Fed Tax Exam 3

If an individual is classified as an​ employee, the employer is required to withhold the​ employee's share of the FICA tax and to provide a matching amount. True False

True

If personal−use property is converted to trade or business​ use, the basis for depreciation is the lesser of adjusted basis or FMV on the date of conversion. True False

True

The basis of an asset must be reduced by the depreciation allowable. True False

True

The installment method is not applicable to sales of inventory and marketable securities. True False

True

The earned income credit is available only to taxpayers with qualifying children. True False

False

The purpose of Sec. 1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec. 1231 treatment when the asset was sold. True False

True

The uniform capitalization rules​ (UNICAP) require the capitalization of some overhead costs that are expensed for financial accounting purposes. True False

True

Juan's business delivery truck is destroyed in an accident. He paid​ $40,000 for the​ truck, and​ $30,000 of depreciation has been deducted during its period of use. The insurance company pays Juan​ $32,000 due to the accident. What is the minimum amount that Juan must spend on a new truck to avoid any gain​ recognition? A. $32,000 B. $40,000 C. $10,000 D. ​$22,000

A. $32,000

In Year​ 1, a contractor agrees to build a building for​ $2,500,000 by the end of year 2. The​ builder's cost is estimated to be​ $1,800,000. The actual costs in Year 1 are​ $900,000 and Year​ 2's actual costs are​ $1,300,000. Under the completed contract​ method, the gross profit for Year 1 is A. $700,000. B. $300,000. C. $0. D. $350,000.

C. $0.

Tanya has net earnings from self−employment of​ $240,000, resulting in self−employment tax of​ $24,035 and Additional Medicare Tax of​ $360. Due to these​ taxes, Tanya will be allowed a deduction for AGI of A. $24,395. B. $12,198. C. $12,018. D. $24,035.

C. $12,018.

Daniella exchanges business land with a​ $100,000 adjusted basis for​ $10,000 cash and business land with a​ $96,000 FMV. What is the amount of gain recognized on the​ exchange? A. $4,000 B. $0 C. $6,000 D. $10,000

C. $6,000

A cash−basis lawyer purchases an office building to use in her legal practice. To acquire the​ mortgage, the taxpayer must pay​ $5,000 in points. The taxpayer will deduct the points in the year paid. True False

False

A cash−basis taxpayer pays a bill with a credit card. The underlying expenditure is not deductible until the credit card bill is paid. True False

False

A taxpayer sells a parcel of land on the installment sale basis and will recognize the gain over the five−year installment schedule. Form 6252 must be included with his tax return only in the year of sale. True False

False

​Land, buildings,​ equipment, and common stock are examples of tangible property. True False

False

Under the MACRS​ rules, salvage value is not considered in the computation of the cost−recovery or depreciation amount. True False

True

Under the MACRS​ system, depreciation rates for real property must always use the mid−month convention in the year of acquisition. True False

True

When a husband and wife file a joint return and both have self−employment ​income, the self−employment tax must be computed separately. True False

True

​Maria, a sole​ proprietor, has several items of office furniture and equipment which are depreciable. All were acquired before this year. She is not required to report her depreciation deduction on Form 4562. True False

True

The maximum amount of the American Opportunity Tax Credit for each qualified student is A. $2,500. B. $1,500. C. $2,000. D. $3,000.

A. $2,500.

Pierce sold his home this year. He had owned and lived in the house for 10 years. Pierce signed a contract on March 4 to sell his home. Sales price _____________________$600,000 Selling expenses _________________15,000 Replaced and paid for a broken window on March 2 _________________________________800 Basis of old home before repairs and improvements ​____________________310,000 Based on these​ facts, what is the amount of his recognized​ gain? A. $25,000 B. $40,000 C. $0 D. $275,000

A. $25,000

Joan bought a business machine for​ $15,000. In a later​ year, she sold the machine for​ $12,800 when the total allowable depreciation is​ $8,500. The depreciation actually taken on the tax returns totaled​ $8,000. Joan must recognize a gain​ (or loss) of A. $6,300. B. no gain or loss. C. $6,800. D. ($3,200).

