Chapter 16 Corporate Operations True / False Questions In general, a corporation can elect to use either the accrual or cash method of accounting no matter how large the corporation True False Corporations calculate adjusted gross income (AGI) in the same way as individuals True False Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues True False Large corporations are allowed to use the cash method of accounting for at least the first two years of their existence True False 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 True False An unfavorable temporary book-tax difference is so named because it causes taxable income to decrease relative to book income True False Income that is included in book income, but excluded from taxable income, results in a favorable, permanent book-tax difference True False Federal income tax expense reported on a corporation's books generates a temporary book-tax difference for Schedule M-3 purposes True False 16-1 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education For a corporation, goodwill created in an asset acquisition generally leads to temporary book-tax differences True False 10 In a given year, Adams Corporation has goodwill impairment in excess of the allowable amortization for tax purposes It has a favorable temporary book-tax difference for that year True False 11 For incentive stock options granted when ASC 718 (a codification of FAS 123R) applies, the value of the options that vest in a given year always creates a permanent, unfavorable book-tax difference True False 12 For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are exercised True False 13 A nonqualified stock option will create a permanent book-tax difference in a given year if it vests during the year but is exercised in a later year True False 14 In contrast to an individual, a corporation may deduct the entire amount of a net capital loss True False 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 True False 16 A corporation may carry a net capital loss back two years and forward 20 years True False 17 A corporation may carry a net capital loss back three years and forward five years True False 18 Corporations can carry net operating loss sustained in 2014 back two years and forward 20 years True False 16-2 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 19 Bingo Corporation incurred a net operating loss in 2014 If it carries the loss back, it must first carry the loss back to offset its 2013 taxable income and then it carries any remaining loss back to offset its 2012 taxable income True False 20 Net operating losses generally create permanent book-tax differences True False 21 Net capital loss carryovers but not carrybacks are deductible against capital gains in determining a corporation's net operating loss for the year True False 22 Accrual-method corporations cannot deduct charitable contributions until they actually make payment to the charity True False 23 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 True False 24 NOL and capital loss carryovers are deductible in calculating the charitable contribution limit modified taxable income, while NOL and capital loss carrybacks are not True False 25 Corporations may carry excess charitable contributions forward five years, but they may not carry them back True False 26 A corporation generally will report a favorable, temporary book-tax difference when it deducts a charitable contribution carryover True False 27 Corporations are not allowed to deduct charitable contributions in excess of 10% of the corporation's taxable income (before the charitable contribution and certain other deductions) True False 28 The dividends received deduction is designed to mitigate the extent to which corporate earnings are subject to more than two levels of taxation True False 16-3 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 29 Corporations compute their dividends received deduction by multiplying the dividend amount by 10%, 50%, or 100% depending on their ownership in the distributing corporation's stock True False 30 The dividends received deduction cannot cause a net operating loss The deduction can reduce income to zero but not below zero True False 31 The dividends received deduction is subject to a limitation based on modified taxable income True False 32 Taxable income of the most profitable corporations is subject to a flat 35% tax rate True False 33 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 True False 34 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 True False 35 A C corporation reports its taxable income or loss on Form 1065 True False 36 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) True False 37 Both Schedules M-1 and M-3 require taxpayers to identify book-tax differences as either temporary or permanent True False 38 An affiliated group must file a consolidated tax return True False 39 The rules for consolidated reporting for financial statement purposes are the same as the rules for consolidated reporting for tax purposes True False 16-4 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 40 Calendar-year corporations that request an extension for filing their tax returns will have a tax return due date of September 15 True False 41 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 True False 