Tax Accounting Acc 3400 Chapter Exams

Tax accounting chapter exams Chapter 16:

1 Marks: 1/1 Six possibilities exist for the result after all possible capital gain and loss netting has been completed. Choose one answer. a. True Correct. b. False p. 16-20 Correct Marks for this submission: 1/1. Question 2 Marks: 1/1 There are three holding periods: short-term, mid-term, and long-term. Choose one answer. a. True Correct. b. False There are two holding periods: short-term (one year or less) and long-term (more than one year). p. 16-3 Correct Marks for this submission: 1/1. Question 3 Marks: 1/1 A franchise transfer is generally a sale or exchange of a capital asset. Choose one answer. a. True Correct. b. False Section 1253 provides that a transfer of a franchise, trademark, or trade name is not a transfer of a capital asset when the transferor retains any significant power, right, or continuing interest in the property transferred. p. 16-13 Correct Marks for this submission: 1/1. Question 4 Marks: 1/1 The 0% gain portion of the 0%/15% gain applies when the taxable income before taxing the 0%/15% gain puts the individual taxpayer out of the 15% regular income tax bracket. Choose one answer. a. True b. False Correct.

The 0% gain portion of the 0%/15% gain applies when the taxable income before taxing the 0%/15% gain does not put the individual taxpayer out of the 15% regular income tax bracket. p. 16-21 Correct Marks for this submission: 1/1. Question 5 Marks: 1/1 Tom has owned 20 shares of Burgundy Corporation stock for four years. He sells the stock short for a total of $800. One month later, he closes the short sale by purchasing and delivering 20 shares of Burgundy Corporation stock for a total of $600. Tom has a $200 short-term capital gain. Choose one answer. a. True Correct. b. False pp. 16-18 and 16-19 Correct Marks for this submission: 1/1. Question 6 Marks: 1/1 The tax law does not require capital gains and losses to be separated from other types of gains and losses. Choose one answer. a. True Correct. b. False The tax law requires capital gains and losses to be separated from other types of gains and losses because long-term capital gains may receive beneficial tax treatment as compared to ordinary gains and because restrictions exist with respect to the deductibility of net capital losses. p. 16-2 Correct Marks for this submission: 1/1. Question 7 Marks: 1/1 To compute the holding period, start counting on the day the property was acquired and include the day of disposition. Choose one answer. a. True Correct. b. False A disallowed loss from a sale to a related taxpayer is never usable by the seller. There is also no tacking of the holding period of the property sold to any later acquired property. Uptons basis for the purchased property would equal what he paid for it$45,000. p. 16-17 Correct Marks for this submission: 1/1. Question 8 Marks: 1/1

An alternative tax calculation may be used when taxable income includes net long-term capital gain. Therefore, capital gains and losses must be matched with one another to see if a net longterm capital gain exists. Choose one answer. a. True Correct. b. False pp. 16-2 and 16-3 Correct Marks for this submission: 1/1. Question 9 Marks: 1/1 Personal use assets are capital assets. Choose one answer. a. True Correct. b. False p. 16-4 Correct Marks for this submission: 1/1. Question 10 Marks: 1/1 Lease cancellation payments received by a lessee are treated as an exchange and can result in a capital gain. Choose one answer. a. True Correct. b. False A capital gain will result if the lease is a capital asset to the lessee (i.e., personal use property). p. 16-15 Correct Marks for this submission: 1/1. Question 11 Marks: 1/1 Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates? Choose one answer. a. The option is exercised. b. The option is sold. c. The option lapses. d. The option is rescinded. e. None of the above. Correct.

If the option is exercised, the cost of the option becomes part of the basis of the property. Otherwise, the lapse of the option is treated as a sale or exchange. p. 16-11 Correct Marks for this submission: 1/1. Question 12 Marks: 1/1 A like-kind exchange of a 1231 asset has occurred. Choose one answer. a. The holding period of property received in the exchange includes the holding Correct. period of the property given up. b. The holding period of property received in the exchange does not include the holding period of the property given up. c. The holding period of property received in the exchange includes six months of the holding period of the property given up. d. The holding period of property received in the exchange includes twelve months of the holding period of the property given up. e. None of the above. If a 1231 asset or a capital asset is the subject of a like-kind exchange, the holding period of the property received includes the holding period of the property given up. p. 16-16 Correct Marks for this submission: 1/1. Question 13 Marks: 1/1 Rea is a songwriter. She wrote a song, copyrighted it, and sold it for $10,000 cash. The song had a zero tax basis. The purchaser was a national song brokerage company. Rea is in the business of songwriting. Unless Rea makes a special election, the $10,000 received by Rea is: Choose one answer. a. Long-term capital gain. b. Short-term capital gain. c. Ordinary gain. d. Excludible from gross income. e. None of the above. The person whose efforts led to the copyright or creative work has an ordinary asset, not a capital asset. If that work is a musical composition, the taxpayer may elect to treat the work as a capital asset. p. 16-4 and 16-6 Correct Marks for this submission: 1/1. Question 14 Marks: 1/1 Tan, Inc., has a 2009 $50,000 long-term capital gain included in its $185,000 taxable income. Which of the following is correct? Correct.

Choose one answer. a. Tan will benefit from an alternative tax on net capital gains computation. b. Tan's regular tax on taxable income will be the same as its tax using an alternative tax on net capital gains approach. c. Tan's $50,000 net capital gain is not taxable. d. Tan's regular tax on taxable income will be greater than its tax using an alternative tax on net capital gain approach. e. None of the above. Although there is an alternative tax on net capital gains for corporations, it yields the same tax result as the regular computation method. This unusual result is caused by the fact that the alternative tax rate and the maximum regular tax rate are both 35%. p. 16-32 Correct Marks for this submission: 1/1. Question 15 Marks: 0/1 Individuals with capital gains and/or losses use Schedule D. Using the 2010 Schedule D as a reference, which of the following is correct? Choose one answer. a. The form is not used unless there is at least $1,000 of capital gain or loss. b. Part I reports long-term gains and losses. c. Part III reports qualified dividend income. d. Part III requires a netting of net short-term capital loss against net long-term capital gain. Correct e. None of the above. There is no minimum amount of capital gain or loss required to use Schedule D (a.). Part I reports short-term gains and losses (b.). Part III requires netting of net short-term and net longterm amounts when one is a loss and the other is gain (d.). Part III is not used to report qualified dividend income (c.). Installment sales are reported in Part I or Part II depending upon whether there is a recognized short-term or long-term capital gain. pp. 16-28 to 16-32 Incorrect Marks for this submission: 0/1. Question 16 Marks: 1/1 Sylvia purchased for $680 a $2,000 bond when it was issued two years ago. Sylvia amortized $200 of the original issue discount and then sold the bond for $1,800. Which of the following statements is correct? Choose one answer. a. Sylvia has $920 of long-term capital gain. b. Sylvia has $1,220 of long-term capital gain. c. Sylvia has no capital gain or loss. Correct. . Correct.

d. Sylvia has $200 of long-term capital loss. e. None of the above. Sylvias original basis of $680 is increased by the $200 of original issue discount amortization. Her basis is $880 when she sells the bond for $1,800; so her gain is $920. p. 16-9 Correct Marks for this submission: 1/1. Question 17 Marks: 1/1 Walnut Company signs a 15-year franchise agreement with Cookie Company. Cookie Company retained significant powers, rights, and a continuing interest. Walnut (the franchisee) makes noncontingent payments of $25,000 per year for the first five years of the franchise. Walnut Company also pays a contingent fee of 2% of gross sales every month. Which of the following statements is correct? Choose one answer. a. Walnut Company may deduct only the $25,000 per year noncontingent payments in full as they are made. b. Walnut Company may deduct only the monthly contingent fee as it is paid. c. Walnut Company may deduct both the noncontingent annual fee and the contingent monthly fees as they are paid. d. Walnut Company may not deduct either the noncontingent annual fee or the contingent monthly fees as they are paid. e. None of the other answers are correct. The contingent payments are deductible as they are made. The noncontingent payments must be capitalized and amortized over 15 years. pp. 16-13 and 16-14 Correct Marks for this submission: 1/1. Question 18 Marks: 1/1 In 2011, Satesh has $4,000 short-term capital loss, $14,000 0%/15% long-term capital gain, and $7,000 qualified dividend income. Satesh is single and has other taxable income of $15,000. Which of the following statements is correct? Choose one answer. a. No more than $14,000 of Satesh's taxable income is taxed at 0%. b. No more than $7,000 of Satesh's taxable income is taxed at 0%. c. No more than $17,000 of Satesh's taxable income is taxed at 0%. d. None of Satesh's taxable income is taxed at 0%. e. All of Satesh's taxable income is taxed at 0%. Correct. Correct.

The net long-term capital gain is $10,000 ($14,000 0%/15% long-term capital gain $4,000 short-term capital loss). The $7,000 qualified dividend income is added to the 0%/15% net long-term capital gain and the $17,000 total is eligible for the 0%/15% alternative tax rate. REF: p. 16-23 | p. 16-24 | Example 37 Correct Marks for this submission: 1/1. Question 19 Marks: 1/1 In 2010, Jenny had a $14,000 net short-term capital loss and deducted $3,000 as a capital loss deduction. In 2011, Jenny has a $18,000 0%/15% long-term capital gain and no other capital gain or loss transactions. Which of the statements below is correct? Choose one answer. a. Jenny has a 2011 $18,000 net capital gain. b. Jenny has a 2011 $7,000 net capital gain. c. Jenny has a 2011 $7,000 net capital loss. d. Jenny has a 2011 $3,000 capital loss deduction. e. Jenny has a 2011 $7,000 capital loss deduction. The 2010 capital loss carryforward is $11,000 ($14,000 2010 net capital loss 2010 $3,000 capital loss deduction). The $11,000 carries forward as a short-term capital loss and is offset against the $18,000 long-term capital gain. p. 16-23 Correct Marks for this submission: 1/1. History of Responses: # Action Response Time Raw score Grade 1 1 1 1 Jenny has a 2011 $7,000 net capital 18:29:37 on gain. 22/04/12 Jenny has a 2011 $7,000 net capital gain. 18:29:37 on 22/04/12 Correct.

