CTC Financial Analysis & Planning 2

Question 1

A corporation has EBIT of $500,000, interest expense of $50,000, and a 21% tax rate. What is the net income?

Accepted Answer

$355,500

Answer

EBT = $500,000 - $50,000 = $450,000; Net income = $450,000 × (1 - 0.21) = $355,500.

Question 2

Which ratio measures the number of days a company takes to collect its accounts receivable?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

DSO = (Accounts Receivable / Net Credit Sales) × 365, indicating average collection time.

Question 3

Under IRC Section 469, passive activity losses may generally be used to offset:

Accepted Answer

Passive activity income only

Answer

Section 469 limits passive activity losses to offsetting passive activity income, with suspended losses carried forward.

Question 4

A company's quick ratio is 1.5 and its current ratio is 2.0. This difference most likely indicates a significant amount of:

Accepted Answer

Inventory

Answer

The quick ratio excludes inventory, so a gap between quick and current ratios signals substantial inventory holdings.

Question 5

For tax purposes, a C corporation's net operating loss (NOL) generated after 2017 can be carried forward for:

Accepted Answer

Indefinitely, limited to 80% of taxable income

Answer

The Tax Cuts and Jobs Act of 2017 eliminated the carryback for most NOLs and allows indefinite carryforward limited to 80% of taxable income.

(CTC) Chartered Tax Consultant Practice Test