42 Most corporations use the annualized income method to determine their required annual payment for purposes of making quarterly estimated payments True False 43 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 True False 44 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 True False 45 Small corporations (in terms of average annual gross receipts) are exempt from the alternative minimum tax True False 46 Urban Corporation receives tax-exempt income from Denver municipal bonds All the proceeds from the bonds were used to fund public projects In computing its AMT base, Urban must add back the interest income from its municipal bonds to taxable income True False 47 Depreciation adjustments can increase or decrease the AMT base relative to taxable income True False 48 The tax rate for the corporate alternative minimum tax is a flat 26% True False 49 The adjusted current earnings (ACE) adjustment is 75% of the difference between a corporation's alternative minimum taxable income before the ACE adjustment and its ACE True False 16-5 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 50 Corporations are allowed to deduct at least some AMT exemption regardless of profitability True False 51 A corporation with an AMTI of $400,000 will have all of its AMT exemption phasedout True False 52 Minimum tax credits generated by the corporate AMT can be carried forward indefinitely True False 53 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 True False 54 The amount of a corporation's AMT is the amount of its tentative minimum tax in excess of its regular tax True False Multiple Choice Questions 55 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 16-6 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 56 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 B Year C Year D Year E None of these 57 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 58 Which of the following does NOT create a temporary book-tax difference? A Deferred compensation B Bad-debt expense C Depreciation expense D Domestic production activities deduction 16-7 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 59 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 these is true 60 It is important to distinguish between temporary and permanent book-tax differences for which of the following reasons? A Temporary book-tax differences will reverse in future years whereas permanent differences will not B Certain 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, and certain corporations are required to disclose book-tax differences as permanent or temporary on their tax returns D Neither temporary nor permanent book-tax differences will reverse in future years nor are certain corporations required to disclose book-tax differences as permanent or temporary on their tax returns 61 TrendSetter Inc paid $50,000 in premiums for life insurance coverage for its key employees 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 62 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 16-8 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 63 AmStore Inc sold some of its heavy machinery at a gain AmStore used the straightline method for financial accounting depreciation and MACRS 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 64 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 65 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 16-9 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 66 Coop Inc owns 40% of Chicken Inc., both Coop and Chicken are corporations Chicken pays Coop a dividend of $10,000 in 2014 Chicken also reports financial accounting earnings of $20,000 for that year Assume that 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 these 67 Over what time period corporations amortize purchased goodwill for tax purposes? A 180 months B 150 months C 60 months D None of these 68 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 booktax difference is equal to the amount of impairment recognized 16-10 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 124 Imperial Construction Inc (IC) issued 100,000 incentive stock options (ISOs) to its employees on January 1, 2014 with an estimated value of $5.50 per option The options vest at 25 percent per year for four years (beginning in 2014) Each option allows the holder to purchase one share of stock at $8 On January 1, 2015, employees exercised 12,500 options as IC's stock price reached $14.72 What is the amount of the book-tax difference in 2015 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent? $137,500 unfavorable, permanent book-tax difference Feedback: AACSB: Analytic AACSB: Reflective Thinking AICPA: BB Critical Thinking Blooms: Apply Learning Objective: 16-02 Identify common book-tax differences; distinguish between permanent and temporary differences; and compute a corporation's taxable income and regular tax liability Level of Difficulty: Easy Topic: Computing corporate regular taxable income 16-94 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 125 Pure Action Cycles Inc., a bicycle manufacturer, has a net capital loss in 2014 of $64,000 It had net capital gains of $21,500 in 2013, $45,000 in 2012, $10,000 in 2011 (but suffered a net operating loss in 2011), and $8,000 of net capital gain in 2010 What is the net capital gain in 2013 after the