Question & Answer

What is the difference between permanent and temporary book-tax differences?

What is the difference between favorable and unfavorable book-tax differences?

What role does a corporation’s audited income statement play in determining its taxable income?

Briefly describe the process of computing a corporation’s taxable income assuming the corporation must use GAAP to determine its book income.  

Can C corporations use the cash method of accounting?  Explain. 

Is a corporation’s choice of its tax year independent from its year-end for financial accounting purposes?

In general terms, identify the similarities and differences between the corporate taxable income formula and the individual taxable income formula.  

Are the tax consequences to the corporation the same whether a shareholder contributes property to a corporation in a §351 transaction or as a capital contribution? Explain.

Under what circumstances does property received by a corporation in a §351 transaction not receive a carryover basis?  What is the reason for this rule?

What is a carryover basis as it relates to property received by a corporation in a §351 transaction?  What is the purpose of attaching a carryover basis to property received in a §351 transaction?

In a §351 exchange, how does the tax treatment differ in cases where liabilities are assumed with a tax-avoidance purpose versus where liabilities assumed exceed basis?

Explain whether a corporation’s assumption of shareholder liabilities will always constitute boot in a §351 transaction.

Explain whether the receipt of boot by a shareholder in a §351 transaction causes the transaction to be fully taxable.

What is a substituted basis as it relates to stock received in exchange for property in a §351 transaction?  What is the purpose of attaching a substituted basis to stock received in a §351 transaction?

What is the definition of control for purposes of §351?  Why does Congress require the shareholders to control a corporation to receive tax deferral?

List the key statutory requirements that must be met before a corporate formation is tax-deferred under §351.

Why does Congress provide tax deferral on the formation of a corporation?

Assume that the demand for a product is given by the following function

               Q_D = 1000 – 50P + 2P² + 10P_S + P_S²

where Q_D is the quantity demanded, P is the price of the good and P_S  is the price of a substitute good. What is the partial derivative of this demand function with respect to (a) the price of the good; (b) the price of the substitute good? Interpret the meaning of each partial derivative.

Given the following equation for a firm’s average cost (AC, i.e. the cost per unit of output (Q):

                     AC = 60 – 16Q + 2Q²

               (a)  At what output is AC at a minimum?

               (b)  Use the second derivative test to prove that this is a minimum not a maximum.

What is the meaning of a negative profit?

What would be the marginal cost equation if the total cost equation were:

                     C = 15 + 20Q – 5Q² + Q³

What would be the marginal cost at an output of 8?

What shaped graph would you get from the equations:

                     y = –6 + 3x + 2x²

                     y = 10 – 4x + x²

(If you cannot work out the answer, construct a table like Table A1.9 and then plot the figures on a graph.)

On a diagram like Figure A1.8 draw the graphs for the following equations:

                     y = –3 + 4x

                     y = 15 – 3x

If the CPI went up from 150 to 162 over 12 months, what would be the rate of inflation?

What was the growth rate in manufacturing output from (a) 2005 to 2006; (b) 2008 to 2009; 2019 to 2020?