A. $6,300.

Which of the following statements is false regarding involuntary​ conversions? A. A taxpayer must replace the destroyed property within the same tax year in which the gain is realized. B. A taxpayer cannot elect to defer recognition of a loss resulting from an involuntary conversion. C. If deferral of gain is​ elected, the holding period of the converted property carries over to the replacement property. D. Gain may be deferred if the property is involuntarily converted into property that is similar or related in service or use to the converted property.

A. A taxpayer must replace the destroyed property within the same tax year in which the gain is realized.

Kuda owns a parcel of land she acquired on June​ 1, 2012, as an investment. She exchanges the land on July​ 5, 2020, for a storage building to be used in her business and marketable securities to be held as an investment. On what date does the storage​ building's holding period​ begin? A. June​ 1, 2012 B. July​ 6, 2020 C. June​ 2, 2012 D. July​ 5, 2020

A. June​ 1, 2012

Which of the following statements is false with regard to the ownership and use tests under Sec.​ 121? A. The taxpayer must be occupying the residence at the time of the sale in order for Sec. 121 to apply. B. If a principal residence is sold before satisfying the ownership and use​ tests, part of the gain may be excluded if the sale is due to a change in​ employment, health, or unforeseen circumstances. C. When a taxpayer receives a residence from a spouse or an ex−spouse incident to a​ divorce, the​ taxpayer's period of owning the property includes the time the residence was owned by the spouse or ex−spouse. D. For purposes of the two−year ownership​ rule, a​ taxpayer's period of ownership includes the period during which the​ taxpayer's deceased spouse owned the residence.

A. The taxpayer must be occupying the residence at the time of the sale in order for Sec. 121 to apply.

Which of the following companies whose business involves long−term contracts will be eligible to use the completed contract​ method? A. a home construction company averaging​ $30 million in gross revenues each year B. only companies whose contract price is collected upon completion of the contract C. A small specialized historic renovation company whose projects typically last three years. Revenues average​ $20 million per year. D. all of the above

A. a home construction company averaging​ $30 million in gross revenues each year

All of the following qualify as a like−kind exchange except A. a printer used in trade or business for a computer used in trade or business. B. an apartment building held for investment for a warehouse used in a trade or business. C. improved real estate held for investment for unimproved real estate held for investment. D. all of the exchanges qualify as like−kind exchanges.

A. a printer used in trade or business for a computer used in trade or business.

An installment sale is best defined as A. any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs. Your answer is correct. B. any disposition of publicly traded securities or inventory where at least one payment is received after the close of the taxable year in which disposition occurs. C. any disposition of property in which at least three payments are received. D. any disposition of property in which the installment method is elected by the taxpayer.

A. any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs.

A business uses the same inventory method for both financial reporting and tax reporting. Because of the UNICAP​ requirement, ending inventory is likely to be A. higher for tax reporting purposes than for financial reporting purposes. B. the same for both financial and tax reporting as UNICAP requires uniform inventory accounting methods. C. higher for financial reporting purposes than for tax reporting purposes. D. none of the above.

A. higher for tax reporting purposes than for financial reporting purposes.

Costs that qualify as research and experimental expenditures include all of the following except A. management studies. B. costs of obtaining a patent such as attorney fees. C. costs incurred in developing product improvements. D. depreciation of laboratory equipment.

A. management studies.

The installment method may be used for sales of all kinds of property with the exception of A. marketable securities. B. capital assets. C. personal property. D. real property.

A. marketable securities.

Bob and Elizabeth​ Brown, a married​ couple, sell their personal residence to Tamel. Tamel pays​ $660,000 and assumes their​ $90,000 mortgage. To make the​ sale, the Browns pay​ $20,000 in commissions and​ $10,000 in legal costs. The couple has owned and lived in the house for seven years and their tax basis is​ $200,000. What is the amount of gain recognized on the​ sale? A. $50,000 B. $20,000 C. $520,000 D. $0

B. $20,000

Risa exchanges an office building with a​ $600,000 adjusted basis for an apartment building with a​ $1,000,000 FMV and​ $200,000 of marketable securities. The other party indicates he had paid​ $175,000 for the securities a year earlier. What is​ Risa's basis for the​ securities? A. $0 B. $200,000 C. $175,000 D. none of the above.