1 Grade 2 Close&Grade Question 20 Marks: 1/1

Sophia purchased for $8,700 a $10,000 bond when it was issued two years ago. Sophia amortized $300 of the original issue discount and then sold the bond for $9,500. Which of the following statements is correct? Choose one answer. a. Sophia has $1,100 of long-term capital gain. b. Sophia has $800 of long-term capital gain. c. Sophia has $500 of long-term capital gain. Correct.

d. Sophia has $800 long-term capital loss. e. None of the other answers are correct. Correct Marks for this submission: 1/1. Question 21 Marks: 1/1 Sam is filing as head of household and has 2011 taxable income of $46,750 which includes $23,000 of 0%/15% gain. What is the tax on his taxable income using the alternative tax method? Choose one answer. a. $6,455. b. $2,250. c. $2,865. d. $7,013. e. None of the other answers are correct. Sams taxable income takes him out of the 15% regular tax bracket, but his regular taxable income does not. Therefore, a portion of the 0%/15% gain is taxed at 0% and a portion is taxed at 15%. His total tax is $4,126 $1,215 tax on first $12,500 (Schedule Z) $1,575 tax on income between $12,500 and $23,000 at 15%. $ $ 0 tax on capital gain from $23,000 to $46,250 at 0%. 75 tax on capital gain from $46,250 to $46,750 at 15%. Correct.

$2,865 total alternative tax on taxable income p. 16-25 Correct Marks for this submission: 1/1. Question 22 Marks: 1/1 Which of the following comparisons is correct? Choose one answer. a. Corporations may carryback capital losses; individuals may not. b. Both corporation and individual long-term capital losses carryover as short-term capital losses. Correct.

c. Corporations may carryforward capital losses indefinitely; individuals may only carryforward capital losses for five years. d. Both corporations and individuals may use an alternative tax rate on net capital gains. e. None of the above. Corporations may carryback capital losses; individuals may not (a). Individual long-term capital losses carryover as long-term, not short-term. Corporations have a five-year carryforward limit; individuals may carryforward capital losses indefinitely. Corporations' alternative tax rate on long-term capital gains is 35%, not 20%. REF: p. 16-27 | p. 16-32 Correct Marks for this submission: 1/1. Question 23 Marks: 1/1 The tax law requires that capital gains and losses be separated from other types of gains and losses. Among the reasons for this treatment are: Choose one answer. a. Long-term capital gains may be taxed at a lower rate than ordinary gains. b. Capital losses that are short term are not deductible. c. Net capital losses are deductible only up to $3,000 per year for individual taxpayers. d. a. and c. Correct.

Both a net long-term capital gain and a net capital loss are subject to special rules. Consequently, the capital gains and losses must be netted separately from other types of gains and losses. REF: p. 16-3 Correct Marks for this submission: 1/1. Question 24 Marks: 1/1 Lewis is a cash basis landlord. A tornado destroyed one of his residential rental buildings. Even though the lease required the tenants (all cash basis) to continue to pay rent, Lewis accepts a payment of $1,000 in full cancellation of the lease. As a result of these events: Choose one answer. a. Lewis has $1,000 of capital gain. b. Lewis's tenants have $1,000 of ordinary income. c. Lewis has a $1,000 capital loss.

d. Lewis has $1,000 of ordinary income. e. None of the other answers are correct.

Correct.

Lease cancellation payments are generally capital gain to the lessee recipient if the lease is a capital asset to the lessee. The payments are a deduction for the paying lessor. However, if the landlord is the recipient, the payments are ordinary income. p. 16-15 Correct Marks for this submission: 1/1. History of Responses: # Action Response Lewis has $1,000 of ordinary income. Lewis has $1,000 of ordinary income. Time 18:48:17 on 22/04/12 18:48:17 on 22/04/12 Raw score Grade 1 1 1 1

2 Grade 3 Close&Grade

Question 25 Marks: 1/1 Julia purchased vacant land in 2009 that she subdivided for resale as lots. All 10 of the lots were sold during 2010. The lots had a tax basis of $3,000 each and sold for $45,000 each. Julia made no substantial improvements to the lots. She acted as her own real estate broker; so there were no sales expenses for selling the lots. Which of the following statements is correct? Choose one answer. a. Julia must hold the lots for at least five years before she is eligible for the special Correct. capital gain treatment of 1237. b. Some of the gain from the sale of the ten lots is long-term capital gain. c. All of the gain from the sale of the ten lots is long-term capital gain. d. To be eligible for the special capital gain treatment of 1237, Julia must be a real estate dealer. e. None of the above. Julia must hold the land at least five years to be eligible for 1237 treatment and must not be a dealer in lots. Since Julia does not satisfy this requirement, all of the gain is ordinary income. pp. 16-7 and 16-8 Correct Marks for this submission: 1/1.

Chapter 8:

1 Marks: 1/1 If an automobile is placed in service in 2009, the limitation for cost recovery in 2011 will be based on the cost recovery limits for the year 2011. Choose one answer. a. True Correct. b. False The limits will be based on the limits for automobiles placed in service in 2009, the year placed in service. REF: p. 8-16 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response False Time 08:01:32 on 15/03/12 1 Raw score 1 Grade

2 Close&Grade False 08:01:32 on 15/03/12 1 1 Question 2 Marks: 1/1 Under the alternative depreciation system (ADS), only the half-year convention is applicable for personalty. Choose one answer. a. True Correct. b. False The mid-quarter convention also is applicable for personalty. p. 8-20 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response False False Time 08:03:37 on 15/03/12 08:03:37 on 15/03/12 1 1 Raw score 1 1 Grade

2 Close&Grade Question 3 Marks: 1/1

The statutory dollar cost recovery limits under 280F on passenger automobiles are imposed after any reduction for personal use is considered. Choose one answer.

a. True Correct. b. False These limits are imposed before any reduction for personal use. p. 8-15-16 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response False False Time 08:08:26 on 15/03/12 08:08:26 on 15/03/12 1 1 Raw score 1 1 Grade

2 Close&Grade Question 4 Marks: 1/1 Choose one answer. a. True Correct.

Under the alternative depreciation system (ADS), the salvage value of the asset is ignored.

b. False p. 8-20 Correct Marks for this submission: 1/1. History of Responses: # 2 Grade Action Response True True Time 15:07:46 on 15/03/12 15:07:46 on 15/03/12 1 1 Raw score 1 1 Grade

3 Close&Grade Question 5 Marks: 1/1 Choose one answer. a. True

Personal use property that is subject to wear and tear is eligible for cost recovery.

Correct. b. False Personal use property is not eligible for cost recovery. p. 8-3 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response False False Time 08:14:34 on 15/03/12 08:14:34 on 15/03/12 1 1 Raw score 1 1 Grade


Taxpayers may elect to use the straight-line method under MACRS for personal property. Choose one answer. a. True Correct. b. False p. 8-11 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response True True Time 15:09:48 on 15/03/12 15:09:48 on 15/03/12 1 1 Raw score 1 1 Grade


Under the MACRS straight-line election for personalty, the mid-quarter convention is not applicable. Choose one answer. a. True Correct. b. False The mid-quarter convention is applicable under the MACRS straight-line election for personalty. p. 8-11 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response False False Time 08:19:01 on 15/03/12 08:19:01 on 15/03/12 1 1 Raw score 1 1 Grade

2 Close&Grade Question 8 Marks: 1/1 Choose one answer. a. True

The key date for calculating cost recovery is the date the asset is purchased.

Correct. b. False The key date for calculating cost recovery is the date the asset is placed in service. p. 83 Correct Marks for this submission: 1/1.

History of Responses: # 1 Grade Action Response False False Time 08:19:50 on 15/03/12 08:19:50 on 15/03/12 1 1 Raw score 1 1 Grade


If a new car that is used predominantly in business is placed in service in 2011, the statutory dollar cost recovery limit under 280F will depend on whether the taxpayer takes MARCS or straight-line depreciation. Choose one answer. a. True Correct. b. False The statutory cost recovery limits apply whether MACRS or straight-line apply. pp. 8-16 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response False False Time 08:21:26 on 15/03/12 08:21:26 on 15/03/12 1 1 Raw score 1 1 Grade


The 179 deduction can exceed $500,000 in 2011 if the taxpayer had a 179 amount which exceeded the taxable income limitation in the prior year. Choose one answer. a. True b. False Correct.

The 179 amount eligible for expensing in a carryforward year is limited to the lesser of (1) the statutory dollar amount ($500,000 in 2011) reduced by the cost of 179 property placed in service in excess of $2 million in the carryforward year or (2) the business income limitation in the carryforward year. REF: p. 8-13 Correct Marks for this submission: 1/1.

History of Responses: # 1 Grade Action Response False Time 08:22:40 on 15/03/12 1 1 Raw score 1 1 Grade

2 Close&Grade False 08:22:40 on 15/03/12 Question 11 Marks: 1/1 Patents are amortized over what period of time? Choose one answer. a. 60 months or more. b. 15 years. c. 20 years. d. 30 years. e. None of the above. Correct.

Patents are 197 intangibles and thus are amortized over a 15-year period. Correct Marks for this submission: 1/1. History of Responses: # 2 3 Grade Close&Grade Action Response 15 years. 15 years. Time 20:19:32 on 16/03/12 20:19:32 on 16/03/12 1 1 Raw score 1 1 Grade

Question 12 Marks: 0/1 Jonathan purchased a business asset (three-year property) on November 15, 2010, at a cost of $30,000. This is the only asset he purchased during the year. Jonathan did not elect to expense any of the asset under 179, nor did he elect straight-line cost recovery. Jonathan sold the asset on May 13, 2011. Determine the cost recovery deduction for 2011. Choose one answer. a. $3,750. b. $6,875. c. $9,999. d. $18,333. e. None of the other answers are correct. The mid-quarter convention applies in this case. $30,000 X .6111 X 1.5/4 = $6,875. pp. 8-7, 8-8, and Table 8-2 Incorrect.

Incorrect Marks for this submission: 0/1. Question 13 Marks: 1/1 James purchased a new business asset (three-year property) on July 23, 2011, at a cost of $50,000. He did not elect to expense any of the asset under 179, nor did he elect straight-line cost recovery. Determine the cost recovery deduction for 2011. Choose one answer. a. $8,333. b. $33.333 c. $16,665 d. $41,665. e. None of the other answers are correct. Additional first-year depreciation is $25,000 ($50,000 50%). Regular MACRS is $8,333 ($25,000 .3333). So total cost recovery is $33,333 ($25,000 + $8,333). Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response $33.333 Time 10:52:53 on 15/03/12 1 1 Raw score 1 1 Grade Correct.

