Problem 5-9

3982 Words Nov 4th, 2013 16 Pages
Problems

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Taxation of Business
Entities, 2012, eBook
3/e
Content

Chapter5: Corporate Operations

Problems
44. (LO1) LNS corporation reports book income of $2,000,000. Included in the $2,000,000 is $15,000 of taxexempt interest income. LNS reports $1,345,000 in ordinary and necessary business expenses. What is LNS corporation 's taxable income for the year?
45. (LO1) ATW corporation currently uses the FIFO method of accounting for its inventory for book and tax purposes. Its beginning inventory for the current year was $8,000,000. Its ending inventory for the current year was $7,000,000. If ATW had been using the LIFO method of accounting for its inventory, its beginning inventory would have been $7,000,000
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At the end of year 1, the auditors for RC determined that the goodwill had not been impaired during the year. In year 2, however, the auditors concluded that $200,000 of the goodwill had been impaired, and they required RC to write down the goodwill by $200,000 for book purposes.
a. What book-tax difference associated with its goodwill should RC report in year 1? Is it favorable or unfavorable? Is it permanent or temporary?
b. What book-tax difference associated with its goodwill should RC report in year 2? Is it favorable or unfavorable? Is it permanent or temporary?
51. (LO2) Assume that on January 1, year 1, ABC Inc. issued 5,000 stock options with an estimated value of $10 per option. Each option entitles the owner to purchase one share of ABC stock for $25 a share (the per share price of ABC stock on January 1, year 1, when the options were granted). The options vest 50 percent at the end of the day on December 31, year 1, and 50 percent at the end of the day on December 31, year 2. All
5,000 stock options were exercised in year 3 when the ABC stock was valued at $31 per share. Identify ABC 's year 1, 2, and 3 tax deductions and book-tax differences (indicate whether permanent and/or temporary) associated with the stock options under the following alternative scenarios:
a. The stock options are incentive stock options and ASC 718 (the codification of FAS 123R) does not apply to

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