carryback is applied? $2,500 capital gain, computed as follows: AACSB: Analytic AACSB: Reflective Thinking AICPA: BB Critical Thinking Blooms: Apply Learning Objective: 16-02 Identify common book-tax differences; distinguish between permanent and temporary differences; and compute a corporation's taxable income and regular tax liability Level of Difficulty: Hard Topic: Computing corporate regular taxable income 16-95 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 126 In 2011, Smith Traders Inc reported taxable income of $100,000 In 2012, it reported taxable income of $15,000 In 2013, it reported taxable income of $95,000 In 2014, Smith Traders experienced a net operating loss of $25,000 What amount of refund can Smith Traders receive if it does not elect to forgo the carry back (see the corporate income tax schedule)? $5,650, computed as follows: AACSB: Analytic AACSB: Reflective Thinking AICPA: BB Critical Thinking Blooms: Apply Learning Objective: 16-02 Identify common book-tax differences; distinguish between permanent and temporary differences; and compute a corporation's taxable income and regular tax liability Level of Difficulty: Medium Topic: Computing corporate regular taxable income 16-96 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 127 During 2014, 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 2012, Hughes reported a net capital gain of $12,000 and in 2013 it recognized a net capital gain of $6,000 What is the amount of its net capital loss carryover to 2015? $2,000, computed as follows: AACSB: Analytic AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Learning Objective: 16-02 Identify common book-tax differences; distinguish between permanent and temporary differences; and compute a corporation's taxable income and regular tax liability Level of Difficulty: Medium Topic: Computing corporate regular taxable income 16-97 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 128 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? $46,000, computed as follows: AACSB: Analytic AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Learning Objective: 16-02 Identify common book-tax differences; distinguish between permanent and temporary differences; and compute a corporation's taxable income and regular tax liability Level of Difficulty: Medium Topic: Computing corporate regular taxable income 16-98 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 129 In 2014, 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% of the CSLabs Inc stock? $196,000, computed as follows: AACSB: Analytic AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Learning Objective: 16-02 Identify common book-tax differences; distinguish between permanent and temporary differences; and compute a corporation's taxable income and regular tax liability Level of Difficulty: Medium Topic: Computing corporate regular taxable income 16-99 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 130 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) assuming its ordinary marginal tax rate is 34%? 10.2% [34% × (100% - 70%)] AACSB: Analytic AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Learning Objective: 16-02 Identify common book-tax differences; distinguish between permanent and temporary differences; and compute a corporation's taxable income and regular tax liability Level of Difficulty: Medium Topic: Computing corporate regular taxable income 16-100 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 131 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)? $17,286, computed as follows: AACSB: Analytic AICPA: BB Critical Thinking Blooms: Apply Learning Objective: 16-02 Identify common book-tax differences; distinguish between permanent and temporary differences; and compute a corporation's taxable income and regular tax liability 16-101 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Learning Objective: 16-03 Describe a corporation's tax return reporting and estimated tax payment obligations Level of Difficulty: Hard Topic: Compliance Topic: Computing corporate regular taxable income 132 Netgate Corporation's gross regular tax liability for 2014 was $95,375 What was its taxable income? $287,500 AACSB: Analytic AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Learning Objective: 16-03 Describe a corporation's tax return reporting and estimated tax payment obligations Level of Difficulty: Hard Topic: Compliance 133 For 2014, SRH's taxable income is $35,000 and JHH's taxable income is $45,000 Together, Scott and Jackson Howard own 100 percent of both corporations What is the combined tax liability of the two corporations? $15,450; SRC and JHH are a brother-sister control group Both are more than 50percent owned by five or fewer persons Consequently, their incomes must be combined when applying the tax rate schedule $15,450 = $13,750 + [34% × ($80,000 - $75,000)] AACSB: Analytic AICPA: BB Critical Thinking Blooms: Analyze Learning Objective: 16-03 Describe a corporation's tax return reporting and estimated tax payment obligations Level of Difficulty: Easy 16-102 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Topic: Compliance 134 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 Q1: $30,000, Q2: $220,000, Q3: $125,000, Q4: $125,000; AR should use last year's tax liability to determine its