Question 1

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 2

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

The answer of Which of the following is allowable as...

Question 3

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 carryover or carryback 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 4

Which of the following statements regarding net operating losses generated in 2016 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

Accepted Answer

Option B is true. Corporations can generally carry net operating losses back two years and forward up to 20 years (for losses generated after 2017), but they can elect to forgo the carryback and instead carry the loss forward. Option A is incorrect because the carryforward period is up to 20 years (for losses generated after 2017). Option C is incorrect because applying a net operating loss carryover results in a temporary, not a permanent, book-tax difference. Option D is incorrect because marginal tax rates are relevant in determining the tax benefit of applying a net operating loss carryback or carryover.

Question 5

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 6

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 7

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

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

Question 8

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 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

Jazz Corporation owns 50% of Williams Corp., so it is eligible for a dividends received deduction of 65% (50% ownership x 65% dividends received deduction). Therefore, the deduction is $6,500 ($10,000 dividend x 65%). However, since Jazz Corp.'s taxable income before the dividend was $100,000, the dividends received deduction is limited to 50% of their taxable income, which is $50,000. Therefore, the $6,500 deduction is limited to $8,000 ($6,500 or 50% of $100,000, whichever is less).

Question 10

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 these

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 11

Tatoo Inc. reported a net capital loss of $13,000 in 2016. It had a net capital gain of $4,300 in 2014 and $3,000 in 2013. In 2015, 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

First, we need to apply the net capital loss for 2016 to the prior years. 
- 2016: Net capital loss = $13,000
- 2015: Net capital gains = $1,000, therefore, Tatoo can apply $1,000 of the capital loss to offset these gains, leaving a remaining net capital loss of $12,000. 
- 2014: Net capital gains = $4,300, therefore, Tatoo can apply $4,300 of the remaining net capital loss to offset these gains, leaving a remaining net capital loss of $7,700. 
- 2013: Net capital gains = $3,000, therefore, Tatoo can apply $3,000 of the remaining net capital loss to offset these gains, leaving a remaining net capital loss of $4,700. 
Thus, the capital loss carryover remaining after applying the carryback is $4,700 (Option B).

Question 12

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 NOL carryover deduction is temporary because the NOL reduces taxable income in the current year but does not affect book income. The book-tax difference is favorable because the deduction reduces the amount of taxes owed in the current year.

Question 13

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 these are necessary.

Accepted Answer

Approval from the IRS prior to making the contribution is unnecessary. A corporation can deduct charitable contributions before paying them as long as there is approval from the board of directors and the payment is made within three and one-half months of the tax year-end. However, obtaining approval from the IRS is not a requirement for this deduction.

Question 14

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 these

Accepted Answer

The dividends received deduction is equal to the lesser of 50% of the dividend received or the percentage ownership times the dividend received. In this case, Jazz Corp. owns 10% of Williams Corp., so its ownership percentage times the dividend received of $10,000 is $1,000. Since 50% of $10,000 is $5,000, the lesser of the two is $1,000. Therefore, Jazz Corp. can take a $1,000 dividends received deduction, which reduces its taxable income (loss) from ($2,000) to ($1,000).

Question 15

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.

Accepted Answer

All three choices (A, B, and C) are types of controlled groups as defined in the Internal Revenue Code. Therefore, the correct answer is D - all of these are types of controlled groups.

Question 16

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 answer of Canny Foods Co. is considering three ways...

Question 17

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 these

Accepted Answer

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

Question 18

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

Kurt and Esmeralda are not related in any family relationship that would create a parent-subsidiary group, and they do not have more than 50% ownership in any one corporation, so they do not meet the requirements for a parent-subsidiary or combined group. The fact that they each own an interest in all three corporations means that RAZ, DVA, and TRE are brother-sister corporations for tax purposes.

Question 19

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

All of the entities together in a controlled group can make use of only one 15% tax rate bracket.

Question 20

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.Depending on the nature of the property, the amount deductible for a contribution can be the fair market value of the contributed property.

Accepted Answer

The statement that the amount deductible for non-cash contributions is always the adjusted basis of the property donated is false. Depending on the nature of the property, the amount deductible for a contribution can be the fair market value of the contributed property.

Quiz 5: Corporate Operations

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

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 statements regarding net operating losses generated in 2016 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 statements regarding the dividends and/or the dividends received deduction (DRD) is true?

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

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?

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.?

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?

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?

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

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.?

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

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.?

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?

Which of the following statements regarding controlled groups is false?

Which of the following statements regarding charitable contributions is false?