2 Close&Grade $33.333 10:52:53 on 15/03/12 Question 14 Marks: 1/1 Which of the following statements is true regarding depletion? Choose one answer. a. Cost depletion must be used for tax purposes. b. Percentage depletion must be used for tax purposes

c. A taxpayer will select the greater of cost or percentage depletion for tax purposes. d. A taxpayer will select the lower of cost or percentage depletion for tax purposes.

Correct.

e. None of the above. The taxpayer will select the greater of cost or percentage depletion for tax purposes. pp. 8-25 Correct

Marks for this submission: 1/1. History of Responses: # Action Response Time Raw score Grade 1 1 A taxpayer will select the greater of cost 10:59:22 on or percentage depletion for tax purposes. 15/03/12 10:59:22 on 15/03/12

1 Grade

A taxpayer will select the greater of 2 Close&Grade cost or percentage depletion for tax purposes. Question 15 Marks: 1/1

1

1

Pat purchased a used five-year class asset on March 15, 2011, for $60,000. He did not elect 179 expensing. Determine the cost recovery deduction for 2011 for earnings and profits purposes.

Choose one answer. a. $2,000. b. $3,000. c. $6,000. d. $12,000. e. None of the other answers are correct. .10 X $60,000 = $6,000. p. 8-20 and Table 8-5 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response $6,000. $6,000. Time 11:01:51 on 15/03/12 11:01:51 on 15/03/12 1 1 Raw score 1 1 Grade Correct.


Lorraine purchased an apartment building on October 16, 2011, for $7,000,000. Determine the cost recovery deduction for 2011. Choose one answer. a. $36,470. b. $37,450.

c. $46,270. d. $53,060. e. None of the other answers are correct. .00758 X $7,000,000 = $53,060. pp. 8-10, and Table 8-6 Correct Marks for this submission: 1/1. History of Responses: # 2 Grade Action Response $53,060. Time 19:46:38 on 22/04/12 1 Raw score 1 Grade Correct.

3 Close&Grade $53,060. 19:46:38 on 22/04/12 1 1 Question 17 Marks: 1/1 For tax purposes, a deduction is allowed for the consumption of the cost of timber through: Choose one answer. a. Cost recovery. b. Amortization. c. Depletion. d. All of the other answers are acceptable. e. None of the other answers are correct. Timber is subject to depletion. p. 8-3 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response Depletion. Depletion. Time 11:12:19 on 15/03/12 11:12:19 on 15/03/12 1 1 Raw score Grade 1 1 Correct.


The only asset Bill purchased during 2011 was a new seven-year class asset. The asset, which was listed property, was acquired on June 17 at a cost of $50,000. The asset was used 40% for business, 30% for the production of income, and the rest of the time for personal use. Bill always elects to expense the maximum amount under 179 whenever it is applicable. The net income from the business before the 179 deduction is $100,000. Determine Bills maximum deduction with respect to the property for 2011.

Choose one answer. a. $1,428. b. $2,499. c. $26,749. d. $33,375. e. None of the other answers are correct. The listed property does not pass the predominantly business usage test. Therefore, neither 179 expensing nor additional first-year depreciation can be taken. In addition, only straight-line cost recovery can be used. Maximum deduction ($50,000 X .0714 X 70%) $2,499 REF: p. 8-13 to 8-15 | Table 8-3 Correct Marks for this submission: 1/1. History of Responses: # 1 2 Grade Close&Grade Action Response $2,499. $2,499. Time 13:45:39 on 15/03/12 13:45:39 on 15/03/12 1 1 Raw score 1 1 Grade Correct.

Question 19 Marks: 1/1 On June 1 of the current year, Roman converted a building to rental property. At the time of the conversion, the building was worth $140,000. Five years ago Roman purchased the building for $120,000. The building is still encumbered by a $50,000 mortgage. What is the basis of the building for cost recovery? Choose one answer. a. $70,000. b. $90,000. c. $120,000. d. $140,000. e. None of the above. The basis is $120,000, the lower of the adjusted basis ($120,000) or fair market value ($140,000) at the date of conversion. p. 8-4 and Example 3 Correct Marks for this submission: 1/1. History of Responses: # Action Response Time Raw score Grade Correct.

1 2

Grade Close&Grade

$120,000. $120,000.

13:55:15 on 15/03/12 13:55:15 on 15/03/12

1 1

1 1

Question 20 Marks: 1/1 Birch Company acquires special tools (three-year property) on February 15, 2011, at a cost of $30,000. Birch also acquires a machine (five-year property) on July 15, 2011, at a cost of $40,000. No election is made to use the straight-line method. The company does not make the 179 election or elect bonus depreciation. Determine the total deductions in calculating taxable income related to the machines for 2011. Choose one answer. a. $17,999. b. $19,400 c. $44,000. d. $44,750. e. None of the other answers are correct. 3-year property ($30,000 X .3333)= $9,999 + 5-year property ($40,000 X .20)= $8,000 Total for 2006 $17,999 pp. 8-4 to 8-8 and Table 8-1 Correct Marks for this submission: 1/1. History of Responses: # 2 Grade Action Response $17,999. $17,999. Time 19:46:25 on 22/04/12 19:46:25 on 22/04/12 1 1 Raw score 1 1 Grade Correct.


In 2010, Gail had a 179 deduction carryover of $15,000. In 2008, she elected 179 for an asset acquired at a cost of $115,000. Gails 179 business income limitation for 2010 is $127,000. Determine Gails 179 deduction for 2011.

Choose one answer. a. $15,000. b. $115,000. c. $127,000. d. $130,000. e. None of the other answers are correct.$130,000 ($15,000 + $115,000), limited to $127,000.

Correct.

REF: p. 8-13 | p. 8-14

Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response $127,000. $127,000. Time 14:07:37 on 15/03/12 14:07:37 on 15/03/12 1 1 Raw score 1 1 Grade


On January 15, 2011, Penelope purchased the rights to a mineral interest for $12,000,000. At that time, it was estimated that the recoverable units would be 2,500,000. During the year, 300,000 units were mined and 175,000 units were sold for $3,000,000. Penelope incurred expenses during 2011 of $1,000,000. The percentage depletion rate is 22 percent. Determine Penelope's depletion deduction for 2011. Choose one answer. a. $1,000,000. b. $840,000. c. $660,000. d. $450,000. e. None of the other answers are correct. Cost Basis $12,000,000/2,500,000 = $4.80 per unit; Cost Depletion 175,000 units sold X $4.80 = $840,000 Percentage Depletion 22% X $3,000,000 = $660,000 Percentage limit ($3,000,000 - $1,000,000) X 50% = $1,000,000 Thus, the depletion deduction is $840,000. pp. 8-22 to 8-25 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response $840,000. $840,000. Time 14:31:54 on 15/03/12 14:31:54 on 15/03/12 1 1 Raw score 1 1 Grade Correct.


On July 17, 2010, Kevin places in service a new automobile that cost $15,000. The car is used 80% for business and 20% for personal use. In 2011, he used the automobile 40% for business and 60% for personal use. Determine the cost recovery recapture for 2011. Choose one answer. a. $1,200. b. $0. c. $2,400. d. $3,000. e. None of the other answers are correct. MACRS ($15,000 X .20) = $3,000 (limited to $11,060*); $3,000 X 80% = $2,400 . Straight-line ($15,000 X .10) = $1,500 (limited to $11,060*); $1,500 X 80% = $1,200. Cost recovery recapture in 2011 = $1,200 ($2,400-$1,200) *These depreciation limits are indexed annually. REF: Example 30 | Table 8-1 | Table 8-3 Correct Marks for this submission: 1/1. History of Responses: # 2 Grade Action Response $1,200. $1,200. Time 19:46:51 on 22/04/12 19:46:58 on 22/04/12 1 1 Raw score 1 1 Grade Correct.


On June 1, 2011, James places in service a new automobile that cost $40,000. The car is used 60% for business and 40% for personal use. (Assume this percentage is maintained for the life of the car.) Determine the cost recovery deduction for 2011.

Choose one answer. a. $4,800. b. $1,836. c. $8,000. d. $11,060. e. None of the other answers are correct. Correct.

$40,000 X .20 = $8,000 (limited to $11,060*). $8,000 X 60% = $4,800. *These depreciation limits are indexed annually. REF: Example 24 | Table 8-1 Correct Marks for this submission: 1/1. History of Responses: # 1 Grade Action Response $4,800. Time 14:50:39 on 15/03/12 1 Raw score 1 Grade

2 Close&Grade $4,800. 14:50:39 on 15/03/12 1 1 Question 25 Marks: 1/1 The only asset Harry purchased during 2011 was a new seven-year class asset. The asset, which was listed property, was acquired on June 17 at a cost of $100,000. The asset was used 40% for business, 30% for the production of income, and the rest of the time for personal use. Harry always elects to expense the maximum amount under 179 whenever it is applicable. The net income from the business before the 179 deduction is $100,000. Determine Harrys maximum deduction with respect to the property for 2011. Choose one answer. a. $1,999. b. $4,998. c. $48,574. d. $75,176. e. None of the above. The listed property does not pass the predominantly business usage test. Therefore, 179 expensing cannot be taken. In addition, only straight-line cost recovery can be used. Maximum deduction ($100,000 X .0714 X 70%) =$4,998 pp. 8-4 to 8-15 and Table 8-3 Correct Marks for this submission: 1/1.Chapter 9:

Correct.

1 Marks: 0/1 The 222 deduction for qualified tuition and related expenses is subject to the 2%-ofAGI floor on employee expenses. Choose one answer. a. True Incorrect. b. False The 222 amount is a deduction for AGI. p. 9-28 Incorrect Marks for this submission: 0/1. Question 2 Marks: 1/1 In determining whether someone is away from their tax home, the key consideration involves the need to duplicate certain living expenses. Choose one answer. a. True Correct. b. False p. 9-8 and Example 12 Correct Marks for this submission: 1/1. Question 3 Marks: 1/1 For tax purposes, "travel" is a broader classification than "transportation." Choose one answer. a. True Correct. b. False Travel expenses include transportation expenses and meals and lodging while away from home in the pursuit of a trade or business. p. 9-7 Correct Marks for this submission: 1/1. Question 4 Marks: 1/1 Mallard Corporation furnishes meals at cost to its employees by means of a cafeteria it maintains. The cost of operating the cafeteria is subject to the cutback adjustment. Choose one answer. a. True b. FalseExample 32

Correct.

