Full Test Bank Chapter 5 Spilker Corporate Operations

Taxation of Business Entities, 11e (Spilker)

Chapter 5 Corporate Operations

1) In general, all C corporations can elect to use either the accrual or cash method of accounting.

2) Corporations calculate adjusted gross income (AGI) in the same way as individuals.

3) Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.

4) C corporations with annual average gross receipts of $26 million or more are allowed to use the cash method of accounting for at least the first two years of their existence.

5) Although a corporation may report a temporary book–tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.

6) An unfavorable temporary book–tax difference is so named because it causes taxable income to decrease relative to book income.

7) Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book–tax difference.

8) Federal income tax expense reported on a corporation's books generates a temporary book–tax difference for Schedule M-3 purposes.

9) For a corporation, goodwill created in an asset acquisition generally leads to temporary book–tax differences.

10) For incentive stock options, the value of the options that accrue in a given year always creates a permanent, unfavorable book–tax difference.

11) In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes. Adams has a favorable temporary book–tax difference for that year.

12) For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are exercised.

13) A nonqualified stock option will create a permanent book–tax difference in a given year if it accrues during the year but is exercised in a later year.

14) For tax purposes, a corporation may deduct the entire amount of a net capital loss in the year incurred.

15) A corporation may carry a net capital loss forward five years to offset capital gains in future years but it may not carry a net capital loss back to offset capital gains in previous years.

16) A corporation may carry a net capital loss back two years and forward 20 years.

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

18) Corporations may carry a net operating loss sustained in 2019 back two years and forward 20 years.

19) Bingo Corporation incurred a $10 million net operating loss in 2019. Bingo reported taxable income of $12 million in 2020. Bingo can offset the entire $10 million NOL carryover against taxable income in 2020.

20) Net operating losses generally create permanent book–tax differences.

21) Net capital loss carryovers are deductible against capital gains in determining a corporation's net operating loss for the year.

22) For 2019, accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity.

23) GenerUs Inc.'s board of directors approved a charitable cash contribution to FoodBank, a qualified nonprofit organization, in November of 2019. GenerUs made the payment to FoodBank on February 2, 2020. GenerUs Inc. (a calendar-year corporation) may claim a deduction for the contribution on its 2019 tax return.

24) NOL and capital loss carryovers are deductible in calculating the charitable contribution limit modified taxable income, while capital loss carrybacks are not.

25) Corporations may carry excess charitable contributions forward five years, but they may not carry them back.

26) A corporation generally will report a favorable, temporary book–tax difference when it deducts a charitable contribution carryover.

27) Corporations are not allowed to deduct charitable contributions in excess of 10 percent of the corporation's taxable income (before the charitable contribution and certain other deductions).

28) The dividends received deduction is designed to mitigate the extent to which corporate earnings are subject to more than two levels of taxation.

29) Corporations compute their dividends received deduction by multiplying the dividend amount by 10 percent, 50 percent, or 100 percent, depending on their ownership in the distributing corporation's stock.

30) The dividends received deduction cannot create a net operating loss. The deduction can reduce income to zero but not below zero.

31) The dividends received deduction is subject to a limitation based on modified taxable income.

32) Taxable income of all C corporations is subject to a flat 21 percent tax rate.

33) A C corporation reports its taxable income or loss on Form 1065.

34) 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).

35) Both Schedules M-1 and M-3 require taxpayers to identify book–tax differences as either temporary or permanent.

36) An affiliated group must file a consolidated tax return.

37) The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes.

38) Calendar-year C corporations that request an extension for filing their 2019 tax returns will have a tax return due date of October 15.

39) Volos Company (a calendar-year corporation) began operations in March of 2017 and was not profitable through December of 2018. Volos has been profitable for the first quarter of 2019 and is trying to determine its first quarter estimated tax payment. It will have no estimated tax payment requirement in 2019 because it had no tax liability for the 2018 tax year and has been in business for at least 12 months.

40) Most corporations use the annualized income method to determine their required annual payment for purposes of making quarterly estimated payments.

41) Large corporations (corporations with more than $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.

42) For estimated tax purposes, a "large" corporation is any corporation with average annual gross receipts of $5,000,000 in the three years prior to the current year.

43) Which of the following is not calculated in the corporate income tax formula?

A) Gross income.

B) Adjusted gross income.

C) Taxable income.

D) Regular tax liability.

44) WFO Corporation has gross receipts according to the following schedule:

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?

A) Year 3.

B) Year 4.

C) Year 5.

D) Year 6.

E) None of the choices are correct.

45) Which of the following does NOT create a permanent book–tax difference?

