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Exam 16: Corporate Operations

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Question 41

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Volos Company (a calendar-year corporation) began operations in March of 2012 and was not profitable through December of 2013. Volos has been profitable for the first quarter of 2014 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement in 2014 because it had no tax liability for the 2013 tax year and has been in business for at least 12 months.

A) True
B) False

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Question 42

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Corporations are allowed to deduct at least some AMT exemption regardless of profitability.

A) True
B) False

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Question 43

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GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank, a qualified non-profit organization, in November of 2014. GenerUs made payment to FoodBank on February 2, 2015. GenerUs Inc. (a calendar-year corporation) may claim a deduction for the contribution on its 2014 tax return.

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) ?

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)?

Which of the following statements is false regarding consolidated tax returns?

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

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.

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).

Large corporations (corporations with over $1,000,000 in taxable income in any of the three years prior to the current year) can use their prior tax year liability to determine all required estimated quarterly payments for the current year.

A corporation may carry a net capital loss back three years and forward five years.

A corporation with a minimum tax credit carryover may reduce regular tax down to the amount of its tentative minimum tax when its regular tax exceeds its tentative minimum tax.

In 2014, Webtel Corporation donated $50,000 to a qualifying charity. For the year, it reported taxable income of $310,000, which included the following: the $50,000 charitable contribution (before limitation), a $100,000 dividends received deduction, and a $20,000 net operating loss carryover. What is Webtel Corp's charitable contribution deduction?

Depreciation adjustments can increase or decrease the AMT base relative to taxable income.

Which of the following does NOT create a permanent book-tax difference?

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 deductible in calculating DRD modified taxable income?

Three brothers each own 20% of the stock in three corporations. Because no single brother owns more than 50% of a corporation, the tax law would not treat the corporations as a controlled group.

Which of the following statements regarding charitable contributions is false?

WFO Corporation has gross receipts according to the following schedule: $\begin{array} { | l | l | } \hline \text { Year } 1 & \$ 2 \text { million } \\\hline \text { Year } 2 & \$ 4 \text { million } \\\hline \text { Year } 3 & \$ 6 \text { million } \\\hline \text { Year } 4 & \$ 4.5 \text { million } \\\hline \text { Year 5 } & \$ 5 \text { million } \\\hline \text { Year } 6 & \$ 7 \text { million } \\\hline\end{array}$ If WFO began business as a cash-method corporation in Year 1, in which year would it have first been required to use the accrual method?