Correct Marks for this submission: 1/1. Question 5 Marks: 1/1

Daniel just graduated from college. The cost of moving his personal belongings from his parents' home to his first job site can qualify for the moving expense deduction. Choose one answer. a. True Correct. b. False There is no prohibition against claiming moving expenses if the first job is involved. pp. 9-11 and 9-12 Correct Marks for this submission: 1/1. Question 6 Marks: 1/1 After he finishes working at his main job, Martin returns home, has dinner, then drives to his second job. Martin may deduct the mileage between his first job and the second job. Choose one answer. a. True Correct. b. False The deduction is based on the mileage between the first and the second job. p. 9-5 and Example 5 Correct Marks for this submission: 1/1. Question 7 Marks: 1/1 The cost of tolls and parking are not allowed if the automatic mileage method is used. Choose one answer. a. True Correct. b. False Tolls and parking expenses can be claimed in addition to the amount of the automatic mileage allowance. p. 9-6 Correct Marks for this submission: 1/1. Question 8 Marks: 1/1 In terms of qualifying for an office in the home deduction, employees must satisfy the same requirements as self-employed taxpayers. Choose one answer. a. True Correct. b. False Employees must meet an additional test. The use must be for the convenience of the employer rather than being appropriate and helpful. p. 9-20 Correct

Marks for this submission: 1/1. Question 9 Marks: 1/1 Both employees and self-employed individual taxpayers must use Schedule A of Form 1040 to report their business-related expenses. Choose one answer. a. True b. False Correct.

Self-employed persons must use Schedule C of Form 1040 to report their business-related expenses. p. 9-3 Correct Marks for this submission: 1/1. Question 10 Marks: 1/1 A taxpayer who retires and returns to the United States from an overseas job need not satisfy the work requirement rule in order to deduct moving expenses. Choose one answer. a. True Correct. b. False The retired taxpayer need not satisfy the employment requirements on returning to the U.S. See Global Tax Issues on page 9-30. Correct Marks for this submission: 1/1. Question 11 Marks: 1/1 During the year, Matthew travels from Boston to Moscow on business. His time was spent as follows: 2 days travel (one day each way), 3 days business, and 3 days personal. His expenses for the trip were as follows (meals and lodging reflect only the business portion): Air fare Lodging Meals and entertainment $3,200 600 1,200

Presuming no reimbursement, deductible expenses are: Choose one answer. a. $2,400.

b. $3,200. c. $3,800. d. $4,400. e. $5,000 f. None of the other answers are correct. $3,200 + $600 + (50% X $1,200) = $4,400. Since the 7-days-or-less exception applies, the full airfare ($3,200) is allowed. In applying the 7-day test, the departure travel date is not counted. p. 9-11 and Footnote 18 Correct Marks for this submission: 1/1. Question 12 Marks: 1/1 No deduction is allowed for the participant's contribution, but distributions from the plan are not subject to income tax. This statement describes the operation of: Choose one answer. a. Roth IRAs. b. Keogh (H.R. 10) plans. c. Traditional IRAs. d. Both Roth IRAs and Keogh (H.R. 10) plans, but not Traditional IRAs. e. Both Keogh (H.R. 10) plans and Traditional IRAs, but not Roth IRAs. Keogh and traditional IRAs provide an upfront benefit in the form of a deduction (or exclusion). Neither allows a tax-free withdrawal. What is described fits only the Roth IRA. pp. 9-23 and 9-24 Correct Marks for this submission: 1/1. Question 13 Marks: 1/1 Emma, the regional sales director for a lingerie company, pays $1,000 to obtain a skybox for an evening production of "Icearama International." The skybox holds 10 seats and Emma invites 8 clients to the event. Nonluxury seats sell for $40 each. The refreshments served to Emma and her clients cost $300. A substantial business discussion was held before the show and Emma has all necessary substantiation. Emmas deduction is: Choose one answer. a. $310. b. $330. Correct. Correct.

c. $350. d. $650.

Correct.

e. None of the other answers are correct. 50% X ($400 + $300) = $350. The $400 is calculated by multiplying the 10 seats by $40 per seat. Example 37 Correct Marks for this submission: 1/1. Question 14 Marks: 1/1 Sierra holds two jobs. Her main job is with Forest Corporation and her part-time job is with Valley Company. On a typical workday, she drives her car as follows: home to Forest, Forest to Valley, and Valley to home. Applicable mileage is as follows: Home to Forest Forest to Valley Valley to home On a typical day, Sierras deductible mileage is: Choose one answer. a. 10. b. 20. c. 28. d. 32. e. None of the other answers are correct. The deduction is based on the 10 mile distance between the two jobs (Forest to Valley). p. 9-5 and Example 5 Correct Marks for this submission: 1/1. Question 15 Marks: 1/1 Bart made the following gifts during the year: To Shane, a key client ($2 of the amount listed was for $52 gift wrapping) To Joshua, Barts secretary, on Joshuas birthday 29 To Shanna, Barts boss, at Christmas 35 Presuming proper substantiation, Barts deduction is: Choose one answer. a. $50. Correct. Miles 8 10 14

b. $52. c. $77. d. $116.

Correct.

e. None of the above. $27 + $25 = $52. The cost of gift wrapping is allowed. No deduction is available for a gift to a superior. p. 9-20 Correct Marks for this submission: 1/1. Question 16 Marks: 1/1 During the year, Shirley went from Wilmington to Santiago (Chile) on business. She spent three days on business, two days on travel, and five days on vacation. Shirleys total travel expenses expenses are: Air fare to and from Chile $2,000 Business Days Lodging 600 Business Days Meals 500 Business Days Entertainment 300 Shirleys deductible employee business travel expenses are: Choose one answer. a. $3,400. b. $3,000. c. $2,400. d. $2,000. e. None of the other answers are correct. $1,000 [(5 days business/10 day trip) X $2,000 (air fare)] + $600 + $400 [50%($500 + $300)] = $2,000. The air fare has to be allocated as Shirley did not meet either the seven days (or less) or less than 25% personal use exceptions for foreign travel. p. 9-11; Example 24 Correct Marks for this submission: 1/1. Question 17 Correct.

Marks: 1/1 During the year, Hugh went from Cleveland to Fairbanks on business. Preceding a fiveday business meeting, he spent four days vacationing at a dude ranch. Excluding the dude ranch costs, his expenses for the trip are: Air fare Lodging Meals Entertainment $1,800 600 500 300

Presuming no reimbursement, deductible expenses are: Choose one answer. a. $3,200. b. $3,050. c. $2,800. d. $1,900. e. None of the other answers are correct. $1,800 + $600 + $400 [50%($500 + $300)] = $2,800. No allocation is required for domestic transportation costs (i.e., the airfare). Example 20 Correct Marks for this submission: 1/1. Question 18 Marks: 1/1 In which of the following is a deduction allowed for contributions to the plan, and no income tax consequences result from distributions to the participant at retirement. Choose one answer. a. Roth IRAs. b. Traditional IRAs. c. Keogh (H.R. 10) plans. d. Both Roth IRAs and Traditional IRAs, but not Keogh (H.R. 10) plans. e. None of the other answers are correct. f. Both Traditional IRAs and Keogh (H.R. 10) plans, but not Roth IRAs. Correct. Correct.

A deduction is allowed for contributions to traditional IRAs and Keogh plans but not to Roth IRAs. Distributions are free of income tax in the case of Roth IRAs but not Traditional IRAs and Keogh (H.R. 10) plans. Thus, the combination of a deduction and tax-free distributions does not exist. pp. 9-23 and 9-24 Correct Marks for this submission: 1/1. Question 19 Marks: 1/1 Maggie, who holds a bachelor of education degree, is a middle school teacher in Hartford, Connecticut. The school board recently changed its minimum education requirement by prescribing five years of college training. Existing teachers, such as Maggie, are allowed 5 years in which to acquire the additional year of education. Pursuant to this requirement, Maggie spends her 2010 summer break attending University of Connecticut taking education courses. Her expenses are as follows: Books and tuition Meals Lodging Laundry while in travel status Transportation $4,500 800 900 350 950

Her education expense deduction is: Choose one answer. a. $7,500. b. $7,100. c. $6,750. d. $4,500. e. None of the other answers are correct. $4,500 + (50% X $800) + $900 + $350 + $950 = $7,100. p. 9-13 and Example 27 Correct Marks for this submission: 1/1. Question 20 Marks: 1/1 Which, if any, of the following expenses is a miscellaneous deduction not subject to the 2 percent floor? Choose one answer. a. Malpractice insurance premiums. Correct.

b. Union dues. c. Job hunting expenses. d. Hobby expenses. Correct. e. All of the above expenses are subject to the 2% limitation. All of the options are itemized deductions subject to the 2 percent floor. p. 9-27 Correct Marks for this submission: 1/1. Question 21 Marks: 1/1 During the year, Horace went from Sacramento to Portland, Maine. After five days of business meetings, he took four days of vacation to go sightseeing. Horaces expenses for the trip are as follows: Air fare $ 600 720 630 60

Lodging (9 days X $80) Meals (9 days X $70) Airport limo Horaces deduction is: Choose one answer. a. $1,117. b. $1,235. c. $1,950. d. $2,010.

Correct.

e. None of the other answers are correct. $600 + $400 ($80 X 5 days) + $175 [50% X ($70 X 5 days)] + $60 = $1,235. p. 9-9 and Example 20 Correct Marks for this submission: 1/1. Question 22 Marks: 0/1 Carl is the regional manager for a national chain of auto-parts stores and is based in Billings, Montana. When the company opens new stores in Rapid City, South Dakota, Carl is given the task of supervising their initial operation. For three months, he works weekdays in Rapid City and returns home on weekends. He spends $270 returning to

Billings but would have spent $290 had he stayed in Rapid City for the weekend. As to the weekend trips, how much, if any, qualifies as a deduction? Choose one answer. a. $0, since the trips are personal and not work related. b. $0, since Carls tax home has changed from Billings to Rapid City. c. $290. d. $270. e. None of the above. Carls assignment in Rapid City is temporary, so his tax home has not changed (choice b.). Carls deduction is limited to the lesser of what he actually spent and what he would have spent had he not returned home (choice d.). Example 10 Incorrect Marks for this submission: 0/1. Question 23 Marks: 1/1Due to a merger, Elizabeth transfers from New York City to Albuquerque. Under a new job description, she is reclassified from employee to independent contractor status. Her moving expenses, which are not reimbursed, are as follows: Transportation Meals Lodging Cost of moving household goods Penalty for breaking New York City apartment lease Elizabeths deductible moving expense is: $1,200 300 400 3,000 5,000

Incorrect.