A) Organizational and start-up expenses.

B) Key employee death benefit income.

C) Fines and penalties expenses.

D) Municipal bond interest income.

46) Which of the following does NOT create a temporary book–tax difference?

A) Deferred compensation.

B) Bad-debt expense.

C) Depreciation expense.

D) Dividends received deduction.

47) Which of the following statements regarding book–tax differences is true?

A) Corporations are not required to report book–tax differences on their income tax returns.

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

C) Income excludable for tax purposes usually creates a temporary book–tax difference.

D) None of the choices are correct.

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

A) Temporary book–tax differences affect the computation of taxable income whereas permanent differences do not.

B) All corporations are required to disclose book–tax differences as permanent or temporary on their tax returns.

C) Temporary book–tax differences will reverse in future years whereas permanent differences will not.

D) Neither temporary nor permanent book–tax differences will reverse in future years.

49) TrendSetter Inc. paid $50,000 in premiums for life insurance coverage for its key employees for which TrendSetter Inc. is the beneficiary. What is the nature of the book–tax difference created by this expense?

A) Permanent; favorable.

B) Permanent; unfavorable.

C) Temporary; favorable.

D) Temporary; unfavorable.

50) iScope Inc. paid $3,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book–tax difference relating to this expense?

A) Permanent; favorable.

B) Permanent; unfavorable.

C) Temporary; favorable.

D) Temporary; unfavorable.

51) AmStore Inc. sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation and expensing 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?

A) Permanent; favorable.

B) Permanent; unfavorable.

C) Temporary; favorable.

D) Temporary; unfavorable.

52) 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) A owns less than 20 percent of the stock of B.

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

C) A owns more than 50 percent of the stock of B.

D) Cannot be determined.

53) 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) A owns less than 20 percent of the stock of B.

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

C) A owns more than 50 percent of the stock of B.

D) Cannot be determined.

54) Coop Inc. owns 40 percent of Chicken Inc. Both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in the current year. Chicken also reports financial accounting earnings of $20,000 for that year. Assume Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book–tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction)?

A) $2,000 unfavorable.

B) $2,000 favorable.

C) $10,000 unfavorable.

D) $10,000 favorable.

E) None of the choices are correct.

55) Over what time period do corporations amortize purchased goodwill for tax purposes?

A) 180 months.

B) 150 months.

C) 60 months.

D) None of the choices are correct.

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

A) It is possible to have no book–tax difference in a year when there is no goodwill amortization for tax purposes.

B) In a year when goodwill is impaired and yet fully amortized for tax purposes (so no tax amortization of the goodwill for that year), the book–tax difference will be unfavorable.

C) Temporary book–tax differences associated with goodwill are always favorable.

D) If goodwill has been fully amortized for tax purposes in a previous year, the book–tax difference is equal to the amount of impairment recognized.

57) Which of the following describes the correct treatment of incentive stock options (ISOs)?

A) Financial accounting—no expense; tax—no deduction.

B) Financial accounting—no expense; tax—deduct bargain element at exercise.

C) Financial—expense value over vesting period; tax—no deduction.

D) Financial—expense value over vesting period; tax—deduct bargain element at exercise.

58) Which of the following describes the correct treatment of the exercise of nonqualified stock options (NQOs)?

A) Financial—no expense; tax—no deduction.

B) Financial—no expense; tax—deduct bargain element at exercise.

C) Financial—expense value over vesting period; tax—no deduction.

D) Financial—expense value over vesting period; tax—deduct bargain element at exercise.

59) Which of the following statements regarding nonqualified stock options (NQOs) is false?

A) Book–tax differences associated with NQOs may be either permanent or temporary.

B) If the value of the options that accrue is greater than the bargain element of options exercised, the book–tax difference for that year is unfavorable.

C) No expense recognition is required for NQOs for financial accounting purposes.

D) All stock option–related book–tax differences are temporary.

60) Which of the following statements regarding incentive stock options (ISOs) is false?

A) ISO-related compensation expense creates permanent book–tax differences.

B) Book–tax differences related to ISO-related compensation expense are always unfavorable.

C) The ISO-related compensation expense is recorded for book purposes as the ISO vests.

D) Book–tax differences associated with ISO-related compensation expenses can be either permanent or temporary.

61) Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total). The options vest over two years—half in 2019 (the year of issue) and half in 2020. One thousand options are exercised in 2020 with a bargain element on each option of $6. What is the 2020 book–tax difference associated with the stock options?

A) $14,000 unfavorable.

B) $6,000 favorable.

C) $24,000 unfavorable.

D) $24,000 favorable.