B. $200,000

On January​ 1, 2020, Charlie Corporation acquires all of the net assets of Rocky Corporation for​ $2,000,000. The following intangible assets are included in the purchase​ agreement: Assets Acquisition Cost Goodwill and going concern value ​$105,000 Licenses ​$ 45,000 Patents ​$ 60,000 Covenant not to compete for five years ​$120,000 What is the total amount of amortization allowed in​ 2020? A. $15,000 B. $22,000 C. $31,000 D. $38,000

B. $22,000

Risa exchanges an office building with a​ $600,000 adjusted basis for an apartment building with a​ $1,000,000 FMV and​ $200,000 of marketable securities. What is​ Risa's basis for the apartment​ building? A. $800,000 B. $600,000 C. $400,000 D. $1,000,000

B. $600,000

Aamir has​ $25,000 of net Sec. 1231 gains this year on business assets. In​ addition, he incurred​ $18,000 of loss on the sale of stock held six months. Aamir will include in his AGI A. $7,000 short−term capital gain. B. $7,000 net capital gain. C. $3,000 short−term capital loss and​ $25,000 ordinary gain. D. $22,000 net capital gain.

B. $7,000 net capital gain.

Caitlyn purchases and places in service property costing​ $1,050,000 in 2020. She wants to elect the maximum Sec. 179 deduction allowed and does not plan to apply bonus depreciation. Her business income is​ $900,000. What is the amount of her allowable Sec. 179 deduction and​ carryover, if​ any? A. 179 deduction Carryover ​$900,000 0 B. 179 deduction Carryover ​$900,000 $140,000 C. 179 deduction Carryover ​$1,040,000 0 D. 179 deduction Carryover ​$900,000 $150,000

B. 179 deduction Carryover ​$900,000 $140,000

If there is a like−kind exchange of property between related​ parties, how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the​ exchange? A. 6 months B. 2 years C. 1 year D. no waiting period

B. 2 years

Which of the following businesses is most likely to benefit from an election to account for its inventory under​ LIFO? A. A company producing the newest version of a tablet with ultra—long battery life. It believes it has a one−year lead over the competition. B. A company producing parts for the auto industry—costs in this field tend to steadily climb. C. A company producing products with copper as a key component—copper prices fluctuate widely. D. None of the above.

B. A company producing parts for the auto industry—costs in this field tend to steadily climb.

Which of the following statements with respect to a like−kind exchange is false​? A. Real property used in a trade or business can be exchanged for real property to be held for investment. B. A sale of property and subsequent purchase of like−kind property will always qualify as a like−kind exchange. C. An exchange of inventory does not qualify as a like−kind exchange. D. An exchange of a hotel in the United States for a hotel in Canada will not qualify.

B. A sale of property and subsequent purchase of like−kind property will always qualify as a like−kind exchange.

Alex owns an office building which the state condemns on January​ 15, 2020. Alex receives the condemnation award on April​ 1, 2020. In order to qualify for nonrecognition of gain on this involuntary​ conversion, what is the last date for Alex to acquire qualified replacement​ property? A. April​ 1, 2022 B. December​ 31, 2023 C. December​ 31, 2022 D. April​ 1, 2023

B. December​ 31, 2023

A wage cap does not exist for which of the following self−employment ​taxes? A. FICA B. Medicare C. FUTA D. Social Security tax

B. Medicare

In computing​ AMTI, all of the following must be added back except A. state income taxes. B. home mortgage interest​ (on mortgage in effect since home was​ purchased). C. property taxes on an​ individual's home. D. All of the itemized deductions noted above must be added back.

B. home mortgage interest​ (on mortgage in effect since home was​ purchased).

Which statement is correct​? A. The benefit of a tax credit depends on the​ taxpayer's marginal tax rate. B. Tax credits reduce tax liability on a dollar−for−dollar basis. C. Tax deductions are less valuable for high−income taxpayers than for low−income taxpayers. D. Tax deductions reduce tax liability on a dollar−for−dollar basis.