Choose one answer. a. $4,600. b. $4,750. c. $4,900. d. $9,600. e. None of the other answers are correct. $1,200 (transportation) + $400 (lodging) + $3,000 (moving household goods) = $4,600. Meals are not qualified moving expenses nor are penalties for breaking a lease. It is immaterial that Elizabeths status as an employee changed to that of an independent contractor. p. 9-12 and Example 25 Correct Marks for this submission: 1/1. Question 24 Marks: 1/1 Jordan made the following gifts during the year: To Gabby, a key client ($10 of the amount listed was for gift wrapping)$50 Correct.

To Kelly, Jordan's secretary, on Kellys birthday To Bradley, Jordan's boss, at Christmas Presuming proper substantiation, Jordan's deduction is: Choose one answer. a. $60. b. $85. c. $90. d. $160. Correct.

40 70

e. None of the other answers are correct. $35 + $25 = $60. The cost of gift wrapping is allowed. No deduction is available for a gift to a superior. p. 9-20 Correct Marks for this submission: 1/1. Question 25 Marks: 1/1 Kyle is the city sales manager for Country Cooking, a national fast food franchise. Every working day, Kyle drives his car as follows: Miles Home to office 10 Office to Country Cooking No. 1 12 Country Cooking No. 1 to No. 2 14 Country Cooking No. 2 to No. 3 11 Country Cooking No. 3 to home 15 Kyles deductible mileage is:

Choose one answer. a. 0 miles. b. 15 miles. c. 37 miles. d. 52 miles. e. None of the above. 12 miles + 14 miles + 11 miles = 37 miles. The mileage for driving from his home to the office (10 miles) and from the last worksite to home (15 miles) is not deducible. Example 6 Correct Correct.

Tax acc chapt 1 exam:

As it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize gain in the year the installment sale took place. Answer: True Correct. False

The seller is taxed in the year the installment payments are received. REF: p. 1-30

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles. Choose one answer. a. True b. False

It is inconsistent with accounting rules, although it can be justified under the wherewithal to pay concept. p. 1-32 Correct

The annual exclusion, currently $13,000, is available for both gift and estate tax purposes. Answer:

True Correct.

False

The annual exclusion is not available for estate tax purposes. REF: p. 1-13

For individual taxpayers, the interest rate for income tax refunds (overpayments) is not the same as that applicable to assessments (underpayments). Answer: True Correct. False

There exists no difference in the applicable interest rates for individual taxpayers. REF: p. 1-24

The Federal income tax on corporations generates more revenue than the Federal income tax on individuals. Answer: True Correct. False

Just the opposite is the case. REF: Figure 1.1

The Federal estate tax was originally intended to prevent large concentrations of wealth from being kept within a family for many generations. Choose one answer. a. True

b. False

p. 1-11

A major disadvantage of a flat tax type of income tax is its complexity. Answer: True Correct. False

Just the opposite is the case. Advantage is its simplicity REF: p. 1-20

Marks: 1/1 Characteristics of the "Fair Tax" (i.e., national sales tax) include which, if any, of the following:d. Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes.

Equity considerations can be used to justify: Choose one answer.

a. A tax credit allowed for amounts spent to furnish care for cer minor or disabled dependents. b. Tax deductions which encourage home ownership. c. A Federal deduction for state and local income taxes.

d. Allowing farmers to expense (rather than capitalize) certain s

water conservation expenditures. e. None of the other answers are correct.

p. 1-28 Correct Marks for this s

Scott files his tax return 65 days after the due date. Along with the return, Scott remits a check for $50,000 which is the balance of the tax owed. Disregarding the interest element, Scott's total failure to file and to pay penalties are:

choose one answer. a. $750. b. $6,000. c. $7,500. d. $8,250. e. None of the other answers are correct.

Following the procedure set forth in Example 15, the penalty is determined as follows: Failure to pay penalty [0.5% X $50,000 X 3 (two months violation)] Plus: Failure to file penalty [5% ? $50,000 X 3 (three months violation)] Less: Failure to pay penalty Total penalties Correct $7,500 (750) 6,750 $7,500 $ 750

A characteristic of FUTA is that: Choose one answer. a. It is imposed on both employer and employee. b. It is imposed solely on the employee.

c. Compliance requires following guidelines issued by both state and Federal regulatory authorities.

d. It is applicable to spouses of employees but not to any childre under age 18. e. None of the other answers are correct.

FUTA is imposed only on the employer (choices a. and b.). Choice d. refers to FICA. Since the administration of FUTA is shared by Federal and state governments, employers must comply with the rules issued by each (choice c.). REF: p. 1-18 | p. 1-19

Which statement about state income taxes is false: Choose one answer. a. They often piggyback to the Federal version. b. Some states decouple from the Federal version. c. Never apply to visiting athletes. d. States provide occasional amnesty programs. e. Often apply to both individual and corporate taxpayers.

Many states piggyback to the Federal system (choice a.). Some states, due to revenue shortfalls, have decoupled from various provisions of the Federal version (choice b.). The "jock tax," although much criticized, is very much in being (choice c.). Some states even have had more than one amnesty period (choice d.). Invariably, states that have an individual income tax will have one that is applicable to corporations (choice e.). pp. 1-14, 1-15, and p. 1-16

Marks: 1/1

Federal excise taxes that are no longer imposed include: Choose one answer. a. Tax on air travel. b. Tax on wagering. c. Tax on the manufacture of sporting equipment. d. Tax on jewelry. e. None of the above.

REF: p. 1-9

The U.S. (either Federal, state, or local) does not impose: Choose one answer. a. Franchise taxes. b. Severance taxes. c. Occupational fees. d. Customs duties. e. Export duties.

REF: p. 1-11 | p. 1-17 | p. 1-18

Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is: Choose one answer. a. To take advantage of the per donee annual exclusion.

b. To avoid a future decline in value of the property transferred

c. To take advantage of the higher unified transfer tax credit av under the gift tax. d. To shift income to higher bracket donees. e. None of the above.

The per donee annual exclusion is only available for gift tax purposes (choice a.). Ideally, gifts should involve property that is expected to appreciate in value (choice b.). A higher unified tax credit is available for estate tax purposes (choice c.). Usually the donor is trying to shift future income to lower bracket donees (choice d.). REF: p. 1-14 Correct

Which, if any, of the following statements best describes the history of the Federal income tax? Choose one answer. a. It existed during the civil war.

b. The Federal income tax on corporations was held by the U. Supreme Court to be contrary to the U.S. Constitution.

c. The Federal income tax on individuals was held by the U.S. Supreme court to be allowable under the original U.S. Constit

d. Both the Federal income tax on individuals and on corporat were held by the U.S. Supreme Court to be contrary to the U.S Constitution. e. None of the other answers are correct.

REF: p. 1-3 Correct Surgical instruments owned and used in a physician's practice are an example of personal use personalty. Choose one answer. a. True b. False

This is an example of business use personalty. p. 1-8 and Footnote 8

Keeping two sets of books might be an indication of fraud on the part of the taxpayer. Choose one answer. a. True b. False

p. 1-23 and Example 11

Equity considerations can be used to justify: Choose one answer.

a. The treatment of gain resulting from an involuntary conver b. The installment sales rules. c. The NOL carryover and carryback rules. d. All of the above. e. None of the above.

The deferral of gain from involuntary conversions, the installment sales rules, and the NOL carryover and carryback rules are all equity considerations (options a., b. and c.). pp. 1-23 to 1-30 Social considerations can be used to justify: Choose one answer. a. The exclusion for accident and health plans. b. The installment sales rules. c. Deduction for research and experimental expenditures. d. The tax treatment of prepaid subscription revenue. e. None of the above.

The exclusion for accident and health plans are social considerations (options a.). The installment sales rules are an equity consideration (option b.). The deduction of research and experimental expenditures is based on economic considerations (option c.). The tax treatment of prepaid subscription revenue is a political consideration (option d). pp. 1-23 to 1-30 Correct Marks for this submission: 1/1.

Which of the following is not characteristic of the IRS audit procedure? Choose one answer.

a. The percentage of individual income tax returns that the IRS au significantly decreased over the last five years. b. An office audit takes place at the office of the IRS.

c. One of the factors that leads to an audit is the information provid informants.

d. IRS special agents are typically involved when fraud is suspecte e. All of the above arecharacteristic of the IRS audit procedure .

The number of returns audited by the IRS has significantly increased recently (choice a.). An office audit takes place at the office of the IRS (choice b.). The participation of a special agent occurs when fraud is suspected-the type of audit involved is immaterial (choice d). pp. 1-21 and 1-22 Political considerations can be used to justify: Choose one answer. a. The foreign tax credit. b. The credit for child and dependent care expenses. c. The deduction for charitable contributions. d. The tax treatment of prepaid subscription revenue. e. None of the other answers are correct.

The foreign tax credit is an equity consideration. The credit for child and dependent care expenses and the deduction for charitable contributions are both social consideration. The tax treatment of prepaid subscription revenue is a political consideration. pp. 1-23 to 1-30

Marks: 1/1

Which, if any, of the following is a typical characteristic of an ad valorem tax? Choose one answer.

a. Taxpayer compliance is greater for personal use property th real property.

b. The tax on automobiles never considers the value of the ve c. Few states impose a tax on real property.

d. The tax on intangibles generates considerable revenue sinc difficult for taxpayers to avoid. e. None of the above.