E) None of the choices are correct.

62) In January 2018, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company did not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2019, the company experienced a surge in its stock price, and Ms. Svaro exercised the options. The total bargain element at the time of exercise was $60,000. For 2019, what is the book–tax difference due to the options exercised?

A) $10,000 unfavorable.

B) $10,000 favorable.

C) $50,000 unfavorable.

D) $60,000 favorable.

63) In January 2019, Khors Company issued nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2019, the company experienced a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $40,000. For 2019, what is the nature of the book–tax difference due to the options exercised?

A) Favorable and temporary.

B) Favorable and permanent.

C) Unfavorable and temporary.

D) Unfavorable and permanent.

E) Not enough information to determine.

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

A) In terms of tax treatment, corporations generally prefer capital gains to ordinary income.

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

C) C corporations can carry back net capital losses three years and they can carry them forward for five years.

D) Corporations must apply capital loss carrybacks and carryovers in a particular order.

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

A) A corporation that experiences a net capital loss has a favorable book–tax difference in the year of the loss.

B) A corporation that experiences a net capital loss in Year 4 first carries the loss back to Year 3, then Year 2, and then Year 1 before carrying it forward.

C) Net capital loss carrybacks are deductible in determining a corporation's net operating loss.

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

66) Studios reported a net capital loss of $30,000 in Year 5. It reported net capital gains of $14,000 in Year 4 and $27,000 in Year 6. What is the amount and nature of the book–tax difference in Year 6 related to the net capital carryover?

A) $11,000 unfavorable.

B) $11,000 favorable.

C) $16,000 unfavorable.

D) $16,000 favorable.

67) Tatoo Inc. reported a net capital loss of $13,000 in 2019. The company had a net capital gain of $4,300 in 2017 and $3,000 in 2016. In 2018, although the company suffered a net operating loss, it had net capital gains of $1,000. What is the amount of Tatoo's capital loss carryover remaining after it applies the carryback?

A) $4,700.

B) $5,700.

C) $8,700.

D) $13,000.

68) BTW Corporation has taxable income in the current year that can be offset with an NOL carryover 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?

A) Permanent; favorable.

B) Permanent; unfavorable.

C) Temporary; favorable.

D) Temporary; unfavorable.

69) Which of the following is allowable as a deduction in calculating a corporation's net operating loss?

A) Charitable contribution deduction.

B) Net capital loss carryback.

C) Net operating loss carryover from other years.

D) Both charitable contribution deduction and net operating loss carryover from other years are deductible in computing the current-year NOL.

70) Which of the following statements regarding net operating losses generated in 2020 is true?

A) Corporations can carry NOLs back two years and forward up to 20 years.

B) A corporation can carry over the NOL indefinitely.

C) A corporation can carry NOLs back two years and forward indefinitely.

D) When a corporation applies a net operating loss carryover, it reports a favorable, permanent book–tax difference in the amount of the applied carryover.

E) None of these is a true statement.

71) Which of the following statements regarding charitable contributions is false?

A) Only contributions made to qualified charitable organizations are deductible.

B) Charitable contribution deductions are subject to a limitation based on the corporation's taxable income (before certain deductions).

C) Corporations can qualify to deduct a contribution before actually paying the contribution to the charity.

D) The amount deductible for noncash contributions is always the adjusted basis of the property donated.

72) Which of the following is not required to allow an accrual-method corporation to deduct charitable contributions before actually paying the contribution to charity?

A) Approval of the payment from the board of directors.

B) Approval from the IRS prior to making the contribution.

C) Payment made within three and one-half months of the tax year-end.

D) All of the choices are necessary.

73) Which of the following is deductible in calculating the charitable contribution limit modified taxable income?

A) Net capital loss carrybacks.

B) Dividends received deduction.

C) NOL carryovers.

D) Charitable contributions.

74) 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?

A) $6,000 current-year deduction; $1,500 carryover.

B) $7,500 current-year deduction; $0 carryover.

C) $1,200 current-year deduction; $6,300 carryover.

D) $7,200 current-year deduction; $300 carryover.

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

A) Permanent; favorable.

B) Permanent; unfavorable.

C) Temporary; favorable.

D) Temporary; unfavorable.

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

A) Corporations may not carry over or carry back excess charitable contributions.

B) Corporations can carry excess charitable contributions over to a future year or back to a prior year.

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

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

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

A) Dividends are taxed at preferential rates for corporations as well as for individuals.

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

C) Corporations are allowed to deduct from a dividend received the product of the dividend and the percentage of the receiving corporation's ownership in the distributing corporation's stock.

