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 backlog of orders. b. The Company has unfavorable temporary differences that will create future taxable income when they reverse. c. The Company has tax planning strategies that it can implement to create future taxable income. d. The Company has cumulative net income over the current and prior two years. e. The Company had a net operating loss carryover expire in the current year.
> What distinguishes operating from liquidating distributions?
> Absent any special elections, what effect does a sale of partnership interest have on the partnership?
> Under what circumstances can a partner recognize both gain and loss on the sale of a partnership interest?
> How do hot assets affect the character of gain or loss on the sale of a partnership interest?
> For an accrual-method partnership, are accounts receivable considered unrealized receivables? Explain.
> Under what circumstances will the gain or loss on the sale of a partnership interest be characterized as ordinary rather than capital?
> The president recently vetoed a tax act passed by the House and Senate. Is the tax act dead? If not, what will it take for the act to be passed?
> Joey is a 25% owner of Loopy LLC. He no longer wants to be involved in the business. What options does Joey have to exit the business?
> Larry’s tax basis in his partnership interest at the beginning of the year was $10,000. If his share of the partnership debt increased by $10,000 during the year and his share of partnership income for the year is $3,000, what is his tax basis in
> Broken Rock LLC was recently formed with the following members: What is the required taxable year-end for Broken Rock LLC? Name Tax Year End Capital/Profits % George Allen Elanax Corp. December 31 33.33% June 30 33.33% Ray Kirk December 31 33.34%
> Breslin, Inc. made a capital contribution of investment property to its 100 percent-owned subsidiary, Crisler Company. The investment property had a fair market value of $3,000,000 and a tax basis to Breslin of $2,225,000. a. What are the tax consequence
> Under what circumstances will a liquidating corporation be allowed to recognize loss in a non-pro rata distribution?
> Under what circumstances does a corporate shareholder receive tax deferral in a complete liquidation?
> Explain whether all shareholders receive the same tax treatment in a complete liquidation of a corporation.
> Why do the shareholders of the target corporation usually prefer to sell the stock of the target corporation to the acquiring corporation?
> Are the tax consequences the same whether a shareholder contributes property to a corporation in a §351 transaction or as a capital contribution?
> Explain whether the receipt of boot by the shareholder in a §351 transaction causes the transaction to be fully taxable.
> What are the five basic parts of an internal research memo?
> List the key statutory requirements that must be met before a corporate formation is tax-deferred under §351.
> Why does Congress allow tax deferral on the formation of a corporation?
> Contrast how a taxpayer’s tax basis in property received in a property transaction will be affected if the transaction results in gain exclusion versus gain deferral.
> Distinguish between exclusion and deferral as it relates to a property transaction.
> Wolverine Corporation made a distribution of $500,000 to Jim Har, Inc. in partial liquidation of the company on December 31 of this year. Jim Har, Inc. owns 100% of Wolverine Corporation. The distribution was in exchange for 50% of Jim Har, Inc.’s stock
> Using the facts from the previous problem, Oriole Corporation proposes to pay Larry $100,000 and give him an installment note that will pay him $30,000 per year for the next 10 years plus a market rate of interest. Will this arrangement allow Larry to tr
> Paladin, Inc. reported taxable income of $1,000,000 this year and paid federal income taxes of $340,000. The company reported a capital gain from sale of investments of $150,000, which was partially offset by a $100,000 net capital loss carryover from
> Gator, Inc. reported taxable income of $1,000,000 this year and paid federal income taxes of $340,000. Included in the company’s computation of taxable income is gain from sale of a depreciable asset of $50,000. The income tax basis of the asset
> Boilermaker, Inc. reported taxable income of $500,000 this year and paid federal income taxes of $170,000. Not included in the company’s computation of taxable income is tax-exempt income of $20,000, disallowed meals and entertainment expenses of
> This year Jolt Inc. reported $40,000 of taxable income before any charitable contribution deduction. Jolt contributed $10,000 this year to Goodwill Industries, a public charity. Compute the company’s current E&P. Taxable income before charit
> What is an ad valorem tax? Name an example of this type of tax.
> Hawkeye Company reports current E&P of $300,000 this year and accumulated E&P at the beginning of the year of $200,000. Hawkeye distributed $400,000 to its sole shareholder, Ray Kinsella, on December 31 of this year. Ray’s tax basis in his Hawkeye stock
> Bulldog Corporation reported taxable income of $500,000 this year before any deduction for any payment to its sole shareholder and employee, Georgia Brown. Bulldog chose to pay a bonus of $100,000 to Georgia at year-end. Bulldog Corporation is subject
> Gopher Corporation reported taxable income of $500,000 this year. Gopher paid a dividend of $100,000 to its sole shareholder, Sven Anderson. Gopher Corporation is subject to a flat rate tax of 34%. The dividend meets the requirements to be a qualified
> What must a shareholder consider in computing the amount of a noncash distribution to include in gross income?
> True or False: A calendar-year corporation has positive current E&P of $100 and an accumulated deficit (negative) E&P of $200. A cash distribution of $100 to the corporation’s sole shareholder at year-end will not be treated as a dividend because total E
> In general, what is the concept of earnings and profits designed to represent?
> Why might a shareholder who is also an employee prefer receiving a dividend instead of compensation from a corporation?
> What is meant by the term double taxation of corporate income?
> How does the tax treatment of a partial liquidation differ from a stock redemption?
> Ilya and Olga are brother and sister. Ilya owns 200 shares of stock in Parker Corporation. Is Olga deemed to own Ilya’s 200 shares under the family attribution rules that apply to stock redemptions?
> What is the difference between a sales tax and a use tax?
> Which members of a family are included in the family attribution rules? Is there any rationale for the family members included in the test?
> Why do you think the tax law imposes constructive stock ownership rules on stock redemptions?
> When might a shareholder have to rely on the not essentially equivalent to a dividend test in arguing a stock redemption should be treated as an exchange for tax purposes?
> 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
> 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.
> What role do a corporation’s audited financial statements play in determining its taxable income?
> 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?
