Question: What role do a corporation’s audited

> What are the potential tax consequences to a shareholder who participates in a stock redemption?

> What tax issue arises when a shareholder receives a nontaxable stock dividend?

> A corporation distributes appreciated noncash property to a shareholder as a dividend. What impact does the distribution have on the corporation’s earnings and profits?

> A shareholder receives appreciated noncash property in a corporate distribution and assumes a liability attached to the property. How does the liability assumption affect the amount of dividend reported in gross income?

> Which of the following evidence would be considered negative in determining whether Gratiot Corporation needs to record a valuation allowance for some or all of its deferred tax assets? a. The company forecasts future taxable income because of its backlo

> As of the beginning of the year, Gratiot Company recorded a valuation allowance of $200,000 against its deferred tax assets of $1,000,000. The valuation allowance relates to a net operating loss carryover from the prior year. During the year, management

> Which of the following evidence would not be considered positive in determining whether Adams Corporation needs to record a valuation allowance for some or all of its deferred tax assets? a. The Company forecasts future taxable income because of its back

> Mason was shocked to learn that the current Code is the Internal Revenue Code of 1986. He thought that U.S. tax laws change more frequently. What is wrong with Mason’s perception?

> Name three factors that determine whether a taxpayer is required to file a tax return.

> Burcham Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest. The company’s prior year tax return showed tax

> Ann Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $50,000, and favorable permanent differences of $100,000. Compute the company&

> Which of the following items is not a permanent book/tax difference? a. Tax-exempt interest income. b. Tax-exempt insurance proceeds. c. Domestic production activities deduction. d. Non-deductible meals and entertainment expense. e. First-year expensing

> Which of the following book-tax basis differences results in a deductible temporary difference? a. Book basis of a fixed asset exceeds its tax basis. b. Book basis of a pension-related liability exceeds its tax basis. c. Prepayment of income included on

> Lodge, Inc. reported pretax book income of $5,000,000. During the year, the company increased its reserve for warranties by $200,000. The company deducted $50,000 on its tax return related to warranty payments made during the year. What is the impact on

> Which of the following book-tax differences does not create a favorable temporary book-tax basis difference? a. Tax depreciation for the period exceeds book depreciation. b. Bad debts charged off in the current period exceed the bad debts accrued in the

> Which of the following items is not a temporary book-tax basis difference? a. Warranty reserve accruals. b. Accelerated depreciation. c. Capitalized inventory costs under §263A. d. Nondeductible stock option compensation from exercising an ISO. e. All of

> Abbot Company determined that the book basis of its allowance for bad debts is $100,000. There is no corresponding tax basis in this account. The basis difference is properly characterized as: a. A permanent difference b. A taxable temporary difference c

> Davison Company determined that the book basis of its office building exceeded the tax basis by $800,000. This basis difference is properly characterized as: a. A permanent difference b. A taxable temporary difference c. A deductible temporary difference

> Chandler Corporation reported pretax book income of $2,000,000. Tax depreciation exceeded book depreciation by $500,000. During the year the Company capitalized $250,000 into ending inventory under §263A. Capitalized inventory costs of $150,000 in

> What are some of the taxes that currently are unique to state and local governments? What are some of the taxes that the federal, state, and local governments each utilize?

> Grand Corporation reported pretax book income of $600,000. Tax depreciation exceeded book depreciation by $400,000. In addition, the company received $300,000 of tax-exempt municipal bond interest. The company’s prior year tax return showed taxab

> Cass Corporation reported pretax book income of $10,000,000. During the current year, the reserve for bad debts increased by $100,000. In addition, tax depreciation exceeded book depreciation by $200,000. Cass Corporation sold a fixed asset and reporte

> Woodward Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $50,000, and favorable permanent differences of $100,000. Assuming a tax

> Find the paragraph(s) in ASC 740 that deal with the following items (you can access ASC 740 on the FASB website at http://www.fasb.org, and clicking on “Standards.” You will need a password from your instructor. a. The objectives and basic principles tha

> Which of the following organizations can issue rules that govern accounting for income taxes? a. FASB b. SEC c. IRS d. a and b above e. All of the above organizations

> Which of the following taxes is not accounted for under ASC 740? a. Income taxes paid to the U.S. government. b. Income taxes paid to the French government. c. Income taxes paid to the city of Detroit. d. Property taxes paid to the city of Detroit. e. Al

> Which of the following pronouncements should a company consult in computing its quarterly income tax provision? a. ASC 740 b. ASC 230 c. ASC 718 d. ASC 810 e. SarbOX 404

> Which of the following items is not a reconciling item in the income tax footnote? a. State income taxes b. Foreign income taxes c. Accrued pension liabilities d. Dividends received deduction e. Tax-exempt municipal bond interest

> Which formula represents the calculation of a company’s effective tax rate? a. Income taxes paid / Taxable income. b. Income taxes paid / Pretax income from continuing operations. c. Income tax provision / Taxable income. d. Income tax provision / Pretax

> Which of the following temporary differences creates a current deferred tax asset? a. Allowance for bad debts b. Goodwill amortization c. Accumulated depreciation d. Inventory capitalization under §263A e. Both a and d create a current deferred tax asset

> Why is the timing strategy particularly effective for cash-method taxpayers?

