlled group rules do not affect the corporate tax rate schedule or the tax brackets. Each corporation in a controlled group still uses the same tax rate schedule as it would if it were not part of the group. The purpose of the controlled group rules is to coordinate and allocate certain tax benefits and restrictions among the group members.

Question 13

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.

Accepted Answer

The amount deductible for non-cash contributions is not always the adjusted basis of the property donated. The deductible amount is based on the fair market value of the property at the time of the contribution.

Question 14

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.

Accepted Answer

All of the choices are types of controlled groups.

Question 15

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.

Accepted Answer

The stock donation is deductible at its fair market value of $6,000, the cash donation is deductible at $5,000, and the inventory donation is deductible at its adjusted basis of $3,000.

Question 16

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.

Accepted Answer

The book-tax difference created by the net operating loss carryover deduction in the current year is temporary because the NOL reduces taxable income in the current year but will not affect book income in future years. The book-tax difference is also favorable because it reduces the amount of taxes owed in the current year.

Question 17

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.

Accepted Answer

The answer of Remsco has taxable income of $60,000 and...

Question 18

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) Parent-subsidiary.
B) Brother-sister.
C) Combined.
D) None of the choices are correct.

Accepted Answer

TireShop, Inc. owns more than 80% of Rubber Supply Co.'s voting stock, which qualifies them as a parent-subsidiary controlled group.

Question 19

Tatoo Inc.reported a net capital loss of $13,000 in 2017.It had a net capital gain of $4,300 in 2015 and $3,000 in 2014.In 2016,although the company suffered a net operating loss,it had net capital gains of $1,000.What is the amount of Tatoo's capital loss carryover remaining after it applies the carryback?
A) $4,700.
B) $5,700.
C) $8,700.
D) $13,000.

Accepted Answer

When there is a net capital loss, it can be applied as a deduction against capital gains in previous years. If there were no capital gains in previous years, the loss can be carried forward to future years.
In this case, Tatoo can carry the $13,000 capital loss back to 2015 and 2014, where it had net capital gains. This will reduce its tax liability for those years.
2015: $4,300 - $13,000 = ($8,700) loss carryover
2014: $3,000 - $8,700 = ($5,700) loss carryover
For 2016, Tatoo cannot carry the loss back because it had a net operating loss that year. So, the entire $13,000 loss carries forward to 2018.
Therefore, the remaining capital loss carryover after applying the carryback is $5,700 ($8,700 + $0 - $3,000).

Question 20

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) $5,600.
C) $7,000.
D) $8,000.
E) None of the choices are correct.

Accepted Answer

The dividends received deduction is 70% of the dividend received, which is $10,000 x 70% = $7,000.

Quiz 5: Corporate Operations

Which of the following statements regarding the dividends and/or the dividends received deduction (DRD) is true?

If a corporation's cash charitable contributions exceed the charitable contribution deduction limit,what kind of book-tax difference is created?

Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

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

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

Which of the following statements regarding net operating losses generated in 2017 is true?

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

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?

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.?

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.?

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

Which of the following statements regarding controlled groups is false?

Which of the following statements regarding charitable contributions is false?

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

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?

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?

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?

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.?