B. Tax credits reduce tax liability on a dollar−for−dollar basis.

Which of the following statements regarding UNICAP is incorrect​? A. The UNICAP rules result in more costs being included in inventory for tax purposes than for financial accounting. B. UNICAP requires that advertising and selling costs be allocated between inventory and cost of sales. C. Interest must be included in inventory if the property produced is real property or long−lived property. D. Taxpayers with gross receipts averaging more than​ $26,000,000 or more for the prior three years must apply the UNICAP provisions.

B. UNICAP requires that advertising and selling costs be allocated between inventory and cost of sales.

Which of the following partnerships can use the cash method of​ accounting? A. a chocolate manufacturer with average revenues of​ $30 million B. a CPA firm with average revenues of​ $30 million C. Both of the partnerships can elect the cash method of accounting. D. Neither of the partnerships can elect the cash method of accounting.

B. a CPA firm with average revenues of​ $30 million

A client placed three new business assets into service in 2020. The client has high taxable income and would like to maximize the deduction by using bonus depreciation. All of the following assets will qualify for bonus depreciation except A. manufacturing equipment. B. a garage for the service vans. C. computer software. D. All of the assets qualify for bonus depreciation.

B. a garage for the service vans.

According to Sec.​ 121, individuals who sell or exchange their personal residence may exclude part or all of the gain if the house was owned and occupied as a principal residence for A. at least five years immediately before the sale date. B. at least two years of the five−year period before the sale date. C. at least one year of the three−year period before the sale date. D. at least five years of the ten−year period before the sale date.

B. at least two years of the five−year period before the sale date.

The look−back interest adjustment involves the A. calculation of gross profit on an installment sale collection. B. calculation of interest on additional tax that would have been due if actual cost rather than estimated cost had been used on the percentage of completion method. C. calculation of additional tax due if actual cost rather than estimated cost had been used on the percentage of completion method. D. calculation of interest on an installment sale.

B. calculation of interest on additional tax that would have been due if actual cost rather than estimated cost had been used on the percentage of completion method.

All of the following conditions would encourage a taxpayer to avoid like−kind exchange treatment on the disposition of an otherwise qualifying asset except A. the availability of net operating loss carryovers. B. expected lower tax rates in the future. C. a realized loss on the asset disposed of. D. the disposition of a capital gain asset when the taxpayer has a capital loss carryover.

B. expected lower tax rates in the future.

Ella needs to move her business to a larger facility. She projects a large realized gain on the sale of the old building and prefers not to pay tax on the gain because the sales proceeds are needed to finance the purchase of the new building. In the​ circumstances, a direct two− or three−party like−kind exchange is not feasible.​ Ella's sale can still qualify for like−kind treatment if she arranges an appropriate nonsimultaneous exchange. Among other​ criteria, after the transfer of the old​ building, the replacement property must be A. identified within 45 days and received by year−end. B. identified within 45 days and received within 180 days. C. identified within 90 days and received by year−end. D. identified within 60 days and received within 180 days.

B. identified within 45 days and received within 180 days.

In calculating depletion of natural resources each period A. the smaller of cost depletion or percentage depletion must be used. B. the greater of cost depletion or percentage depletion must be used. C. percentage depletion must be used. D. cost depletion must be used.

B. the greater of cost depletion or percentage depletion must be used.

Gena exchanges land held as an investment with a​ $60,000 basis for other land with a​ $80,000 FMV and a motorcycle with a​ $10,000 FMV. The acquired land is to be held for investment and the motorcycle is for personal use. What is the amount of recognized​ gain? A. $20,000 B. $0 C. $10,000 D. $30,000

C. $10,000

The building used in​ Terry's business was condemned by the city of St. Louis. Terry received a condemnation award of​ $125,000. He paid​ $1,200 in​ lawyer's fees and​ $800 for an appraisal of the property.​ Terry's adjusted basis in the building was​ $60,000. Terry reinvests in similar property costing​ $110,000, and Terry makes the proper election regarding the property. What is the amount of​ Terry's recognized gain on the​ condemnation? A. $15,000 B. $50,000 C. $13,000 D. ​$63,000

