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Tax Accounting

Customer Question

1     Which of the following is considered a primary source of the tax law?
a.     Article in the Journal of Taxation, February 1997.
b.     U.S. Tax Court decision.
c.     Technical Advice Memoranda.
d.     General Counsel Memoranda.
e.     None of the above.

2.     In 2005, Raymond had the following transactions:

Wages earned          $50,000
Lottery prize          20,000
Life insurance proceeds          40,000
Contribution to traditional Individual Retirement Account (IRA)          3,000
Medical insurance premium payments          500

     Raymond's AGI for 2005 is:
a.     $47,000.
b.     $67,000.
c.     $106,500.
d.     $110,000.
e.     None of the above.

3.      Which, if any, of the following is a deduction from AGI?
     a.     Individual Retirement Account contributions.
     b.     Moving expenses.
     c.     Real estate taxes.
     d.     One-half of self-employment tax paid.
e.     All of the above.

4.     Fiona, age 70, is claimed as a dependent on her son's tax return. During 2005, she had interest income of $2,900 and $800 of wages from a part-time job. Fiona's taxable income is:
a.     $550.
b.     $1,500.
c.     $2,250.
d.     $2,600.
e.     None of the above.

5.     During the current year, Lucille is supported as follows:

          Percent of Support
Frank (a son)     14%
Bob (a son)     10%
Sheri (a daughter)     37%
Norman (unrelated but a good      15%
    friend of the family)
Self support     24%

     During the year, Lucille lives with Norman in his home for 10 months and for 2 months in her own home. Under a multiple support agreement, who could qualify for the dependency deduction for Lucille?
a.     Frank or Bob.
b.     Frank or Sheri.
c.     Frank, Bob, or Norman.
d.     Frank, Bob, Sheri, or Norman.
e.     None of the above.

6.     The Gazelle Co., an accrual basis taxpayer, allows its customers to pay by the month ($50 each month), by the year ($500 per year), or two years in advance ($1,000). In December 2005, the company collected the following amounts applicable to future services:

January 2006 - December 2007 services (two year contracts)          $800,000
January - December 2006 services (annual contracts)          $1,600,000
January 2006 services (monthly contracts)          $2,400,000

The income from the above that must be reported as gross income for 2005 is:
a.     $0.
b.     $800,000.
c.     $1,600,000.
d.     $2,400,000.
e.     $4,800,000.

7.     Under the terms of a divorce agreement, Taylor is to pay his wife Penny $2,000 per month. The payments are to be reduced to $1,600 per month when their 12 year-old child reaches age 18. During the current year, Taylor paid $24,000 under the agreement. Assuming all of the other conditions for alimony are satisfied, Taylor can deduct from gross income (and Penny must include in gross income) as alimony:
a.     $24,000.
b.     $19,200.
c.     $4,800.
d.     $0.
e.     None of the above.

8.     Moore is a full-time student at Rover University and is claimed by her parents as a dependent. Her only source of income is a $4,750 scholarship ($250 for books, $2,500 for tuition, and $2,000 for room and board). Moore's gross income for the year is:
a.     $250.
b.     $2,500.
c.     $2,000.
d.     $4,750.
e.     None of the above.

9.     Judas is an executive for the Oak Furniture Manufacturing Company. Judas purchased furniture from the company for $1,500, the price Oak ordinarily charges a wholesaler. The retail price of the furniture was $3,000. The company also paid for Judas's parking space in a garage near the office. The parking fee was $2,000 for the year. Only highly compensated employees are allowed to buy furniture at the wholesaler's price. In addition, the company does not pay other employees' parking fees. Judas's gross income from the above is:
a.     $0.
b.     $1,500.
c.     $2,000.
d.     $3,500.
e.     None of the above.

10.     Which of the following types of allowable deductions can be claimed as a deduction from AGI?
a.     Medical expenses.
b.     Alimony expense.
c.     Trade or business expense.
d.     Student loan interest expense.
e.     All of the above.

11.     Which of the following is a deduction for AGI?
a.     Casualty losses.
b.     Charitable contributions.
c.     Real estate tax on personal residence.
d.     Trade or business expenses.
e.     None of the above.