Taxpayer compliance is greater with real property (choice a.). All states impose a tax on realty (choice c.). Because it is easily avoided and does not generate much revenue, very few states impose a tax on intangibles (choice d.). pp. 1-7 and 1-8

Which of the following is characteristic of the IRS audit procedure? Choose one answer. a. The IRS uses a DIP score to select returns for audit. b. An office audit takes place at the office of the taxpayer.

c. The percentage of individual income tax returns audited h increased over the last ten years. d. Only IRS special agents can conduct field audits. e. None of the other answers are correct.

Although only about 1% of all returns are audited, the percentage of returns audited in the fiscal year ended Sept 30, 2007 was the highest since 1998. REF: p. 1-22 | p. 1-23

Marks: 0/1

Stealth taxes have the effect of generating additional taxes from higher income taxpayers. Answer: True Correct. False

Stealth taxes phase out (or eliminate) certain tax benefits from higher income taxpayers. REF: p. 1-33

Chapter 2 Exam

Review of attempt 1Finih eie

Started on Wedneda, 1 Feba 2012, 03:49 PM Completed on Thda, 2 Feba 2012, 07:32 PM Time taken 1 da 3 ho Marks 25/25 Grade 50 o of a maimm of 50 (100%)2/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 2/13

Coec. The ciaion i coec. REF: p. 2-18 CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action Response Time Ra score Grade 1 Gade Fale 16:43:57 on 1/02/12 1 1 2 Close&Grade False 16:43:57 on 1/02/12 1 1

3Mak: 1/1

Chooe one ane. a. Te b. Fale Coec. The Inenal Reene Code nee conol hen hee i a conflicing a ea beeen he Unied Sae and a foeign con. Secion 7872(d) indicae ha neihe he Code no a eaie conol in he cae of conadico poiion. Inead, he "la in ime" docine i ilied o ha he mo ecen iem i applicable. p. 2-20 CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action Response Time Ra score Grade 1 Gade Fale 07:48:14 on 2/02/12 1 1 2 Close&Grade False 07:48:14 on 2/02/12 1 1

4Mak: 1/1 Chooe

one ane. a. Te b. Fale Coec. The Inenal Reene Code a fi codified in 1954.

The fi codified eion a he Inenal Reene Code of 1939. The ne ecodificaion a in 1954. p. 2-2 CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action2/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 3/13

Response Time Ra score Grade 1 Gade Fale 16:53:02 on 1/02/12 1 1 2 Close&Grade False 16:53:02 on 1/02/12 1 1

5Mak: 1/1

Chooe one ane. a. Te b. Fale Coec. Pobabl he be combinaion of eleconic a eoce i o condc da-o-da ok on online acce em agmened ih CD eache hee i i jdged ciical o do o. J he oppoie i he cae. p. 2-24 CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action Response Time Ra score Grade 1 Gade Fale 16:54:13 on 1/02/12 1 1 2 Close&Grade False 16:54:13 on 1/02/12 1 1

6Mak: 1/1

Chooe one ane. a. Te b. Fale Coec. Regla deciion of he Ta Co geneall inole noel ie peiol eoled b he U.S. Ta Co. Noe, hoee, omeime he ie in a Regla deciion of he Ta Co ae no noel. p. 2-17 CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action Response Time Ra score Grade 1 Gade Fale 17:01:05 on 1/02/12 1 1 2 Close&Grade False 17:01:05 on 1/02/12 1 1

7 The compe-baed CPA eaminaion ha fo ecion ihefal e, mliple-choice, and cae die (called imlaion).2/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 4/13

Marks: 1/1

Answer: True False Correct. No true-false questions appear on the CPA exam. REF: p. 2-38 CorrectMarks for this submission: 1/1.History of Responses: # Action Response Time Ra score Grade 1 Grade False 17:08:53 on 1/02/12 1 1 2 Close&Grade False 17:08:53 on 1/02/12 1 1

8Marks: 1/1

Choose one answer. a. True b. False Correct. A Proposed Regulation under 274 of the Code would be cited as follows: Prop. Reg. 274. Regulation section numbers contain a prefix number (usually 1) followed by a period (such as, 1.). Therefore, the correct cite is Prop. Reg. 1.274. pp. 2-7 and 2-8 CorrectMarks for this submission: 1/1.History of Responses: # Action Response Time Ra score Grade 2 Grade False 19:30:39 on 2/02/12 1 1 3 Close&Grade False 19:30:39 on 2/02/12 1 1

9Marks: 1/1

Answer: True False A taxpayer must pay any tax deficiency assessed by the IRS and sue for a refund to bring suit in the U.S. District Court. Correct.Onl in the Ta Court can jurisdiction be obtained ithout first paing the2/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 5/13

assessed ta deficienc. REF: Concept Summar 2.1

CorrectMarks for this submission: 1/1.History of Responses: # Action Response Time Ra score Grade 1 Grade True 17:57:54 on 1/02/12 1 1 2 Close&Grade True 17:57:54 on 1/02/12 1 1

10Marks: 1/1 Answer:

True False Temporary Regulations are published in The Fedeal Regie. Correct. Proposed, Temporary and final Regulations are published in the Federal Register, in the Internal Revenue Bulletin, and by major tax services. REF: p. 2-8 CorrectMarks for this submission: 1/1.History of Responses: # Action Response Time Ra score Grade 1 Grade True 18:38:39 on 1/02/12 1 1 2 Close&Grade True 18:38:39 on 1/02/12 1 1

11Marks: 1/1

Choose one answer. a. Legal periodicals. b. Treatises. c. Technical Advice Memoranda. Correct. d. Legal opinions. e. None of above. Which of the following is substantial authority for purposes of the accuracy related penalty? Substantial authority for purposes of the accuracy-related penalty include the following secondary materials: letter rulings, general counsel and technical advice memoranda, and the Bluebook. p. 2332/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 6/13

CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action Response Time Ra score Grade 1 Gade Technical Adice Memoanda. 18:42:45 on 2/02/12 11

2 Close&Grade Technical Adice Memoranda. 18:42:45 on 2/02/12 11

12Mak: 1/1 Chooe

one ane. a. 40 T.C. 1018. b. 159 F. 2d 848 (CA-2, 1947). c. 354 F. Spp. 1003 (D. C. Ga, 1972). d. 914 F. 2d 396 (CA-3, 1990). Coec. Which ciaion efe o a Thid Cici Co of Appeal deciion? REF: p. 2-19 CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action Response Time Ra score Grade 2 Gade 914 F. 2d 396 (CA-3, 1990). 18:49:54 on 2/02/12 11 3 Close&Grade 914 F. 2d 396 (CA-3, 1990). 18:49:54 on 2/02/12 11

13Mak: 1/1 Chooe

one ane. a. Penal ae. b. S Copoaion. c. Ecie ae. d. Pane and Panehip. Coec. e. None of hee opic. Sbchape K of he Inenal Reene Code coe ha opic? Sbchape K coe Pane and Panehip. p. 2-6 CoecMak fo hi bmiion: 1/1.2/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 7/13

History of Responses: # Aci Ree Tie Ra ce Gade

1 Grade Partners and Partnerships. 20:22:10 on 1/02/12 11 2 Ce&Gade Pae ad Paehi. 20:22:10 1/02/12 11

14Marks: 1/1 Choose

one answer. a. Give equal weight to the Code and regulations. Correct. b. Give more weight to the Code rather than to a regulation. c. Give more weight to the regulation rather than to the Code. d. Give less weight to the Code rather than to a regulation. e. None of the other answers are correct. In assessing the importance of a regulation, an IRS agent must: REF: . 2-8, 2-9, and 2-28 CorrectMarks for this submission: 1/1.History of Responses: # Aci Ree Tie Ra ce Gade 1 Grade Give equal weight to the Code and regulations. 20:25:33 on 1/02/12 11 2 Ce&Gade Gie ea eigh he Cde ad egai. 20:25:33 1/02/12 11

15Marks: 1/1

Choose one answer. a. U.S. Tax Court. b. U.S. District Court. Correct. c. U.S. Court of Federal Claims.

d. Small Cases Division of the Tax Court. Which trial courts jurisdiction depends on the geographical location of the taxpayer?2/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 8/13

. U.S. S C REF: . 2-12 C S 2.1 CM : 1/1.H R: # Action Response Time Ra score Grade 1 G U.S. D C. 20:26:35 1/02/12 1 1 2 Close&Grade U.S. District Court. 20:26:35 on 1/02/12 1 1

16M: 1/1 C

. . T 16 . C. . T R M . . T IRS . . A . . N . W no U.S. T C? T 19 . C S 2-1 CM : 1/1.H R: # Action Response Time Ra score Grade 1 G T 16 . 20:40:29 1/02/12 1 1 2 Close&Grade There are 16 judges. 20:40:29 on 1/02/12 1 1

17M: 1/1 C

. . P . . E . . E . S A I R C ?2/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 9/13

d. Emplomen ae. e. Income Tae Coec. Sbile A coe income ae. p. 2-6 CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action Response Time Ra score Grade 1 Gade Income Tae 20:42:17 on 1/02/12 1 1 2 Close&Grade Income Taes 20:42:17 on 1/02/12 1 1

18Mak: 1/1 Chooe

one ane. a. Taaion Commiee. b. Wa and Mean Commiee. c. Finance Commiee. Coec. d. Bdge Commiee. e. None of he ohe ane ae coec. Ta bill ae handled b hich commiee in he U.S. Senae? p. 2-4 CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action Response Time Ra score Grade 1 Gade Finance Commiee. 20:54:01 on 1/02/12 1 1 2 Close&Grade Finance Committee. 20:54:01 on 1/02/12 1 1

19Mak: 1/1 Chooe

one ane. a. Income ae. Coec. b. Eae and gif ae. c. Ecie ae. d. Emplomen ae. Sbile A of he Inenal Reene Code coe hich ae?2/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 10/13

e. All of the other answers. p. 2-5 CorrectMarks for this submission: 1/1.History of Responses: # Acion Repone Time Ra coe Gade

1 Grade Income taxes. 20:55:41 on 1/02/12 1 1 2 Cloe&Gade Income ae. 20:55:41 on 1/02/12 1 1

20Marks: 1/1

Choose one answer. a. Actions on Decisions. b. Revenue Procedures. c. Technical Advice Memoranda. d. General Counsel Memoranda. e. All of the other answers are administrative sources. Correct. Which of the following is no an administrative source of the tax law? REF: p. 2-7 to 2-11 Exhibit 2.1 CorrectMarks for this submission: 1/1.History of Responses: # Acion Repone Time Ra coe Gade 1 Grade All of the other answers are administrative sources. 21:02:12 on 1/02/12 11 2 Cloe&Gade All of he ohe ane ae adminiaie oce. 21:02:12 on 1/02/12 11

