Bus 403 Final Exam
12. Carter is a podiatrist in Minneapolis. He travels to Milwaukee to attend a two-day seminar for health professionals about investing in commodities. Transportation expenses are $140, the hotel cost $125/day, and meals cost $60/day. How much can Carter deduct for travel to the seminar? a. $- 0 - b. $140 c. $390 d. $450 e. $510
A. $-0-
7. Oscar buys a 10% interest in Britanny Corporation paying $92,000 cash on January 1, 2017. During 2017, Britanny Corporation reports a loss of $30,000 and pays cash dividends to shareholders of $10,000. For 2018, Britanny Corporation has a loss of $60,000 and pays cash dividends of $20,000. If Britanny Company is organized as an S Corporation, Oscar's basis in the Britanny Corporation stock at the end of 2018 is: a. $80,000 b. $86,000 c. $92,000 d. $98,000 e. $104,000
A. $80,000
15. Which of the following statements is/are correct? I.There is a minimum allowable standard deduction from adjusted gross income of individuals. II. Corporations are allowed deductions from adjusted gross income. III. Corporations are allowed a standard deduction. IV. Personal exemptions of individuals are deductible for adjusted gross income. a. Only statement I is correct. b. Only statement II is correct. c. Statements II and IV are correct. d. Statements I and IV are correct. e. Statements I and III are correct.
A. Only statement I is correct
35. During the current year, Walter invests $35,000 in each of two separate corporations. Each investment gives him a 20% ownership interest. Corporation X is a C corporation that has taxable income of $200,000 and pays dividends totaling $50,000. Corporation Z is an S corporation that has taxable income of $100,000 and pays $50,000 of dividends. As a result of these two investments, Walter I. Has $10,000 of taxable income from Corporation X. II.Has $10,000 of taxable income from Corporation Z. a. Only statement I is correct. b.Only statement II is correct. c.Both statements are correct. d.Neither statement is correct.
A. Only statement I is correct
43. The mid-quarter convention I. never applies to real estate. II.is required when more than 30% of the depreciable basis of certain property is placed into service during the last 3 months of the tax year. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
A. Only statement I is correct
44. Limited liability refers to an owner's liability for which of the following? I. The amount invested in the entity. II. The liabilities of the corporation that the owner has personally guaranteed. III. All of the outstanding liabilities of the corporation. IV. Only for the corporation's loans from financial institutions a. Only statement I is correct. b. Only statement III is correct. c. Statements II and IV are correct. d. Statements I, II, and IV are correct. e. Statements I, II, III, and IV are correct.
A. Only statement I is correct
6. Taxpayer A pays tax of $3,300 on taxable income of $10,000 while taxpayer B pays tax of $6,600 on $20,000. The tax is a a. proportional tax. b. regressive tax. c. progressive tax. d. horizontal tax.
A. Proportional tax.
14. How much gross income does Ron have from the following items of economic income? 1.Received cash gift of $5,000 from parents. 2.Received $12,000 in alimony payments and $6,000 in child support from former spouse (2018 agreement). 3.Won $4,000 in Indiana lottery scratch off game. 4.Investment in IBM stock increased in value by $15,000. 5.Collected $12,000 in unemployment benefits. a. $16,000 b. $28,000 c. $33,000 d. $34,000 e. $54,000
B. $28,000
18. Anna receives a salary of $42,000 during the current year. She sells some land that she held as an investment at a loss of $7,000 and some stock at a gain of $11,000. Anna's adjusted gross income is: a. $42,000 b. $46,000 c. $50,000 d. $53,000
B. $46,000
47. During 2018, Mercedes incorporates her accounting practice. Mercedes is the sole shareholder. The following assets are transferred to the corporation: Cash $1,000 Computer equipment: Fair market value $10,000 Adjusted basis $6,000 Original cost $12,000 What is the corporation's total basis in all of the transferred assets? a. $6,000 b. $7,000 c. $10,000 d. $11,000 e. $13,000
B. $7,000
3. Robert receives a car as a gift from his mother. The car's purchase price was $20,000, and it was used personally prior to the gift. Robert uses the car 80% of the time in his pizza business. The car's value at the date of the gift is $9,000. What is Robert's basis in the car for depreciation purposes? a. $- 0- b. $7,200 c. $9,000 d. $16,000 e. $20,000
B. $7,200
39. Based on the following information, what is the 2018 taxable income for a married couple with two children? Total income $120,000 Excludable income 2,000 Deductions for AGI 5,000 Allowable itemized deductions 8,000 a. $85,000 b. $89,000 c. $94,000 d. $105,000 e. $113,000 $120,000 2,000 5,000 8,000
B. $89,000
22. John purchased State of Oklahoma general-purpose bonds at a cost $3,400 in 2016. He receives $210 interest on the bonds in 2016, 2017, and 2018. In 2018, he sells the bonds for $3,800. How much income does John recognize in each of the following years?2016 2017 2018 a. -0- -0- -0- b. -0- -0- 400 c. 210 210 210 d. 210 210 570
B. -0- -0- 400
9. Which of the following is not deductible? a. Expenses related to earning rental income b. Expenses related to interest income from municipal bonds. c. Legal expenses related to rental real estate property. d. Medical expenses of the taxpayer's dependent child
B. Expenses related to interest income from municipal bonds.
36. The mid-year convention under MACRS provides that a.Depreciation is allowable in the year of acquisition of qualified property only if the property is placed in service in the first one-half of that year. b.One half of the year-of-acquisition depreciation is allowed regardless of when the property is placed in service during the year. One-half year's depreciation is allowable for the year of disposition. c.Depreciation is allowable in the year of disposition only if the property is disposed of in the last one-half of that year. d.The cost recovery deduction is based on the number of months the property was in service in the year of acquisition. Therefore, one-half month's cost recovery is allowable for the month in which the property is placed in service and for the month of disposition.