12.     If a residence is used primarily for personal use (rented for less than 15 days per year), which of the following is true?
     a.     No income is included in AGI.
     b.     All expenses are deductible from AGI.
     c.     Expenses must be allocated between rental and personal use.
     d.     Depreciation is allowed as a deduction.
     e.     All of the above.

13.     Maxine pursued a hobby of knitting socks in her spare time. During the year she sold the socks for $ 2,250. She incurred expenses as follows:

Supplies     $2,200
Interest on loan to get business started     350
Advertising     475

Assuming that the activity is deemed a hobby and that she cannot itemize this year, how should she report these items on her tax return?
a.     Include $2,250 in income and deduct $3,025 for AGI.
b.     Ignore both income and expenses since hobby losses are disallowed.
c.     Include $2,250 in income and deduct nothing for AGI since hobby expenses must be itemized.
d.     Include $2,250 in income and deduct interest of $350 for AGI.
e.     None of the above.

14.     During the current year, Andrew had securities stolen from his home. Andrew had paid $80,000 for the securities, but they were worth $150,000 at the time of the theft. Andrew had $75,000 of adjusted gross income for the year (before considering the loss) and no other itemized deductions. Determine Andrew's deduction with respect to the theft.
a.     $80,000.
b.     $79,900.
c.     $78,500.
d.     $72,400.
e.     None of the above.

15.     Angel purchased a new factory building on February 15, 2005, for $10,000,000. Determine the cost recovery deduction for 2004.
a.     $256,400.
b.     $317,500.
c.     $363,600.
d.     $900,000.
e.     None of the above.

16.White Company acquires a new machine (seven-year property) on January 10, 2005, at a cost of $204,000. White makes the election to expense the maximum amount under § 179. No election is made to use the straight-line method. Determine the total deductions in calculating taxable income related to the machine for 2005 assuming White has taxable income of $500,000.
a.     $46,294.
b.     $51,151.
c.     $119,147.
d.     $131,152.
e.     None of the above.

17.     Kora holds two jobs. Her main job is with Apple Corporation and her part-time job is with Orange Company. On a typical workday, she drives her car as follows: home to Apple, Apple to Orange, and Orange to home. Applicable mileage is as follows:

     Home to Apple     10
     Apple to Orange     20
     Orange to home     30

On a typical day, Kora's deductible mileage is:
a.     20.
b.     40.
c.     50.
d.     60.
e.     None of the above.

18.     During the year, Kimbal is transferred by his employer from Atlanta to Boston. His moving expenses are not reimbursed and are as follows:

     Cost of moving household furnishings          $7,000
     Transportation               1,000
     Meals               800
     Lodging               1,400

His qualified moving expenses are:
a.     $9,400.
b.     $8,800.
c.     $8,400.
d.     $8,100.
e.     None of the above.

19.     In 2005, Henry, the sole proprietor of a video rental store, pays a $4,000 premium for medical insurance for himself and his family. Kim, one of Henry's employees, pays a $2,000 premium for a medical insurance policy for herself. Which of the following statements is true?
a.     Henry may deduct $2,800 as a deduction for AGI.
b.     Henry may deduct $4,000 as a deduction for AGI.
c.     Kim may deduct $1,400 as a deduction for AGI.
d.     Kim may deduct $2,000 as a deduction for AGI.
e.     None of the above.

20.     During 2005, Sophie paid the following interest charges:

     Home mortgage     $5,000
     On loan to purchase a new car      2,500
     On student loan     800

If Sophie itemizes her deductions for 2005, the amount deductible for interest expense as an itemized deduction is:
a.     $2,500.
b.     $5,000.
c.     $17,500.
d.     $18,300.
e.     None of the above.

21.     Carly, who is single, has $90,000 of salary, $40,000 of income from a limited partnership and a $70,000 passive loss from a real estate rental activity in which she actively participates. Her modified adjusted gross income is $175,000. Of the $70,000 loss, how much is deductible?
     a.     $0.
     b.     $40,000.
     c.     $30,000.
     d.     $70,000.
     e.     None of the above.