quarterly payments However, because it is a large corporation, it is allowed to use the prior year's tax liability to determine the first quarter payment only The second quarter payment must catch up the cumulative payments to 50 percent of the current year tax liability Feedback: AACSB: Analytic AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Learning Objective: 16-03 Describe a corporation's tax return reporting and estimated tax payment obligations Level of Difficulty: Medium Topic: Compliance 16-103 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 135 In the current year, Auto Rent Corporation reported the following taxable income at the end of its first, second, and third quarters: What amount of estimated tax payments would Auto Rent pay each quarter in order to avoid estimated tax penalties under the annualized income method of computing estimated tax payments? First quarter $510,000; ($1,500,000 × = $6,000,000 × 34% × 25%); Second quarter $510,000 ($6,000,000 × 34% × 50% - $510,000); Third quarter $408,000 ($2,800,000 × × 34% × 75% - $1,020,000); Fourth quarter $204,000 ($3,600,000 × 1.33333 × 34% - $1,428,000) AACSB: Analytic AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Learning Objective: 16-03 Describe a corporation's tax return reporting and estimated tax payment obligations Level of Difficulty: Hard Topic: Compliance 136 IndusTree Inc received $1,800,000 from the sale of a property in 2014 The property's adjusted basis for regular tax purposes was $200,000 at the time of the sale The property's adjusted basis for AMT purposes was $290,000 What is the amount of the AMT adjustment due to the sale of the asset? Does it increase or decrease AMTI? $90,000; the gain recognized for regular tax purposes is $1,600,000 ($1,800,000 amount realized - $200,000 adjusted basis) The gain recognized for AMT purposes is $1,510,000 ($1,800,000 amount realized - $290,000 adjusted basis) The difference of $90,000 is favorable and decreases AMTI because less gain is recognized under AMT rules than regular tax rules AACSB: Analytic AICPA: BB Critical Thinking Blooms: Apply Learning Objective: 16-04 Explain how to calculate a corporation's alternative minimum tax liability Level of Difficulty: Easy Topic: Corporate alternative minimum tax 16-104 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 137 ValuCo gives you the following information: What is its ACE adjustment for the year? Is it favorable or unfavorable? $55,500, unfavorable; two of the three items given are included in the ACE adjustment: interest from tax-exempt bonds funding a public activity and the 70 percent dividends received deduction The eighty percent dividends received deduction is not included in the ACE adjustment The sum of the $14,000 interest and the $60,000 seventy-percent DRD is multiplied by 75% to get the ACE adjustment AACSB: Analytic AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Learning Objective: 16-04 Explain how to calculate a corporation's alternative minimum tax liability Level of Difficulty: Medium Topic: Corporate alternative minimum tax 16-105 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 16-106 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education 138 TerraWise Inc reported the following information for 2014: What is TerraWise Inc.'s AMTI? $5,900,000, computed as follows: 16-107 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education AACSB: Analytic AICPA: BB Critical Thinking Blooms: Apply Learning Objective: 16-04 Explain how to calculate a corporation's alternative minimum tax liability Level of Difficulty: Hard Topic: Corporate alternative minimum tax 139 QDP Corporation's AMTI is $569,000 for 2014 Its regular tax liability is $110,000 What is its AMT? $3,800 QDP's AMT exemption is completely phased-out, so its tentative minimum tax is $113,800 ($569,000 × 20 percent) The difference between tentative minimum tax and regular tax liability is AMT: $3,800 = $113,800 - $110,000 AACSB: Analytic AICPA: BB Critical Thinking Blooms: Apply Learning Objective: 16-04 Explain how to calculate a corporation's alternative minimum tax liability Level of Difficulty: Easy Topic: Corporate alternative minimum tax 140 VitalJuice Corporation reports the following schedule of prior year taxes it owed: What is VitalJuice's tax liability for Year 4? $750,000 VitalJuice generates a minimum tax credit in Year of $100,000 ($900,000 - $800,000) It generates a $50,000 minimum tax credit in Year In Year 4, the $150,000 minimum tax credit carryover can be applied to reduce regular tax liability to $750,000 ($900,000 - $150,000) AACSB: Analytic AICPA: BB Critical Thinking Blooms: Analyze Blooms: Apply Learning Objective: 16-04 Explain how to calculate a corporation's alternative minimum tax liability Level of Difficulty: Medium Topic: Corporate alternative minimum tax 16-108 Copyright © 2015 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education ... reproduction or distribution without the prior written consent of McGraw-Hill Education 66 Coop Inc owns 40% of Chicken Inc., both Coop and Chicken are corporations Chicken pays Coop a dividend of. .. 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... McGraw-Hill Education 69 Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) applies? A Financial accounting—no