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RD, Certified Public Accountant (CPA)
Category: Finance
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Experience:  MBA, CPA
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Taxpayer's total tax liability is $4,000

Customer Question

I have a total of 16 question that I need help with, but i am not able to post everything. How do I post the complete questions?

True or False

1. If a taxpayer's total tax liability is $4,000, taxable income is $20,000 and total economic income is $40,000, then the effective tax rate is 20 percent.

2. Generally, deductions for adjusted gross income are personal expenses specifically allowed by tax law.

3. A partnership must generally use the same tax year of the partners who own the majority of partnership income and capital.

4. The definition of income for income tax purposes is closer to the accountant's concept of income than to the economist's concept and generally relies on objectivity.

5. Upon the sale of property with an adjusted basis, a portion of the selling price equal to the basis in the property is considered a return of capital to the seller and is therefore not taxable.

6. Itemized deductions are deductions for AGI.

7. Medical expenses paid on behalf

of an individual who could be the taxpayer's dependent except for the gross income or joint return tests are deductible as itemized deductions.

8. An employer-employee relationship exists where the employer has the right to control and direct the individual providing services with regard to the end result and the means by which the result is accomplished.

9. A taxpayer sells an asset with a basis of $25,000 to an unrelated party for $26,000. The taxpayer has a realized gain of $1,000.

10. A loss incurred in the sale or exchange of property is deductible only if the property is used in a trade or business or held for investment.

11. Most of the property depreciated under the original ACRS system is now fully depreciated.

12. In a like-kind exchange, both the property transferred and the property received must be held either for productive use in a trade or business or for investment.

13. Maxwell owns an unincorporated business and has $20,000 of Sec. 1231 gains and $22,000 of Sec. 1231 losses. He must report a capital loss of $2,000 on his tax return.

14. An example of an AMT tax preference is the excess of accelerated depreciation over the straight-line depreciation amount for real property placed in service before 1987.

Multiple Choice

1. Helen, who is single, is considering purchasing a residence that will provide a $20,000 tax deduction for property taxes and mortgage interest. If her marginal tax rate is 15% and her effective tax rate is 10%, what is the amount of Helen's tax savings from purchasing the residence?



  • a. $2,000

  • b. $3,000

  • c. $17,000

  • d. $18,000


2. David's father is retired and receives $14,000 per year in social security benefits. David's father saves $4,000 of the benefits and spends the remaining $10,000 for his support. How much support must David provide for his father to meet the dependent support requirement?

a. $10,000

b. $10,001

c. $14,000

d. $14,001

3. All of the following are acceptable accounting tax years with the exception of



  • a. an S corporation year ending October 31.

  • b. a corporate tax year ending on February 15.

  • c. a corporate tax year ending on April 30.

  • d. a partnership tax year ending on October 31 with three equal partners whose tax years end on September 30, October 31, and November 30.


4. In the current year, Marlena earned a salary of $50,000. She consumed $25,000 of food, clothing, housing and medical care. Assets owned by Marlena at the beginning of the year had a value of $110,000 (including $10,000 of saved salary); at the end of the year the value was $125,000. What is the amount of Marlena's economic income and her accounting income?

Economic income Accounting income

a. $15,000 $50,000

b. $15,000 $40,000

c. $40,000 $50,000

d. $40,000 $40,000

5. During the year, Cathy received the following:



  • Dividends of $1,000 from Lindsay corporation. Cathy's father owned the stock and directed the corporation to send the dividends to Cathy.

  • A car worth $20,000 for being the 100th customer at a car dealership.

  • $2,500 cash gift from her uncle.

  • $10,000 inheritance from her grandmother.


What amount must Cathy include in gross income?



  • a. $20,000

  • b. $21,000

  • c. $31,000

  • d. $33,500


6. On Form 1040, deductions for adjusted gross income include the amounts paid for all of the following except

a. alimony.



  • b. home mortgage interest.

  • c. student loan interest.


d. moving expenses.

7. Van pays the following medical expenses this year

-$500 for doctor bills for Van's son who is claimed as a dependent

by Van's former spouse.

-$300 for Van's eyeglasses.

-$900 for Van's dental work.

-$800 for Van's face lift. Van, a newscaster, is worried about

the wrinkles around his eyes.

How much can Van include on his return as qualified medical expenses before limitation?

a. $1,200

b. $1,400

c. $1,700

d. $2,500

8. Allison, who is single, incurred $3,500 for unreimbursed employee expenses, $6,500 for mortgage interest and real estate taxes on her home, and $500 for investment counseling fees. Allison's AGI is $80,000. Allison's allowable deductions from AGI are

a. $6,500.

b. $8,400.

c. $8,900.

d. $10,500.