> ASC 740 requires a company to disclose those components of its deferred tax assets and liabilities that are considered a. Relevant b. Significant c. Important d. Major

> As part of its UTP assessment, Penobscot Company records interest and penalties related to its unrecognized tax benefit of $500,000. Which of the following statements about recording this amount is most correct? a. Penobscot must include the amount in it

> Which of the following statements about uncertain tax positions (UTP) is correct? a. UTP applies only to tax positions accounted for under ASC 740 taken on a filed tax return. b. UTP applies to all tax positions accounted for under ASC 740, regardless of

> Montcalm Corporation has total deferred tax assets of $3,000,000 at year-end. Of that amount, $1,000,000 results from the current expensing of an expenditure that the IRS might assert must be capitalized on audit. Management is trying to determine if it

> Saginaw, Inc. completed its first year of operations with a pretax loss of $500,000. The tax return showed a net operating loss of $600,000, which the Company will carry forward. The $100,000 book-tax difference results from excess tax depreciation ove

> Distinguish between recognition and measurement as they relate to the computation of unrecognized tax benefits under ASC 740.

> What motivated the FASB to issue FIN 48?

> When does a company remove a valuation allowance from its balance sheet?

> True or False: ASC 740 applies to all taxes paid by a corporation. Explain.

> On January 2 of year 1, XYZ Corp. acquired a piece of machinery for $50,000. The asset recovery period for the assets is seven years for both regular tax and AMT purposes. XYZ uses the double declining balance method to compute its tax depreciation on

> What are unemployment taxes?

> For the current year, CCP, Inc. received the following interest income: • $12,000 interest from Irvine City bonds: Bonds issued in 2012 and proceeds used to fund public schools. • $20,000 interest from Fluor Corporation bonds. • $8,000 interest from Miss

> Compute SWK Inc.’s tax liability for each of the following scenarios: a. SWK’s taxable income is $60,000. b. SWK’s taxable income is $275,000. c. SWK’s taxable income is $15,500,000. d. SWK’s taxable income for the yea

> LNS corporation reports book income of $2,000,000. Included in the $2,000,000 is $15,000 of tax-exempt interest income. LNS reports $1,345,000 in ordinary and necessary business expenses. What is LNS Corporation’s taxable income for the year? &n

> Is a corporation’s choice of its tax year independent from its year-end for financial accounting purposes?

> Does a corporation pay the AMT in addition to or instead of the regular tax? Briefly explain.

> Compare and contrast the general rule for determining the amount of the charitable contribution if the corporation contributes capital gain property versus ordinary income property.

> Is a corporation allowed to carry a net operating loss forward if it has income in prior years that it could offset with a carryback? Explain.

> In its first year of existence (year 1), Willow Corp. (a C corporation) reported a loss for tax purposes of $30,000. In year 2 it reports a $40,000 loss. For year 3, it reports taxable income from operations of $100,000 before any loss carryovers. Usin

> Alice, the sole shareholder of QLP, decided that she would purchase a building and then lease it to QLP. She leased the building to QLP for $1,850 per month. However, the IRS determined that the fair market value of the lease payment should only be $1,60

> What is the tax base for the Social Security and Medicare taxes for an employee or employer? What is the tax base for Social Security and Medicare taxes for a self-employed individual? Is the self-employment tax in addition to or in lieu of federal incom

> Visit your state’s official Web site and review the information there related to forming and operating business entities in your state. Write a short report explaining the steps for organizing a business in your state and summarizing any tax-related info

> List four basic tax planning strategies that corporations and shareholders can use to mitigate double taxation of a C corporation’s taxable income.

> Assume Congress increases the dividend tax rate to the ordinary tax rate while leaving all other tax rates unchanged. How would this change affect the overall tax rate on corporate taxable income?

> Assume Congress increases individual tax rates on ordinary income while leaving all other tax rates unchanged. How would this change affect the overall tax rate on corporate taxable income? How would this change affect overall tax rates for owners of flo

> What types of business entities does the U.S. tax system recognize?

> Can unincorporated legal entities ever be treated as corporations for tax purposes? Can corporations ever be treated as flow-through entities for tax purposes? Explain.

> Why is it a nontax advantage for corporations to be able to trade their stock on the stock market?

> Why are C corporations still popular despite the double tax on their income?

> Explain how legal entities differ in terms of the liability protection they afford their owners.

> What happens to a C corporation’s net operating loss carryover after 20 years?

> Which is the largest tax collected by the U.S. government? What types of taxpayers are subject to this tax?

> When a C corporation reports a loss for the year, can shareholders use the loss to offset their personal income? Why or why not?

> If a corporation borrows money from a shareholder and pays the shareholder interest at a greater than market rate, how will the interest in excess of the market rate be treated by the IRS?