D) The DRD allows corporations to deduct the amount of dividends that they distribute.

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

A) Charitable contribution deduction.

B) Net capital loss carrybacks.

C) NOL carryovers.

D) Dividends received deduction.

79) Jazz Corporation owns 50 percent 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.?

A) $0.

B) $5,000.

C) $6,500.

D) $10,000.

80) Jazz Corporation owns 10 percent 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.?

A) $0.

B) $4,000.

C) $5,000.

D) $6,500.

E) None of the choices are correct.

81) Jazz Corporation owns 10 percent 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.?

A) $0.

B) $2,000.

C) $4,000.

D) $5,000.

E) None of the choices are correct.

82) For Corporation P to file a consolidated tax return with Corporation S, P must own what percentage of P's voting stock?

A) 100 percent.

B) 80 percent.

C) More than 50 percent.

D) 50 percent or more.

83) Which of the following regarding Schedule M-1 and Schedule M-3 of Form 1120 is false?

A) In general, smaller corporations are required to complete Schedule M-1 while larger corporations are required to complete Schedule M-3.

B) Schedule M-3 lists more book–tax differences than Schedule M-1.

C) Both Schedules M-1 and M-3 reconcile to a corporation's bottom line taxable income.

D) Schedule M-1 does not distinguish between temporary and permanent book–tax differences whereas Schedule M-3 does.

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

A) An affiliated group can file a consolidated tax return only if it elects to do so.

B) To file a consolidated tax return, one corporation must own at least 50 percent of the stock of another corporation.

C) For a group of corporations filing a consolidated tax return, an advantage is that losses of one group member may offset gains of another group member.

D) For a group of corporations filing a consolidated tax return, losses from certain intercompany transactions are deferred until realized through a transaction outside of the group.

85) What is the unextended due date of the tax return of a calendar-year C corporation for 2019?

A) February 15.

B) March 15.

C) April 15.

D) October 15.

86) Which of the following is not an acceptable method of determining the required annual payment of federal income tax for corporations?

A) 100 percent of the prior year's tax liability (with a few exceptions).

B) 100 percent of the current year's tax liability.

C) 100 percent of the estimated current-year tax liability using the annualized income method.

D) All of the choices are acceptable methods of determining the required annual payment of federal income tax for corporations.

87) Which of the following statements is false regarding corporate estimated tax payments?

A) The due dates for estimated tax payments are the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year.

B) Corporations must pay estimated taxes only if they have a federal income tax liability greater than $10,000 (including the alternative minimum tax).

C) Even though a corporation extends its tax return, it still must pay its tax liability for the year by three and one-half months after year-end.

D) Corporations using the annualized income method for determining estimated tax payments project their tax liability for the year based on income from the first, second, and third quarters.

88) Omnidata uses the annualized income method to determine its quarterly federal income tax payments. It had $100,000, $50,000, and $90,000 of taxable income for the first, second, and third quarters, respectively ($240,000 in total through the first three quarters). What is Omnidata's annual estimated taxable income as of the end of the third quarter?  

A) $300,000.

B) $320,000.

C) $400,000.

D) $480,000.

89) Rapidpro Inc. had more than $1,000,000 of taxable income two years prior to the current year. It would like to use its prior-year tax liability (which was very low but above zero) to determine its quarterly estimated payments this year. Which of the following statements is true?

A) Rapidpro may use the prior-year tax liability to determine its first and second quarter estimated tax payments only since it is a large corporation.

B) To avoid penalty, the second quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its first quarter estimated taxable income (assume it does not rely on its current-year actual tax liability to determine its estimated tax payment).

C) To avoid penalty, the third quarter estimated payment must be large enough to cover 50 percent of its estimated annual tax liability annualized from its third quarter estimated taxable income (assume it does not rely on its current-year actual tax liability to determine its estimated tax payment).

D) None of the choices are correct.

90) In 2019, AutoUSA Inc. reported $4,600,000 of book income, including $20,000 of interest income from tax-exempt bonds. AutoUSA reported $3,600,000 of regular business expenses. If it made $210,000 of estimated tax payments (prepayments) throughout the tax year, what is its tax due or tax refund when it files its return?

91) For book purposes, RadioAircast Inc. reported $15,000 of income from municipal bonds in 2018. It also expensed $12,000 of radio station filing fines paid to the FCC the same year. What is the total book–tax difference associated with these items? Is it favorable or unfavorable? What amount of the total adjustment is permanent and what amount is temporary?