9. Antonio owns land held for investment with a basis of $28,000. The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000. What is Antonio's realized gain?



  • a. $0

  • b. $20,000

  • c. $28,000

  • d. $48,000


10. All of the following losses are deductible except



  • a. decline in value of securities.

  • b. total worthlessness of securities.

  • c. sale or exchange of business property.

  • d. destruction of personal use property by fire, storm, or casualty.


11. Joan bought a business machine for $10,000 on January 1, 2000, and later sold the machine for $7,800 when the total allowable depreciation is $3,500. The depreciation actually taken on the tax returns totaled $3,000. Joan must recognize a gain (or loss) of

a. no gain or loss.



  • b. (3,200).

  • c. $800.


d. $1,300.

12. Matthew owns a warehouse that is used in business while Pamela owns land. Matthew exchanges the warehouse for the land, which will be held for investment. The FMV of the warehouse is $200,000 (basis $120,000) and the warehouse is subject to a mortgage of $40,000, which is assumed by Pamela. Matthew receives $10,000 cash and the land, which has a FMV of $150,000 (basis of $130,000 to Pamela). Pamela must recognize a gain of

a. $ -0-.

b. $ 20,000.

c. $ 60,000.

d. $ 70,000.

13. Daniel recognizes $35,000 of Sec. 1231 gains and $25,000 of Sec. 1231 losses during the current year. The only other Sec. 1231 item was a $4,000 loss three years ago. This year, Daniel must report

NLTCG Ordinary Income

a. $10,000 $ 0.



  • b. $ 6,000 $ 4,000.

  • c. $ 4,000 $ 6,000.


d. $ 4,000 $10,000.

14. Lester, a widower qualifying as a surviving spouse, has $209,000 of salary, five personal and dependent exemptions and itemizes deductions. Lester must use which form to report his taxable income?

a. form 1040ES

b. form 1040EZ

c. form 1040A

d. form 1040

15. Gwen's marginal tax bracket is 25%. Gwen pays alimony of $24,000 per year. Gwen's after- tax cost for the $24,000 payment is

a. $-0-.

b. $6,000.

c. $18,000.

d. $24,000.

16. In computing the alternative minimum taxable income, no deduction is allowed for

a. alimony.

b. moving expenses.

c. personal exemptions.

d. individual retirement accounts.

Submitted: 5 years ago.
Category: Finance
Expert:  RD replied 5 years ago.

1. If a taxpayer's total tax liability is $4,000, taxable income is $20,000 and total economic income is $40,000, then the effective tax rate is 20 percent. False

2. Generally, deductions for adjusted gross income are personal expenses specifically allowed by tax law. True

3. A partnership must generally use the same tax year of the partners who own the majority of partnership income and capital. True

4. The definition of income for income tax purposes is closer to the accountant's concept of income than to the economist's concept and generally relies on objectivity. True

5. Upon the sale of property with an adjusted basis, a portion of the selling price equal to the basis in the property is considered a return of capital to the seller and is therefore not taxable. True

6. Itemized deductions are deductions for AGI. False

7. Medical expenses paid on behalf

of an individual who could be the taxpayer's dependent except for the gross income or joint return tests are deductible as itemized deductions. True

8. An employer-employee relationship exists where the employer has the right to control and direct the individual providing services with regard to the end result and the means by which the result is accomplished. True

9. A taxpayer sells an asset with a basis of $25,000 to an unrelated party for $26,000. The taxpayer has a realized gain of $1,000. True

10. A loss incurred in the sale or exchange of property is deductible only if the property is used in a trade or business or held for investment. True

11. Most of the property depreciated under the original ACRS system is now fully depreciated. True

12. In a like-kind exchange, both the property transferred and the property received must be held either for productive use in a trade or business or for investment. True

13. Maxwell owns an unincorporated business and has $20,000 of Sec. 1231 gains and $22,000 of Sec. 1231 losses. He must report a capital loss of $2,000 on his tax return. False

14. An example of an AMT tax preference is the excess of accelerated depreciation over the straight-line depreciation amount for real property placed in service before 1987. True

Multiple Choice

1. Helen, who is single, is considering purchasing a residence that will provide a $20,000 tax deduction for property taxes and mortgage interest. If her marginal tax rate is 15% and her effective tax rate is 10%, what is the amount of Helen's tax savings from purchasing the residence?

