Question 31. (LO 3) How is the Schedule M-1 similar to and different

31. (LO 3) How is the Schedule M-1 similar to and different from a Schedule M-3? How does a corporation determine whether it must complete Schedule M-1 or Schedule M-3 when it completes its tax return?

32. (LO 3) What is the due date for the corporation tax return Form 1120? Is it possible to extend the due date? Explain.

33. (LO 3) How does a corporation determine the minimum amount of estimated tax payments it must make to avoid underpayment penalties? How are these rules different for large corporations than they are for other corporations?

34. (LO 3) Describe the annualized income method for determining a corporation’s required estimated tax payments. What advantages does this method have over other methods?

35. (LO 4) Are any corporations exempt from the AMT? Briefly explain.

36. (LO 4) Briefly describe the process of computing a corporation’s AMT.

37. (LO 4) What is the conceptual difference between adjustments and preference items for AMT purposes?

38. (LO 4) What does the ACE adjustment attempt to capture? How does a corporation determine its ACE adjustment?

39. (LO 4) What is the corporate AMT exemption? Is it available to all corporations? Briefly explain.

40. (LO 4) How is it possible that a corporation’s marginal AMT rate is greater than 20 percent if the stated AMT rate is 20 percent?

41. (LO 4) Does a corporation pay the AMT in addition to or instead of the regular tax? Briefly explain.

42. (LO 4) How does a corporation compute its minimum tax credit? How does a minimum tax credit benefit a corporation?

43. (LO 4) What basic tax planning strategies might a corporation that is expected to owe AMT this year but not next year engage in? How would those strategies change if the corporation expected to be in AMT next year but not in the current year?

corporation may want to defer income to next year or accelerate deductions into this year to take advantage of the rate differential between the two years.

Problems

44. (LO 1) LNS corporation reports book income of $2,000,000. Included in the $2,000,000 is $15,000 of tax-exempt interest income. LNS reports $1,345,000 in ordinary and necessary business expenses. What is LNS corporation’s taxable income for the year?

45. (LO 1) 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 and its ending inventory would have been $5,500,000. Assume ATW corporation’s marginal tax rate is 34 percent.

a. How much more in taxes did ATW corporation pay for the current year because it used the FIFO method of accounting for inventory than it would have paid if it had used the LIFO method?

b. Why would ATW use the FIFO method of accounting if doing so causes them to pay more taxes on a present value basis? (Note that the tax laws don’t allow corporations to use the LIFO method of accounting for inventory unless they also use the LIFO method of accounting for inventory for book purposes.)