Ch 16 Advanced Tax

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22 terms · Exam 2

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

Corporations will eventually recognize the same amount of income for book and tax purposes for income-related temporary book-tax differences.

It is important to distinguish between temporary and permanent book-tax differences for which of the following reasons?

Both A and B.

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?

Permanent; unfavorable

AmStore Inc. sold some of its heavy machinery at a gain. AmStore used the straight-line 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?

Temporary; unfavorable

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 owns less than 20 percent of the stock of B

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 owns at least 20 but not more than 50 percent of the stock of B

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

Temporary book-tax differences associated with goodwill are always favorable.

Which of the following statements regarding capital gains and losses is false?

Like individuals, corporations can deduct $3,000 of net capital losses against ordinary income in a given year.

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

Net capital loss carrybacks and carryovers create temporary book-tax differences if they are used before they expire.

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?

Temporary; favorable

Which of the following statements regarding charitable contributions is false?

The amount deductible for non-cash contributions is always the adjusted basis of the property donated.

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?

$7,200 current-year deduction; $300 carryover

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

Temporary; unfavorable

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

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

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

The DRD can increase the net operating loss of a corporation.

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

Charitable contribution deduction

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.?

$8,000

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.?

$5,600.

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.?

$7,000.

Which of the following statements regarding the alternative minimum tax is false?

Corporations compute the AMT by multiplying their AMT base by 35 percent and subtracting their regular tax liability.

Which of the following is not an AMT adjustment?

Adjustment for domestic production activities deduction

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)?

$203 million

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