22.     Amber, who is single and age 30, provides you with the following information from her financial records for 2005.

     Regular income tax liability     $ 61,250
     AMT adjustments (positive)     80,000
     AMT preferences     120,000
     Taxable income     200,000

Calculate her AMTI for 2005.
a.     $240,000.
b.     $261,250.
c.     $320,000.
d.     $400,000.
e.     None of the above

23.      Which of the following statements is true regarding the education tax credits?
a.     The lifetime learning credit is available for qualifying tuition and related expenses incurred by students pursuing only graduate degrees.
b.     The lifetime learning credit permits a Maximum credit of 20 percent of qualified expenses up to $10,000 per year.
c.     The HOPE scholarship credit is calculated per taxpayer, while the lifetime learning credit is available per eligible student.
d.     Continuing education expenses do not qualify for either education credit.
e.     None of the above statements is true.

24.     Guthrie purchased his home for $300,000. As a sole proprietor, he operates a certified public accounting practice in his home. For this business, he uses one room exclusively and regularly as a home office. In Year 1, $1,450 of depreciation expense on the home office was deducted on his income tax return. In Year 2, Guthrie sustained losses in his business; therefore, no depreciation was taken on the home office. Had he been allowed to deduct depreciation expense, his depreciation expense would have been $1,700. What is the adjusted basis in the home?
a.     $295,000.
b.     $296,850.
c.     $298,550.
d.     $300,000.
e.     None of the above.

25.     Kanisha inherits stock that had a basis to the decedent of $160,000 and a fair market value of $180,000 on August 4, 2004, the date of the decedent's death. The executor distributes the stock to Kanisha on November 12, 2005, at which time the fair market value is $175,000. The fair market value on February 4, 2005, is $178,000. In filing the estate tax return, the executor elects the alternate valuation date. Kanisha sells the stock on June 10, 2005 for $184,000. What is her recognized gain or loss?
a.     $4,000.
b.     $6,000.
c.     $9,000.
d.     $24,000.
e.     None of the above.

26.     Garnet, Inc., owns a delivery truck which initially cost $30,000. After depreciation of $15,000 had been deducted, the truck was traded-in on a new truck that cost $40,000. Garnet was required to pay the car dealer $20,000 in cash. What is Garnet's basis for the new truck?
a.     $0.
b.     $35,000.
c.     $40,000.
d.     $45,000.
e.     None of the above.

27.     Paul exchanges a business machine, which has an adjusted basis of $50,000, for a new machine worth $40,000. In addition, he receives cash of $20,000. What is the recognized gain or loss and the basis of the new machine?
a.     $0 and $30,000.
b.     $0 and $40,000.
c.     $10,000 and $40,000.
d.     $10,000 and $50,000.
e.     None of the above.

28.      Rachel operates a hardware store as a sole proprietorship. Which of the following items are capital assets in the hands of Rachel?
a.     The vacant lot next to her store used as a parking lot for customers.
b.     Sixteen tool boxes that have been in inventory for over a year.
c.     A note receivable that was given to her by a customer in payment of the balance due on the customer's account at the store.
d.     Stock in which Rachel invested some of the store's excess cash.
e.     None of the above.

29.     Arlo, Inc. has a $150,000 net § 1231 gain for 2005. In 2004, Arlo had a $60,000 net § 1231 loss. For 2005, Arlo's net § 1231 gain is treated as:
a.     A $150,000 ordinary loss.
b.     A $150,000 ordinary gain.
c.     A $90,000 long-term capital gain and a $60,000 ordinary gain.
d.     A $60,000 long-term capital gain and a $90,000 ordinary gain.
e.     None of the above.

30.     Ford sells equipment for $32,000 which had been purchased for $160,000 and on which $120,000 of depreciation had been taken. He had used the equipment in his business for several years. Ford has:
a.     A $8,000 § 1245 loss.
b.     A $8,000 § 1231 loss.
c.     A $8,000 § 1250 loss.
d.     A $32,000 § 1231 gain.
e.     None of the above.
Submitted: 10 years ago.
Category: Homework