CH16 Student: 1. In general, a corporation can choose 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. True False For a corporation, goodwill created in an asset acquisition generally leads to temporary book-tax differences. True False 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 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 For tax purposes, companies using nonqualified stock options deduct expenses in the year the options are exercised. True False 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 In contrast to an individual, a corporation may deduct the entire amount of a net capital loss. True False 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.
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 A corporation may carry a net capital loss back two years and forward 20 years. True False A corporation may carry a net capital loss back three years and forward five years. True False Corporations can carry net operating losses (in years other than 2008 and 2009) back two years and forward 20 years. True False Bingo Corporation incurred a net operating loss in 2012. If it carries the loss back, it must first carry the loss back to offset its 2011 taxable income and then it carries any remaining loss back to offset its 2010 taxable income.
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