92) In 2019, US Sys Corporation received $250,000 in death benefits after its CEO (a key employee) died (it included this amount in book income). For book purposes, US Sys also expensed life insurance premiums for other key employees in the amount of $20,000. In addition, for book purposes, it expensed $10,000 of business meals expenditures. What is the total book–tax difference associated with these items? Is it favorable or unfavorable? What amount of the book–tax difference is temporary and what amount is permanent?

93) In 2019, Carbonfab Manufacturers Inc. expensed $125,000 of depreciation for book purposes, but for tax purposes, it deducted $179,000. Carbonfab also sold equipment for $500,000. The book-adjusted basis of the equipment sold was $350,000, while the adjusted basis for tax purposes was $210,000. What is the total book–tax difference associated with depreciation and the gain on sale? Is it favorable or unfavorable? What amount of the book–tax difference is permanent and what amount is temporary?

94) Atom Ventures Inc. (AV) owns stock in the Primo and Faraday corporations. The following summarizes information relating to AV's investment in Primo and Faraday as follows:

Assuming that AV follows the general rules for reporting its income from these investments, what is the amount of AV's book–tax difference associated with the investment in these corporations (disregarding the dividends received deduction)? Is it favorable or unfavorable? Is it permanent or temporary?

95) On January 1, 2017, Credit Inc. recorded goodwill valued at $270,000 when it acquired the assets of another company. At the end of 2018, the auditors of Credit Inc. determined that the goodwill had been impaired by $50,000, and Credit Inc. wrote down the book value of the goodwill by $50,000. During 2019, the goodwill was not further impaired. In 2020, additional goodwill was impaired and was written down another $18,000 for financial reporting purposes. What is the temporary book–tax difference associated with the purchased goodwill in 2018, 2019, and 2020? Are the differences favorable or unfavorable? Are the differences permanent or temporary?

96) On January 1, 2018, GrowCo issued 50,000 nonqualified stock options (NQOs) valued at $1 per option. Each option entitles the owner to purchase one share of stock for $4. These options vest (accrue) at 20 percent per year for five years beginning in 2018. By the end of 2018, 20,000 of the options had vested. At the end of 2019, these options were exercised when the stock price is $6.25. What is the total book–tax difference associated with the stock options for 2019? Is it favorable or unfavorable? How much of the adjustment is permanent and how much is temporary?

97) Imperial Construction Inc. (IC) issued 100,000 incentive stock options (ISOs) to its employees on January 1, 2018, with an estimated value of $5.50 per option. The options vest (accrue) at 25 percent per year for four years (beginning in 2019). Each option allows the holder to purchase one share of stock at $8. On January 1, 2020, employees exercised 12,500 options as IC's stock price reached $14.72. What is the amount of the book–tax difference in 2020 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

98) Pure Action Cycles Inc., a bicycle manufacturer, has a net capital loss in 2019 of $(64,000). It had net capital gains of $21,500 in 2018, $45,000 in 2017, $10,000 in 2016 (but suffered a net operating loss in 2016), and $8,000 of net capital gain in 2015. What is the net capital gain in 2018 after the carryback is applied?

99) During 2019, Hughes Corporation sold a portfolio of stock it had held for five years at a loss of $200,000. It also sold some investment land and recognized a capital gain of $180,000. In 2017, Hughes reported a net capital gain of $12,000 and in 2018 it recognized a net capital gain of $6,000. What is the amount of its net capital loss carryover to 2020?

100) In 2019, 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?

101) In 2019, Datasoft Inc. received $350,000 in dividends from CSLabs Inc. Datasoft's taxable income before the dividends received deduction and $20,000 charitable contribution deduction is $300,000. What is Datasoft's DRD assuming it owns 15 percent of the CSLabs Inc. stock?

102) AB Inc. received a dividend from CD Corporation and is able to claim a dividends received deduction without limitation. AB owns 10 percent of CD. What is AB's marginal tax rate (to the nearest tenth of a percent) on the dividends received (after taking the DRD into account)?

103) In 2019, 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 percent. 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 2019? 

104)  Netgate Corporation's gross regular tax liability for 2019 was $189,000. What was its taxable income?

105) AR Systems Inc. (AR) had $120,000 of tax liability last year. It anticipates a current-year tax liability of $500,000. Assuming AR is considered a large corporation for purposes of estimating tax liability, what are the minimum estimated tax payments it should make to avoid underpayment penalties? Ignore the annualized income method.

106) In the current year, Auto Rent Corporation reported the following taxable income at the end of its first, second, and third quarters: (Use Exhibit 16-10)

What amount of estimated tax payments would Auto Rent pay each quarter to avoid estimated tax penalties under the annualized income method of computing estimated tax payments?