21Marks: 1/1

Choose one answer. a. The Supreme Court did not disagree with the First Circuit Court of Appeals. b. The First Circuit Court of Appeals disagreed with the Tax Court. Correct. What statement is no true about this citation: C. W. Seadman, 50 T.C. 369 (1968), aff'd 424 F.2d 1 (CA-1, 1970), cert. den. 400 U.S. 869 (1970)?2/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 11/13

c. The apae did no hae o pa he

deficienc befoe going o co. d. The Ta Co deciion a on page 369. e. All of he aboe ae e. pp. 2-21 and 2-22 CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action Response Time Ra score Grade 1 Gade The Fi Cici Co of Appeal diageed ih he Ta Co. 19:07:56 on 2/02/12 11 2 Close&Grade The First Circuit Court of Appeals disagreed ith the Ta Court. 19:07:56 on 2/02/12 11

22Mak: 1/1

Chooe one ane. a. 1913. b. 1933. c. 1954. Coec. d. 1957. e. None of he aboe. The Inenal Reene Code a codified in hich of he folloing ea? REF: p. 2-2 CoecMak fo hi bmiion: 1/1.Hio of Repone: # Action Response Time Ra score Grade 1 Gade 1954. 21:11:47 on 1/02/12 1 1 2 Close&Grade 1954. 21:11:47 on 1/02/12 1 1

23 Wha aemen i no e ih epec o TempoaReglaion?2/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 12/13

Marks: 1/1

Choose one

answer. a. May be cited as precedent. b. Issued as Proposed Regulations. c. Automatically expire within three years after the date of issuance. d. Found in the Federal Register. e. All of the above statements are true. Correct. pp. 2-7 and 2-8 CorrectMarks for this submission: 1/1.History of Responses: # Acion Repone Time Ra coe Gade 1 Grade All of the above statements are true. 21:14:47 on 1/02/12 11 2 Cloe&Gade All of he aboe aemen ae e. 21:14:47 on 1/02/12 11

24Marks: 1/1

Choose one answer. a. Temporary. b. Legislative. Correct. c. Interpretative. d. Procedural. e. None of the other answers are correct. Which of the following types of Regulations has the highe tax validity? REF: p. 2-7 p. 2-29 CorrectMarks for this submission: 1/1.History of Responses: # Acion Repone Time Ra coe Gade 1 Grade Legislative. 21:15:38 on 1/02/12 1 1 2 Cloe&Gade Legilaie. 21:15:38 on 1/02/12 1 12/2/12 ACC-3400: Chapter 2 Exam open.uvu.edu/mod/qui/review.php?attempt=392395&showall=true 13/13

25Marks: 1/1

Choose

one answer. a. Research Institute of America. b. Commerce Clearing House. Correct. c. Prentice-Hall. d. LexisNexis. e. None of the above. Which publisher offers the Standard Federal Tax Reporter? REF: p. 2-22 CorrectMarks for this submission: 1/1.History of Responses: # Action Response Time Ra score Grade 1 Grade Commerce Clearing House. 21:25:29 on 1/02/12 11 2 Close&Grade Commerce Clearing House. 19:32:40 on 2/02/12 11

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Chapter 3:Marks: 1/1

Tad claims his 70-year-old father as a dependent. Tad may also claim an additional standard deduction for his father's age. Choose one answer. a. True b. False Correct.

The additional standard deduction is only available for the taxpayer or the spouse, not the dependents. The father could claim the additional standard deduction for being 65 or over if he files his own return. Example 10 Correct Marks for this submission: 1/1.

Lope is a citizen of Spain and a resident of the U.S. If he files a U.S. income tax return, Lope can claim the standard deduction. Choose one answer. a. True b. False Correct.

Either U.S. citizenship or residency will suffice. p. 3-9 Correct Marks for th Recent changes to eliminate the marriage penalty place married persons filing seperately in the same tax position as single persons. Choose one answer. a. True b. False Correct.

Many tax benefits (e.g. child tax credit, earned income credit) ate still unavailable to married persons filing seperately. p. 3-27

Correct The Tax Tables will yield the exact same tax liability as the Tax Rate Schedules. Choose one answer. a. True b. False Correct.

The tax tables assign the liability from the middle of a range of taxable income to a range of taxable income. The Tax Rate Schedule may be a few dollars more or less than the tax table amount.

Ref p. 3-29 Correct Marie furnishes more than 50% of the support of her son and daughter-in-law who live with her. Even if the son and daughter-in-law file a joint return, Marie can claim them as dependents. Choose one answer. a. True b. False Correct.

Only if certain conditions are satisfied (e.g., they did not have to file but did so to obtain a refund), the son and daughter-in-law can qualify as Marie's dependents. p. 3-18 and Example 28 Correct Marks for this submission: 1/1.

In 2010, Sally is 72 and single. If she has itemized deductions of $6,000, she should claim the standard deduction alternative. Answer: True Correct. False

The standard deduction yields $7,250 ($5,800 + $1,450). Example 7 Correct Marks for this submission: 1/1.

Marks: 1/1

Stealth taxes are directed at higher income taxpayers. Choose one answer.

a. True b. False

Correct.

Such stealth taxes as the phaseout of exemptions do not begin until taxpayers reach significant income levels. Tax in the News on p. 3-20 Correct

Gwen, a widow, dies on January 7, 2011. Even though she lived for only a week, her final income tax return can claim the full amount of the standard deduction for 2011. Choose one answer. a. True b. False Correct.

No proration of the standard deduction is necessary in this case. p. 3-9 Correct Marks for this submission: 1/1. The amount of the standard deduction allowed varies with the filing status of the taxpayer involved. Choose one answer. a. True b. False Correct.

pp. 3-6 to 3-8 and Tables 3-1 and 3-2 Correct Marks for this submission: 1/1.

As used in the income tax formula, gross income would not include the receipt of a loan the taxpayer obtained from a bank. Choose one answer. a. True b. False Correct.

Borrowing money does not result in gross income. REF: Example 1 Correct

Marks: 1/1

In 2011, Weston had the following transactions: Salary Damages for personal injury (car accident) Damages (punitive-same accident) Life insurance proceeds (Weston was the beneficiary of his uncle's policy) Repayment of a loan made to sister several years ago Lottery prize Weston's AGI is: Choose one answer. a. $70,000. b. $120,000. c. $140,000. d. $170,000. e. None of the other answers are correct. Correct. $ 60,000 20,000 50,000 100,000 20,000 10,000

$120,000 (60,000 Salary + $50,000 Punitive Damages + $10,000 Lottery prize). The compensation for personal injury and life insurance proceeds are excluded from income. The loan repayment is a return of his capital.

p. 3-5, 3-34 and exhibit 3-3 Correct

For tax year 2011, an exception to the kiddie tax rules includes: Choose one answer. a. A child who is a full-time student. b. A child who is 18 years old. c. A child who is married and files Correct. a joint return. d. A child whose unearned income is more than half of his or her support. e. None of the other answers are correct. Student status (choice a.) is relevant only to include, in the application of the tax, those at least 19 but under age 24. Choice c. relates to pre-2008 rules. Choice d. would be an exception if the reference was to earned income (not unearned income). Correct Marks for this submission: 1/1.

Marks: 1/1

Which, if any, of the following statements relating to the standard deduction is correct? Choose one answer. a. If a taxpayer dies during the year, his (or her) standard deduction must be prorated. b. If spouses file separate returns, both spouses must claim the standard deduction (rather than itemize their deductions from AGI).

c. If a taxpayer is claimed as a Correct. dependent of another, his (or her) additional standard deduction is allowed in full (i.e., no adjustment is necessary). d. If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed. In the case of death, no apportionment is required and the full standard deduction is allowed (choice a.). If married taxpayers file separate returns and one spouse itemizes, the other spouse must also itemize. However, there is no requirement that they each claim the standard deductionalthough they may choose to do so (choice b.). A basic standard deduction is allowed for dependents although its determination is subject to special rules (choice d.). REF: Example 10 Correct

Which of the following, if any, is considered in applying the support test for dependency exemption purposes? Choose one answer. a. A scholarship received by the person to be claimed as a dependent. b. The income of a dependent that could have been used for support. c. The citizenship of the person to be claimed as a dependent. d. Capital expenditures made on behalf of the person to be claimed as a dependent. e. None of the above. Correct.

A scholarship (choice a.) is disregarded. The income of a dependent (choice b.) would be relevant only if used for support. Such income is, of course, fully considered in applying the gross income test. The citizenship of the dependent (choice c.) has nothing to do with the support test. p. 3-11 and Examples 13 to 15 Correct Marks for this submission: 1/1.

Gerald has the following capital transactions: LTCG Long-term collectible gain STCG STCL After the netting process, the following results: Choose one answer. a. Long-term collectible gain of $1,000. b. LTCG of $3,000, Long-term collectible gain of $1,000, and a STCL of $3,000. c. LTCG of $3,000, Long-term collectible gain of $1,000, and a STCL carryover to 2003 of $3,000. d. LTCG of $1,000. e. None of the other answers are correct. First, the STCG and STCL are combined, resulting in a STCL of $3,000. Of this STCL, $1,000 is applied against the collectible gain of $1,000, and the $2,000 balance is applied against the LTCG of $3,000. The result is a LTCG of $1,000. Example 47 Correct Tim, age 16, is claimed as a dependent by his grandmother. During 2011, Tim had interest income from City of Omaha bonds of $1,000 and earnings from a part-time job of $700. Tim's taxable income is: Choose one answer. a. $0. b. $1,700 - $700 - $850 = $150. c. $1,700 - $1000 = $750. d. $1,700 - $850 = $850. e. None of the other answers are correct. Correct. Correct. $3,000 1,000 2,000 5,000

His taxable income less his exemption is less than zero. 700-(700+300) Municipal bond interest is not taxable. p. 3-9, Exhibit 3-1 Correct Hubert and Edie filed a joint return. They provide more than 50% of the support of Sophie, Gabe, and Isaiah. Sophie (age 19) is Hubert's niece and earns $9,000 from a part-time job. Gabe (age 25) is their son and is a full-time law student. He received from the university a $5,600 scholarship for room and board. Isaiah is Edie's father and is a citizen and resident of Israel. How many personal and dependency exemptions can Hubert and Edie claim on their Federal income tax return? Choose one answer. a. Two. b. Three. c. Four. d. Five. e. None of the above. Correct.