> How many levels of taxation apply to corporate earnings paid out as nonqualified fringe benefits? Explain.

> How many levels of taxation apply to corporate earnings paid out as qualified fringe benefits? Explain.

> Describe the circumstances in which a taxpayer acquires a home and rents it out and is not allowed to deduct a portion of the interest expense on the loan the taxpayer used to acquire the home.

> Paris participates in her employer’s nonqualified deferred compensation plan. For 2016, she is deferring 10 percent of her $320,000 annual salary. Assuming this is her only source of income and her marginal income tax rate is 30 percent, how much

> Marissa participates in her employer’s nonqualified deferred compensation plan. For 2016, she is deferring 10 percent of her $320,000 annual salary. Assuming this is her only source of income and her marginal income tax rate is 30 percent, how mu

> What types of retirement plans are available to self-employed taxpayers?

> What are the primary tax differences between traditional IRAs and Roth IRAs?

> Are companies allowed to decide who can and who cannot participate in nonqualified deferred compensation plans? Briefly explain.

> Name three common types of income shifting.

> Can employers match employee contributions to Roth 401(k) plans? Explain.

> What are the differences between a traditional 401(k) and Roth 401(k) plan?

> What nontax factor(s) should an employee consider when deciding whether and to what extent to participate in an employer’s 401(k) plan?

> When may employees begin to receive defined contribution plan distributions without penalty?

> Describe how an employee’s benefit under a defined contribution plan is determined.

> Describe the maximum annual benefit that taxpayers may receive under defined benefit plans.

> What does it mean to vest in a defined benefit or defined contribution plan?

> Meg works for Freedom Airlines in the accounts payable department. Meg and all other employees receive free flight benefits (for the employee, family, and 10 free buddy passes for friends per year) as part of their employee benefits package. If Meg uses

> Brady graduated from SUNY New Paltz with his bachelor’s degree recently. He works for Makarov & Company CPAs. The firm pays his tuition ($10,000 per year) for him so that he can receive his Masters of Science in Taxation which will qualify hi

> Lynette is the CEO of publicly traded TTT Corporation and earns a salary of $200,000 in the current year. Assume TTT has a 35 percent marginal tax rate. What is TTT Corporation’s after-tax cost of paying Lynette’s salary excluding FICA taxe

> Laura Li, a U.S. resident, works for three months this summer in Hong Kong. What type of tax authority may be especially useful in determining the tax consequences of her foreign income?

> From an employer perspective, how are incentive stock options treated differently than nonqualified stock options for tax purposes? In general, for a given number of options, which type of stock option should employers prefer?

> Longhaul Trucking traded two small trucks (each had a 10,000-pound gross weight) for one large truck (18,000-pound gross weight). Do the trucks qualify as like-kind property to Longhaul? (Hint: because the trucks are tangible personal property they must

> Lassen Corporation sold a machine to a machine dealer for $25,000. Lassen bought the machine for $55,000 and has claimed $15,000 of depreciation expense on the machine. What gain or loss does Lassen realize on the transaction?  

> Shasta Corporation sold a piece of land to Bill for $45,000. Shasta bought the land two years ago for $30,600. What gain or loss does Shasta realize on the transaction?  

> Gary inherited a Maine summer cabin on 10 acres from his grandmother. His grandparents originally purchased the property for $500 in 1950 and built the cabin at a cost of $10,000 in 1965. His grandfather died in 1980 and when his grandmother recently pas

> Meg O’Brien received a gift of some small-scale jewelry manufacturing equipment that her father had used for personal purposes for many years. Her father originally purchased the equipment for $1,500. Because the equipment is out of production and no lon

> On November 1 of year 0, Jaxon borrowed $50,000 from Bucksnort Savings and Loan for use in his business. In December, Jaxon paid interest of $4,500 relating to the 12-month period from November of year 0 through October of year 1. a. How much interest,

> Christopher is a cash-method, calendar-year taxpayer, and he made the following cash payments related to his business this year. Calculate the after-tax cost of each payment assuming he has a 30 percent marginal tax rate. a. $500 fine for speeding whi

> Indicate the amount (if any) that Michael can deduct as ordinary and necessary business deductions in each of the following situations and explain your solution. a. From time to time, Michael rents a dump truck for his business. While hauling gravel to

> Manny hired his brother’s firm to provide accounting services to his business. During the current year, Manny paid his brother’s firm $82,000 for services even though other firms were willing to provide the same services for $40,000. How much of this exp

> Which is a more appropriate tax rate to use to compare taxpayers’ tax burdens – the average or the effective tax rate? Why?

> Describe why the IRS might be skeptical of permitting requests for changes in accounting method without a good business purpose?

> Describe how a business adopts a permissible accounting method. Explain whether a taxpayer can adopt an impermissible accounting method.

> Explain why Congress enacted the UNICAP rules and describe the burdens these rules place on taxpayers.

> Fred is considering using the accrual method for his next business venture. Explain to Fred the conditions for recognizing income for tax purposes under the accrual method.