Prentice Hall's Federal Taxation 2013 Corporations, 26e (Pope)
Chapter C3 The Corporate Income Tax
1) A C corporation must use a calendar year as its tax year unless it has a substantial business purpose to use a fiscal year. Answer: FALSE Page Ref.: C:3-2 Objective: 1
2) Corporations are permitted to deduct $3,000 in net capital losses annually. Answer: FALSE Page Ref.: C:3-7 Objective: 2
3) Organizational expenses incurred after 2004 are amortized over five years. Answer: FALSE Page Ref.: C:3-8 Objective: 2
4) Corporations may deduct the adjusted basis of inventory plus one-half of the excess of the property's FMV over its adjusted basis if the inventory is used for the care of the ill, needy, or infants. Answer: TRUE Page Ref.: C:3-11 Objective: 2
5) Corporations may carry charitable contributions in excess of the income limitation forward for five years.
Answer: TRUE Page Ref.: C:3-13 Objective: 2
6) The dividends-received deduction is designed to reduce double taxation of corporate dividends payable to individual shareholders. Answer: FALSE Page Ref.: C:3-15 Objective: 2
7) Sparks Corporation receives a dividend of $100,000 from Jill Corporation, a C Corporation. Sparks owns 70% of Jill Corporation stock. Sparks' dividends-received deduction is $80,000. Answer: TRUE Page Ref.: C:3-15 Objective: 2
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8) An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred. Answer: TRUE Page Ref.: C:3-19 Objective: 2
9) If a controlling shareholder sells depreciable property to a controlled corporation and the property is depreciable by the purchaser, any gain on the sale is a 1231 gain. Answer: FALSE Page Ref.: C:3-21 Objective: 2
10) All of the taxable income of a personal service corporation is taxed at a flat 35% rate. Answer: TRUE Page Ref.: C:3-24 Objective: 3
11) Corporate estimated tax payments are due April 15, June 15, September 15, and January 15. Answer: TRUE Page Ref.: C:3-35 Objective: 5
12) A deferred tax asset indicates that a firm will realize the tax benefit of an event sometime in the future. Answer: TRUE Page Ref.: C:3-44 Objective: 7
13) Deferred tax liabilities occur when expenses are deductible for book purposes before tax purposes. Answer: FALSE Page Ref.: C:3-44 Objective: 7
14) Identify which of the following statements is true.
A) A corporation is a separate taxpaying entity that must file a tax return annually. B) A newly formed corporation must select its basic accounting method. C) The terms \D) All of the above are true. Answer: D
Page Ref.: C:3-2 Objective: 1
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15) Identify which of the following statements is false. A) A corporation's fiscal year generally must end on the last day of the month. B) A fiscal year may not end on December 31.
C) A new corporation can elect a fiscal year that runs from February 16 to February 15 of the following year.
D) A corporation's first tax year may not cover a full 12-month period. Answer: C
Page Ref.: C:3-2 Objective: 1
16) Identify which of the following statements is true.
A) A corporation that is a member of an affiliated group filing a consolidated tax return may be allowed a tax year which is different from the group's parent.
B) An S corporation must generally use a calendar year.
C) A corporation's first year must cover a twelve-month period. D) All of the above are false. Answer: B
Page Ref.: C:3-2 and C:3-3 Objective: 1
17) Which of the following results in a deferred tax asset?
A) Revenue or gains are recognized earlier for book purposes than for tax purposes. B) Operating loss or tax credit carryforwards exist. C) Tax basis of an asset is less than its book.
D) Expenses are deductible earlier for tax purposes than for book purposes. Answer: B
Page Ref.: C:3-44 Objective: 7
18) Which of the following items will not create a deferred tax liability? A) Revenues or gains are recognized earlier for book purposes than for tax purposes. B) Expenses or losses are deductible earlier for tax purposes than for book purposes. C) Tax basis of an asset is less than its book basis. D) Operating loss or tax credit carryforwards exist. Answer: D
Page Ref.: C:3-44 Objective: 7
19) Which of the following types of evidence indicate that a valuation allowance is needed to reduce the deferred tax asset? A) history of profits
B) excess of appreciated asset values over basis
C) existing contracts or sales backlogs, which will generate significant future income D) short carryback or carryover periods Answer: D
Page Ref.: C:3-44 Objective: 7
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20) Which of the following items is a permanent difference between taxable and financial accounting income?
A) depreciation
B) dividends-received deduction C) bad debts
D) net capital loss Answer: B
Page Ref.: C:3-44 Objective: 7
21) Which of the following items is a temporary difference between tax income and financial accounting income?
A) production activities deduction
B) proceeds on life insurance on a key executive C) dividends-received deduction D) depreciation Answer: D
Page Ref.: C:3-44 Objective: 7
22) Once a corporation has elected a taxable year, it can change the taxable year without IRS permission if A) the resulting short period does not have a net operating loss.
B) the corporation has not changed its accounting period within the last ten years.
C) the annualized income for the short period is at least 80% of the corporation's income for the preceding taxable year.
D) All of the above conditions must be met. Answer: D
Page Ref.: C:3-4 Objective: 1
23) A new corporation may generally select one of the following accounting methods with the exception of A) cash method. B) accrual method. C) retail method. D) hybrid method. Answer: C
Page Ref.: C:3-4 and C:3-5 Objective: 1
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24) Identify which of the following statements is false. A) A corporation with annual gross receipts of $5,000,000 or less can use the accrual method to account for sales, cost of goods sold, inventories, accounts receivable and payable, and the cash method for other income and expenses.
B) Casualty losses incurred by a corporation are deductible subject to a nondeductible floor similar to those applicable to individuals.
C) The passive loss rules do not apply to widely held C corporations.
D) Corporations may receive a deduction for dividends received from other corporations. Answer: B
Page Ref.: C:3-5 and C:3-6 Objective: 1
25) Identify which of the following statements is true.
A) A corporate capital loss can be carried back three years, and then can be carried forward five years. B) Corporate capital loss carrybacks can offset corporate ordinary income earned in previous years. C) At the election of a corporation, a net capital loss carryback can be forgone and carried forward only. D) All of the above are false. Answer: A
Page Ref.: C:3-6 and C:3-7 Objective: 2
26) Trail Corporation has gross profits on sales of $140,000 and deductible expenses of $180,000. In addition, Trail has a net capital gain of $60,000. Trail's taxable income is A) a $20,000 loss. B) a $40,000 loss. C) $60,000. D) $20,000. Answer: D
Page Ref.: C:3-7; Example C:3-2 Objective: 2
27) Identify which of the following is false. A) Corporations that sell real property at a gain must report an additional 20% of the entire gain as ordinary income.
B) Corporations selling real property that previously had been depreciated using an accelerated method are subject to Sec. 291.
C) Section 291 reduces the amount of net Sec. 1231 gains that can be offset by corporate capital losses. D) Section 291 recapture applies to Sec. 1250 property. Answer: A
Page Ref.: C:3-7 Objective: 2
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