Hubert and Edie can claim two personal exemptions. They cannot claim Sophie and Gabe due to the gross income test. Sophie is not a child under age 19 and Gabe, although a full-time student, is not under age 24. In Gabes case, the taxable portion (i.e., room and board) is not disregarded in applying the gross income test. Edies father does not qualify as their dependent due to the citizenship or residency test. pp. 3-13 and 3-14 Correct

Marks: 1/1

Perry is in the 33% tax bracket and had the following capital asset transactions: Long-term gain from the sale of a coin collection (held 10 years) Long-term gain from the sale of a land investment (held 4 years) Short-term gain from the sale of a stock investment (held for $30,000 10,000 4,000

8 months) Perry's tax consequences from these gains are as follows: Choose one answer. a. (15% X $10,000) + (28% X $30,000) + (33% X $4,000) b. (15% X $30,000) + (33% X $4,000) c. (5% X $10,000) + (28% X $30,000) + (33% X $4,000) d. (15% X $40,000) + (33% X $4,000) e. None of the other answers are correct. Collectibles are taxed at a maximum of 28%, while long-term capital gains are subject to a top rate of 15%. Short-term capital gains are treated the same as ordinary income. p. 3-35 Correct Marks for this submissi Correct.

In which, if any, of the following situations may the individual not be claimed as a dependent of the taxpayer? Choose one answer. a. A former spouse who does not live with the taxpayer (divorce took place two years ago). b. A stepmother who does not live with the taxpayer. c. An unmarried daughter who lives with the taxpayer. d. A half brother who does not live with the taxpayer. e. An unrelated party who lives with the taxpayer. Correct.

A former spouse does not meet the relationship test. All of the other parties either satisfy the relationship or member of the household test. p. 3-13 Correct Which of the following unmarried taxpayers may file as a head of household in 2011? Ron provides all the support for his mother, Mary, who lives by herself in an apartment in Fort Lauderdale. Ron pays the rent and other expenses for the apartment and properly claims his mother as a dependent. Tammy provides over one-half the support for her 20-year old grandson, Dan. Dan earned $2,700 in 2011 working at a fast food restaurant and is saving his money to attend college in 2012. Dan lives in Tammy's home. Joe's wife left him late in December of 2010. No legal action was taken and Joe has not heard from her in 2011. Joe supported his 8-year-old son, who lived with him throughout 2011. Choose one answer. a. Ron only. b. Tammy only. c. Joe only. d. Ron and Joe only. e. Ron, Tammy, and Joe. Correct.

Ron may file as a head of household. His mother is not required to live in his household in order for him to qualify as a head of household. Tammy can claim Dan as a dependent because Dan is subject to the gross income requirement under the qualifying relative rules; but, made less than the exemption amount. Joe can file as a head of household under the abandoned spouse rules. pp. 3-30 and 3-31 Correct Marks for this submission: 1/1.

Which, if any, of the following is a deduction for AGI, not a deduction from AGI? Choose one answer. a. Real estate taxes paid.

b. Mortgage interest paid. c. State income taxes withheld. d. Contribution to Individual Retirement Account. e. All of the above. Correct.

All of the choices listed are deductions from AGI except Individual Retirement Account contribution (option d). pp. 3-5 and 3-6 and Exhibit 3.3 Correct

During 2011, Joan sold the following assets: business equipment for a $5,000 loss, stock investment for a $7,000 loss, and her principal residence for a $16,000 loss. Presuming adequate income, how much of these losses may Joan claim on her 2011 return? Choose one answer. a. $3,000. b. $8,000. c. $12,000. d. $28,000. e. None of the above. Correct.

The loss on the business equipment is an ordinary loss, while the loss on the stock investment is a capital loss. The ordinary loss is deducted in full. For the net capital loss of $7,000, only $3,000 can be deducted in 2011. The loss on the principal residence is personal and, therefore, cannot be deducted. pp. 3-34 to 3-36, and Example 33 Correct

Marks: 1/1

Troy and Edie are married and under 65 years of age. During 2011, they furnish more than half of the support of their 18-year old daughter, Jobeth, who lives with them.

Jobeth earns $15,000 from a part-time job, most of which she sets aside for future college expenses. Troy and Edie also provide more than half of the support of Troy's cousin who does not live with them. Edie's father, who died on January 3, 2011, at age 80, has for many years qualified as their dependent. How many personal and dependency exemptions should Troy and Edie claim? Choose one answer. a. Two. b. Three. c. Four. d. Five. e. None of the other answers are correct. Four (Troy, Edie, Jobeth, and the father). Jobeth can be claimed because as a qualifying child she is not subject to the gross income test. Troys cousin does not meet the relationship test because he is not a member of their household. It is assumed that Edies father, as was true in the past, qualified as a dependent up to the point of death. pp. 3-10, 3-11, and 3-13 Correct Correct.

Gladys, age 70, is claimed as a dependent on her sons tax return. During 2011, she had interest income of $4,900 and $800 of wages from a part-time job. Gladyss taxable income is: Choose one answer. a. $-0-. b. $3,150. c. $4,600. d. $3,900. e. None of the other answers are correct. Corrrect.

$5,700 gross income greater of $950 or ($800 earned income + $300) - $1,450 (additional standard deduction for age 65 and older) = $3,150. Example 10 Correct

Marks: 1/1

In 2011, Scott had the following transactions: $30,000 Wages earned 10,000 Lottery prize 50,000 Life insurance proceeds 4,000 Contribution to traditional IRA (Individual Retirement Account) 2,000 Medical insurance premium payments Scott's AGI for 2011 is: Choose one answer. a. $34,000. b. $36,000. c. $86,000. d. $90,000. e. None of the other answers are correct Correct.

$30,000 (wages) + $10,000 (prize) - $4,000 (traditional IRA contribution) = $36,000. The life insurance proceeds are not taxable, and the medical insurance payment is a deduction from AGI. Exhibits 3-1, 3-2, 3-3, and Examples 3 and 4 Correct

Chapter 4:

Mabel is age 65 and lives on her Social Security benefits and gifts from her son, Fred. Fred is a full-time teacher. He has written a book and receives royalties. This year Fred directed the publisher to make the royalty check payable to Mabel because she needs the money for support. Mabel must include the amount of the royalty check in her gross income. Choose one answer. a. True b. False Correct.

The royalties must be included in the gross income of Fred, the taxpayer who earned it. pp. 4-14 and 4-15 Correct

Taxable income and financial accounting income should always be the same because the goals of the Federal income tax system and financial accounting are the same. Choose one answer. a. True b. False Correct.

The principal goal of the Federal income tax system is to raise revenues in an equitable manner, whereas the goal of financial accounting is to present information to investors and potential investors to assist them in their decisions. pp. 4-4 and 4-5 Correct Marks for this submission: 1/1. ABC Corporation mails out its annual Christmas bonuses to employees on December 23rd. Ed, a cash basis taxpayer, is an employee who is on a ski trip until January 3rd of the new year, but is aware that his annual Christmas bonus arrives on the 28th of December. Ed can delay reporting the income from the bonus until the new year. Choose one answer. a. True

b. False

Correct.

The income was set aside and made available to Ed in December. p. 4-10 Correct

Marks: 1/1

An advantage to operating a business as a partnership is that the partner has no gross income from the partnership unless the partner makes a withdrawal during the year. Choose one answer. a. True b. False Correct.

The partnership profits flows through to the partners regardless of whether they are distributed to the partners. Therefore, each partner must include his or her share of the partnership profits in gross income. p. 4-16 Correct

In the case of a gift loan of less than $100,000, the imputed interest rules apply if the donee has net investment income of over $1,000. Choose one answer. a. True b. False Correct.

The imputed interest rules apply to gift loans. However, if the amount of the loan is for $100,000 or less, the imputed interest cannot exceed the borrower's net investment income for the tax year. If net investment is $1,000 or less, it is considered to be $0. pp. 4-25 and 4-26 Correct Marks for this submission: 1/1.

Paula transfers stock to her former spouse, Fred. The transfer is pursuant to a divorce agreement. Paula's cost of the stock was $50,000 and its fair market value on the date of the transfer is $75,000. Fred later sells the stock for $78,000. Fred's recognized gain from the sale of the stock is $3,000. Choose one answer. a. True b. False Correct.

Fred's basis is $50,000, the same as Paula's basis. So Fred's recognized gain is $28,000 ($78,000 - $50,000). p. 4-19 and Example 31 Correct Jeff owned stock that decreased in value by $15,000 during the year, but he did not sell the stock. He earned $40,000 salary, but received only $29,000 because $11,000 in taxes were withheld. Jeff saved $5,000 of his salary and used the remainder for personal living expenses. Jeff's economic income exceeded his gross income for tax purposes for the year. Choose one answer. a. True b. False Correct.

Jeffs economic income would be reduced by the unrealized losses on his stock. However, these unrealized losses are not recognized for tax purposes until the securities are sold. pp. 4-3 to 4-5 Correct

In the case of a below-market loan for which there is no exception to the imputed interest rules, the borrower must recognize imputed interest income.

Choose one answer. a. True b. False Correct.

The lender must recognize imputed interest income. p. 4-23 and Concept Summary 4-2 Correct Marks for this submission: 1/1

Delilah purchased an annuity for $60,000 in 2011. Under the contract, Delilah will receive $1,000 each month for the rest of her life. According to the actuarial estimates, Delilah will live to receive 200 payments and will receive a 3% return on her original investment. Choose one answer. a. If Delilah lives to collect more than 200 payments, she must amend her prior years' returns to increase her taxable portion of each payment received in the past. b. If Delilah collects $12,000 in 2011, $8,400 is treated as a recovery of capital and thus is not taxable. c. If Delilah lives to collect more than 200 payments, all amounts received after the 200th payment are excluded from her gross income. d. If Delilah dies after collecting a total of 100 payments, she has an economic loss that is deductible on her final tax return. e. None of the other answers are correct. Correct.

Options a. and b. are simply

Tax Accounting Acc 3400 Chapter Exams

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