C. $13,000

Henri likes to invest in land. In a nontaxable​ exchange, Henri exchanges land having an adjusted basis of​ $8,500 and a FMV of​ $10,000, for a another parcel of land having a FMV of​ $15,000. In​ addition, Henri paid cash of​ $5,000. What is​ Henri's basis in the new​ land? A. $5,000 B. $8,500 C. $13,500 D. $15,000

C. $13,500

Evan and Barbara incurred qualified adoption expenses in 2019 of​ $6,000, and then incurred​ $9,000 more in 2020 when the adoption of their child became final. Their 2019 AGI was​ $110,000 and their 2020 AGI was​ $100,000. The allowable adoption credit is A. $15,000 in 2020. B. $6,000 in 2019 and​ $9,000 in 2020. C. $14,300 in 2020. D. $6,000 in 2019 and​ $8,300 in 2020.

C. $14,300 in 2020.

Dean exchanges a business storage facility with a​ $120,000 adjusted basis for​ $40,000 cash and a parking lot with a​ $140,000 FMV. What is the amount of gain which Dean recognizes on the​ exchange? A. $0 B. $20,000 C. $40,000 D. $60,000

C. $40,000

Which of the following statements regarding Sec. 179 is true​? A. Sec. 179 carryforwards expire after five years. B. If a taxpayer places in service property costing more than the Sec. 179 ceiling on the amount of property placed in​ service, the excess can be carried over to subsequent years. C. Amounts of the Sec. 179 election in excess of the taxable income limitation are carried forward. D. All of the above statements are true.

C. Amounts of the Sec. 179 election in excess of the taxable income limitation are carried forward.

Kuda owns a parcel of land she acquired on June​ 1, 2012, as an investment. She exchanges the land on July​ 5, 2020, for a storage building to be used in her business and marketable securities to be held as an investment. The marketable​ securities' holding period begins on A. June​ 1, 2012 B. July​ 5, 2020 C. July​ 6, 2020 D. June​ 2, 2012

C. July​ 6, 2020

Mingming and​ Xavier, unrelated single​ taxpayers, have each incurred a​ $1,000 expenditure. Before considering this​ expenditure, Mingming has taxable income of​ $600,000 and Xavier has taxable income of​ $32,000. Assume the expenditure qualifies as either a tax deduction or a​ 25% credit. Which of the following statements is correct​? A. Mingming will prefer the​ credit, but Xavier will prefer the deduction. B. Both taxpayers will prefer the deduction. C. Mingming will prefer the​ deduction, but Xavier will prefer the credit. D. Both taxpayers will prefer the credit.

C. Mingming will prefer the​ deduction, but Xavier will prefer the credit.

Pierce has a​ $16,000 Sec. 1231​ loss, a​ $12,000 Sec. 1231​ gain, and a salary of​ $50,000. What is the treatment of these items in​ Pierce's AGI? A. Pierce has net LTCG of​ $9,000 and​ $37,000 of net ordinary income. B. Pierce has a LTCG of​ $12,000 and a net ordinary income of​ $34,000. C. The 1231 gains and losses are treated as ordinary gains and losses making​ Pierce's AGI for the year​ $46,000. D. Pierce has a​ $3,000 LTCL which is deductible for AGI making AGI​ $47,000. He also has a​ $1,000 LTCL carryover.

C. The 1231 gains and losses are treated as ordinary gains and losses making​ Pierce's AGI for the year​ $46,000.

If an individual is liable for self−employment ​tax, a portion of the self−employment tax is A. from AGI as an itemized deduction. B. a Schedule C business expense. C. a for AGI deduction. D. nondeductible.

C. a for AGI deduction.

All of the following are true except A. nonrecognition of gains and losses is mandatory if the exchange is a like−kind exchange. B. the holding period of like−kind property received includes the holding period of the property exchanged. C. a nonsimultaneous exchange may never qualify as a like−kind exchange. D. a loss may be recognized on non−like−kind property​ (boot) if the taxpayer transfers the boot in an otherwise like−kind exchange.