  • a. $2,000
  • b. $3,000
  • c. $17,000
  • d. $18,000

2. David's father is retired and receives $14,000 per year in social security benefits. David's father saves $4,000 of the benefits and spends the remaining $10,000 for his support. How much support must David provide for his father to meet the dependent support requirement?

a. $10,000

b. $10,001

c. $14,000

d. $14,001

3. All of the following are acceptable accounting tax years with the exception of

  • a. an S corporation year ending October 31.
  • b. a corporate tax year ending on February 15.
  • c. a corporate tax year ending on April 30.
  • d. a partnership tax year ending on October 31 with three equal partners whose tax years end on September 30, October 31, and November 30.

4. In the current year, Marlena earned a salary of $50,000. She consumed $25,000 of food, clothing, housing and medical care. Assets owned by Marlena at the beginning of the year had a value of $110,000 (including $10,000 of saved salary); at the end of the year the value was $125,000. What is the amount of Marlena's economic income and her accounting income?

Economic income Accounting income

a. $15,000 $50,000

b. $15,000 $40,000

c. $40,000 $50,000

d. $40,000 $40,000

5. During the year, Cathy received the following:

  • Dividends of $1,000 from Lindsay corporation. Cathy's father owned the stock and directed the corporation to send the dividends to Cathy.
  • A car worth $20,000 for being the 100th customer at a car dealership.
  • $2,500 cash gift from her uncle.
  • $10,000 inheritance from her grandmother.

What amount must Cathy include in gross income?

  • a. $20,000
  • b. $21,000
  • c. $31,000
  • d. $33,500

6. On Form 1040, deductions for adjusted gross income include the amounts paid for all of the following except

a. alimony.

  • b. home mortgage interest.
  • c. student loan interest.

d. moving expenses.

7. Van pays the following medical expenses this year

-$500 for doctor bills for Van's son who is claimed as a dependent

by Van's former spouse.

-$300 for Van's eyeglasses.

-$900 for Van's dental work.

-$800 for Van's face lift. Van, a newscaster, is worried about

the wrinkles around his eyes.

How much can Van include on his return as qualified medical expenses before limitation?

a. $1,200

b. $1,400

c. $1,700

d. $2,500

8. Allison, who is single, incurred $3,500 for unreimbursed employee expenses, $6,500 for mortgage interest and real estate taxes on her home, and $500 for investment counseling fees. Allison's AGI is $80,000. Allison's allowable deductions from AGI are

a. $6,500.

b. $8,400.

c. $8,900.

d. $10,500.

9. Antonio owns land held for investment with a basis of $28,000. The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000. What is Antonio's realized gain?

  • a. $0
  • b. $20,000
  • c. $28,000
  • d. $48,000

10. All of the following losses are deductible except

  • a. decline in value of securities.
  • b. total worthlessness of securities.
  • c. sale or exchange of business property.
  • d. destruction of personal use property by fire, storm, or casualty.

11. Joan bought a business machine for $10,000 on January 1, 2000, and later sold the machine for $7,800 when the total allowable depreciation is $3,500. The depreciation actually taken on the tax returns totaled $3,000. Joan must recognize a gain (or loss) of

a. no gain or loss.

  • b. (3,200).
  • c. $800.

d. $1,300.

12. Matthew owns a warehouse that is used in business while Pamela owns land. Matthew exchanges the warehouse for the land, which will be held for investment. The FMV of the warehouse is $200,000 (basis $120,000) and the warehouse is subject to a mortgage of $40,000, which is assumed by Pamela. Matthew receives $10,000 cash and the land, which has a FMV of $150,000 (basis of $130,000 to Pamela). Pamela must recognize a gain of

a. $ -0-.

b. $ 20,000.

c. $ 60,000.

d. $ 70,000.

13. Daniel recognizes $35,000 of Sec. 1231 gains and $25,000 of Sec. 1231 losses during the current year. The only other Sec. 1231 item was a $4,000 loss three years ago. This year, Daniel must report

NLTCG Ordinary Income

a. $10,000 $ 0.

  • b. $ 6,000 $ 4,000.
  • c. $ 4,000 $ 6,000.

d. $ 4,000 $10,000.

14. Lester, a widower qualifying as a surviving spouse, has $209,000 of salary, five personal and dependent exemptions and itemizes deductions. Lester must use which form to report his taxable income?

a. form 1040ES

b. form 1040EZ

c. form 1040A

d. form 1040

15. Gwen's marginal tax bracket is 25%. Gwen pays alimony of $24,000 per year. Gwen's after- tax cost for the $24,000 payment is

a. $-0-.

b. $6,000.

c. $18,000.

d. $24,000.

16. In computing the alternative minimum taxable income, no deduction is allowed for

a. alimony.

b. moving expenses.

c. personal exemptions.

d. individual retirement accounts.

RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8784
Experience: MBA, CPA
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