ACCT 618
Corporate Taxation
MIDTERM EXAM REVIEW
©LU 2024/2025
,1. Multiple Choice: What is the effect of a net operating loss on a
corporation's taxable income?
a) Increases taxable income
b) Decreases taxable income
c) No effect
d) Converts to tax credit
Answer: b) Decreases taxable income
Rationale: A net operating loss can be carried forward to future
tax years to offset taxable income, thereby reducing the
corporation's tax liability.
2. Fill-in-the-Blank: The ________ method allows corporations to
defer income by recognizing revenue when it is earned and
expenses when they are incurred.
Answer: Accrual
Rationale: The accrual method of accounting matches revenue
with the expenses incurred in earning that revenue, providing a
more accurate picture of a company's financial health.
3. True/False: Dividends received by a corporation from a
domestic corporation in which it owns less than 20% of the stock
are 80% excludable from taxable income.
Answer: False
©LU 2024/2025
, Rationale: Dividends received by a corporation from a domestic
corporation in which it owns less than 20% of the stock are only
50% excludable from taxable income.
4. Multiple Response: Which of the following are characteristics of
a Subchapter S Corporation?
a) Limited to 100 shareholders
b) Profits taxed at the corporate level
c) Shareholders must be U.S. citizens or residents
d) Can have only one class of stock
Answer: a), c), d)
Rationale: S Corporations have specific limitations including the
number of shareholders, the requirement for shareholders to be
U.S. citizens or residents, and the restriction to one class of stock.
Profits are not taxed at the corporate level but pass through to
shareholders.
5. Multiple Choice: Under the Tax Cuts and Jobs Act, what is the
maximum percentage of foreign-derived intangible income that a
corporation can deduct?
a) 13.125%
b) 21%
c) 37%
d) 50%
©LU 2024/2025
Corporate Taxation
MIDTERM EXAM REVIEW
©LU 2024/2025
,1. Multiple Choice: What is the effect of a net operating loss on a
corporation's taxable income?
a) Increases taxable income
b) Decreases taxable income
c) No effect
d) Converts to tax credit
Answer: b) Decreases taxable income
Rationale: A net operating loss can be carried forward to future
tax years to offset taxable income, thereby reducing the
corporation's tax liability.
2. Fill-in-the-Blank: The ________ method allows corporations to
defer income by recognizing revenue when it is earned and
expenses when they are incurred.
Answer: Accrual
Rationale: The accrual method of accounting matches revenue
with the expenses incurred in earning that revenue, providing a
more accurate picture of a company's financial health.
3. True/False: Dividends received by a corporation from a
domestic corporation in which it owns less than 20% of the stock
are 80% excludable from taxable income.
Answer: False
©LU 2024/2025
, Rationale: Dividends received by a corporation from a domestic
corporation in which it owns less than 20% of the stock are only
50% excludable from taxable income.
4. Multiple Response: Which of the following are characteristics of
a Subchapter S Corporation?
a) Limited to 100 shareholders
b) Profits taxed at the corporate level
c) Shareholders must be U.S. citizens or residents
d) Can have only one class of stock
Answer: a), c), d)
Rationale: S Corporations have specific limitations including the
number of shareholders, the requirement for shareholders to be
U.S. citizens or residents, and the restriction to one class of stock.
Profits are not taxed at the corporate level but pass through to
shareholders.
5. Multiple Choice: Under the Tax Cuts and Jobs Act, what is the
maximum percentage of foreign-derived intangible income that a
corporation can deduct?
a) 13.125%
b) 21%
c) 37%
d) 50%
©LU 2024/2025