C. a nonsimultaneous exchange may never qualify as a like−kind exchange.

In computing​ AMTI, tax preference items are A. subtracted only. B. either added or subtracted. C. added only. D. excluded.

C. added only.

If the business usage of listed property is less than or equal to​ 50% of its total​ usage, depreciation is calculated using the A. regular MACRS tables. B. regular MACRS tables and a mid−month convention. C. alternative depreciation system. D. It may not be depreciated.

C. alternative depreciation system.

Harley's tentative minimum tax is computed by multiplying the AMT tax rates by her A. taxable income. B. alternative minimum taxable income. C. alternative minimum tax base. D. tentative alternative taxable income.

C. alternative minimum tax base.

Under the percentage of completion​ method, gross income is reported A. when the contract is completed. B. using a percentage that is determined by dividing current year costs by the expected total revenue. C. based on the portion of work that has been completed. D. based on the portion of work that is incomplete.

C. based on the portion of work that has been completed.

Which one of the following is a refundable​ credit? A. credit for the elderly and disabled B. lifetime learning credit C. earned income credit D. child and dependent care credit

C. earned income credit

For a​ business, Sec. 1231 property does not include A. an office building purchased five years ago. B. land used in the business that was purchased two years ago. C. inventory purchased 24 months ago. D. timber, coal, or domestic iron ore.

C. inventory purchased 24 months ago.

A purchaser of the assets of a business must allocate the purchase price to the individual assets in accordance with the written agreement between the purchaser and the seller. Which of the following assets would be least preferred for purposes of allocating value from the purchaser point of​ view? A. equipment B. inventory C. office building D. goodwill

C. office building

All of the following are allowable deductions under the alternative minimum tax except A. charitable contributions. B. qualified housing interest. C. state income taxes. D. medical expenses.

C. state income taxes.

Sec. 1231 property will generally have all the following characteristics except A. held for more than one year. B. real or depreciable property. C. used in trade or business. D. held for sale to customers.

D. held for sale to customers.

Landry exchanged land with an adjusted basis of​ $50,000 for another parcel of land worth​ $35,000 plus​ $10,000 of cash. Landry held the original land for investment purposes and will do the same with the new parcel. Due to the​ exchange, Landry will recognize A. $5,000 loss. B. $10,000 gain. C. $5,000 gain. D. $0.

D. $0.

In the fall of​ 2020, James went back to school to earn a master of accountancy degree. He incurred​ $7,000 of qualified educational expenses and his modified AGI for the year was​ $40,000. His Lifetime Learning Credit is A. $1,000. B. $1,800. C. $2,500. D. $1,400.

D. $1,400.

A client placed​ $2,800,000 of five−year equipment into service in January 2020. Because taxable income is more than​ $10,000,000, she would like to maximize this​ year's depreciation deduction. The largest deduction allowed is A. $1,224,000. B. $560,000. C. $1,040,000. D. $2,800,000.

D. $2,800,000.

​Stephanie's building, which was used in her​ business, was destroyed in a fire.​ Stephanie's adjusted basis in the building was​ $175,000, and its FMV was​ $210,000. Stephanie filed an insurance claim and was reimbursed​ $200,000. In that same​ year, Stephanie invested​ $180,000 of the insurance proceeds in another business building. If the proper election is made to defer​ gain, Stephanie will recognize gain of A. ​$25,000. B. $0. C. $15,000. D. $20,000.

D. $20,000.

William purchases nonresidential real property costing​ $300,000 and places it in service in March 2019. What is​ Lincoln's 2020 depreciation on the​ property? A. $6,099 B. $8,637 C. $10,908 D. $7,692

D. $7,692

When depreciating 5−year property, the final year of depreciation will be year A. 3. B. 4. C. 5. D. 6.

D. 6.

With respect to residential rental property A. 80% or more of the net rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property. B. hotels are not included in this category if less than half of the units are used on a transient basis. C. gain is not subject to the depreciation recapture provisions if the property is held more than one year. D. 80% or more of the gross rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property.

D. 80% or more of the gross rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property.

Under what circumstances might a taxpayer elect the alternative depreciation system for new equipment acquired this​ year? A. A taxpayer has significant NOL carryovers. B. A taxpayer is undertaking a major​ R&E project which will result in an usually low marginal tax rate for the next few years. C. A taxpayer has significant charitable contribution carryovers that will expire after this year. D. All of the above

D. All of the above

For real property placed in service after​ 1986, depreciation under the MACRS system is calculated using the A. 200% DB method and a half−year convention in the year of acquisition and in the year of disposition. B. straight−line method and a half−year convention in the year of acquisition and in the year of disposition. C. 200% DB method and a mid−month convention in the year of acquisition and in the year of disposition. D. straight−line method and a mid−month convention in the year of acquisition and in the year of disposition.

D. straight−line method and a mid−month convention in the year of acquisition and in the year of disposition.

Do accounting rules determine the amount of income to be reported by a​ taxpayer? A. The accounting methods used by a taxpayer determine the exact amount of income to be reported by a taxpayer in any given year and over the life of the taxpayer. B. The accounting methods used by a taxpayer have no bearing on the amount of income to be reported by a taxpayer in any given year or over the life of the taxpayer. C. In the long​ run, the amount of income reported by a taxpayer will vary significantly depending on the accounting methods used by the taxpayer. In a given year the amount of income reported by a taxpayer generally be the same regardless of the accounting method used by the taxpayer. D. In the long​ run, the amount of income reported by a taxpayer will generally be the same regardless of the accounting methods used by the taxpayer. In a given year the amount of income reported by a taxpayer can vary significantly depending on the accounting method used by the taxpayer.

D. In the long​ run, the amount of income reported by a taxpayer will generally be the same regardless of the accounting methods used by the taxpayer. In a given year the amount of income reported by a taxpayer can vary significantly depending on the accounting method used by the taxpayer.

Self−employment taxes include components for A. FICA and FUTA. B. Medicare hospital insurance and SUTA. C. Social Security and FUTA. D. Social Security and Medicare hospital insurance.

D. Social Security and Medicare hospital insurance.

How does a​ taxpayer's tax accounting method affect the amount of tax​ paid? A. The accounting methods used by a taxpayer affect the amount of tax paid by allowing the taxpayer to pay its taxes by installment on a monthly basis. Interest accrues on the unpaid balance. B. The accounting methods used by a taxpayer dictate the​ taxpayer's capital gain tax rate. It is preferable to adopt an accounting method that will result in a lower tax rate. C. The accounting methods used by a taxpayer dictate the​ taxpayer's regular tax rate. It is preferable to adopt an accounting method that will result in a lower tax rate. D. The accounting methods used by a taxpayer can accelerate or defer the recognition of​ income, and,​ thereby, change when the tax must be paid.​ Also, because of the progressive tax rate​ structure, taxes can be saved by spreading income over several​ years, rather than having income bunched into one​ year, pushing the taxpayer into higher brackets.

D. The accounting methods used by a taxpayer can accelerate or defer the recognition of​ income, and,​ thereby, change when the tax must be paid.​ Also, because of the progressive tax rate​ structure, taxes can be saved by spreading income over several​ years, rather than having income bunched into one​ year, pushing the taxpayer into higher brackets

A new business is established. It is not a seasonal business. All of the following are acceptable accounting tax years with the exception of A. an S corporation year ending October 31. B. a C corporation​ (not a personal service​ corporation) tax year ending on April 30. C. a partnership tax year ending on October 31 with three equal partners whose tax years end on September​ 30, October​ 31, and November 30. D. a C corporation​ (not a personal service​ corporation) tax year ending on February 15.

D. a C corporation​ (not a personal service​ corporation) tax year ending on February 15.

Which of the following assets is 1231​ property? A. an investment in corporate stock B. land held for investment C. items held for resale by a retailer D. a machine used in the​ company's manufacturing operations

D. a machine used in the​ company's manufacturing operations

Why did Congress establish favorable treatment for 1231​ assets? A. to allow a larger deduction for losses B. to encourage the mobility of capital C. to help business owners replace assets which had declined in value D. all of the above

D. all of the above

All of the following are self−employment income except A. distributive share of partnership income from a partnership operating a business. B. fees received for serving as a director of a corporation. C. net income of a sole proprietorship. D. dividends received by a corporate shareholder.

D. dividends received by a corporate shareholder.

In computing​ AMTI, adjustments are A. subtracted only. B. limited. C. added only. D. either added or subtracted.

D. either added or subtracted.

Under the cash method of​ accounting, all of the following are true with the exception of A. to some​ extent, a taxpayer may control the year in which an expense is deductible by choosing when to make the payment. B. gross income includes the value of property received. C. income is reported in the tax year in which payments are actually or constructively received. D. fixed assets are always expensed as the taxpayer pays for the assets.

D. fixed assets are always expensed as the taxpayer pays for the assets.

The general business credit includes all of the following with the exception of A. research credit. B. disabled access credit. C. credit for rehabilitation expenditure. D. foreign tax credit.

D. foreign tax credit.

When accounting for long−term contracts​ (other than those for​ services), all of the following accounting methods may be acceptable with the exception of A. the completed contract method. B. the percentage of completion method. C. the modified percentage of completion method. D. the installment sale method.

D. the installment sale method.

For purposes of the accrual method of​ accounting, the economic performance test is met when A. all events have occurred that establish the fact of a liability. B. all events have occurred that fix the​ taxpayer's right to receive income. C. the amount of the item can be reasonably estimated. D. the property or services are actually provided.

D. the property or services are actually provided.

Generally, a full exclusion of gain under Sec. 121 upon the sale of a personal residence applies to only one sale or exchange every A. year. B. six months. C. five years. D. two years.

D. two years.

The client is a corporation which uses high−tech equipment to manufacture its product. Because of the high level of wear and tear due to long production runs and frequent technology​ changes, the client usually replaces the equipment every two years. According to IRS​ guidance, the MACRS life of the equipment is five years. In order to accelerate depreciation​ deductions, which tax depreciation option should the client​ elect? A. alternative depreciation system​ (ADS) B. MACRS with a straight−line election C. regular MACRS treatment D. units−of−production method

D. units−of−production method

A taxpayer who uses the LIFO method of inventory valuation may use the lower of cost or market method. True False

False

Assume a taxpayer projects that his total income tax for the year will​ $25,000. A taxpayer with savings should prefer to structure his tax prepayments so that he will receive a tax refund of​ $2,500 rather than a tax due of​ $2,500. True False

False

If an employee has more than one employer during the​ year, all employers must withhold federal income taxes but only one employer must withhold FICA tax. True False

False

On its tax​ return, a corporation will use the same​ depreciation, amortization and depletion methods used in its financial statements issued to shareholders. True False

False

The earned income credit is refundable only if a tax has been withheld. True False

False

A subsidiary corporation filing a consolidated return with its parent corporation must change its accounting period to conform with its​ parent's tax year. True False

True

In order for an asset to be depreciated in the year of​ purchase, it must be placed in service before​ year's end. True False

True

Intangible drilling and development costs​ (IDCs) may be deducted as an expense or may be capitalized. True False

True

In​ 2020, Thomas, a single taxpayer who has a marginal tax rate of​ 10%, sells land that is Sec. 1231 property at a gain of​ $4,000. This is the first time Thomas has ever sold a Sec. 1231 asset. If he has no other 1231 transactions or capital asset​ transactions, Thomas will pay no tax on the​ $4,000 gain. True False

True

Jay and​ Cara's daughter is starting her freshman year of college. Jay and Cara will be able to claim the American Opportunity Tax Credit for a percentage of the cost of​ tuition, required fees and course​ materials, but the room and board charges will not qualify for the credit. True False

True

Many taxpayers use the LIFO method of inventory valuation because during inflationary​ periods, LIFO normally results in the lowest valuation of ending inventory​ and, hence, the lowest taxable income. True False

True

One−half of the self−employment tax imposed is allowed as a for AGI deduction. True False

True

Points paid on a mortgage to buy a personal residence are deductible in the year paid. True False

True

Sec. 1231 property must satisfy a holding period of more than one year. True False

True

Taxpayers are entitled to a depletion deduction if they have an economic interest in the natural resource property. True False

True