B. One half of the year-of-acquistion depreciation is allowed regardless of when the property is placed in service during the year. One-half's depreciation is allowable for the year of disposition.
11. Which of the following is/are trade or business expenses? I.Solly incurs legal expenses related to real estate he leases to Bucko Burger Hamburger Haven for a parking lot. Solly does little but negotiate the lease every year. II. Susan owns several rental apartments. She negotiates new rental contracts, arranges for repairs and maintenance, and handles all leasing activities. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
B. Only statement II is correct
27. Deductions for adjusted gross income include I.Contribution to a Roth IRA. II. Contribution to conventional IRA a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
B. Only statement II is correct
38. For 2018, Nigel and Lola, married taxpayers without children, calculated their total allowable itemized deductions to be $28,100. Accordingly, Nigel and Lola file jointly and should deduct from adjusted gross income I. the standard deduction amount of $24,000 II. total itemized deductions equal to $28,100. III. tax credits totaling $4,000 for two qualifying individuals IV. the standard deduction of $24,000 plus the itemized deductions of $28,100 a. Only statement I is correct. b. Only statements II is correct. c. Statements I, III, and IV are correct. d. Statements II and IV are correct. e. Statements I, II, III, and IV are correct.
B. Only statement II is correct
41. The Section 179 election promotes which of the following tax concept(s) or doctrine(s)? I.Claim of Right Doctrine. II.Administrative Convenience Concept. III. Tax benefit rule. IV. Substance-Over-Form Doctrine. a. Only statement I is correct. b. Only statement II is correct. c. Statements I, II, and IV are correct. d. Statements II and IV are correct. e. Statements I, II, III, and IV are correct.
B. Only statement II is correct
45. Which of the following characteristics distinguish a corporation from other forms of businesses? I.Centralization of management II. Continuity of life III.Free transferability of ownership interests IV.Limited liability V.Profit motive a. All are distinguishing characteristics. b. Statements I, II, III and IV are correct. c. Only statement III is correct. d. Statements IV and V are correct. e. Statements I, II, IV, and V are correct.
B. Statements I, II, III and IV are correct
37. Horizontal equity I. means that those taxpayers who have the greatest ability to pay the tax should pay the greatest proportion of the tax. II. means that two similarly situated taxpayers are taxed the same. III. is reflected in the progressive nature of the federal income tax system.exists when Avis, a single IV. individual with 4 dependent children, and Art, a single individual with no dependents, both pay $2,400 income tax on equal $26,000 annual salaries. a. Statements III and IV are correct. b. Statements II and III are correct. c. Statements I and III are correct. d. Only statement IV is correct. e. Statements I, II, III, and IV are correct.
B. Statements II and III are correct
21. Given below are Mario's capital gains and losses for two consecutive years. What is the effect of the capital gains and losses on Mario's taxable income for each year? First Year Second Year Short-term capital gain $ 12,000 $ -0- Long-term capital gain $ 11,000 $ 16,000 Short-term capital loss $ (9,000) $ (2,000) Long-term capital loss $ (23,000) $ (5,000) First Second Year Year a. $(9,000) $ 9,000 b. $ 3,000 $ 1,000 c. $(3,000) $ 3,000 d. $(3,000) $(3,000) e. $(3,000) $ -0-
C. $ (3,000); $ 3,000
10. Maria is on a "full ride" tennis scholarship at Western University. Her $12,500 scholarship covers tuition and books ($7,000) and room and board ($5,500). Maria's gross income is a. $- 0 - b. $2,000 c. $5,500 d. $7,000 e. $12,500
C. $5,500
33. Roberta invests $16,000 for a 10% interest in Bowie Partnership. In the first year of operations, Bowie reports net income from operations of $80,000 and distributes $6,000 cash to Roberta. How much gross income must Roberta recognize from her investment in Bowie? a. $2,000 b. $6,000 c. $8,000 d. $80,000
C. $8,000
26. Susan purchased a lot for investment purposes. She paid $10,000 for the lot. Three years later she sold the lot to her daughter for $8,000. Susan cannot deduct the loss due to a. Ability to Pay Concept. b. Administrative Convenience Concept. c. Arm's-Length Transaction Concept. d. Capital Recovery Concept. e. Pay-as-You-Go Concept.
C. Arm's-length Transaction Concept
8. Income tax accounting methods and financial accounting methods differ in many ways. Which of the following tax law provisions are likely to create permanent differences between taxable income and financial (or book) income of a single entity? I. Treatment of payment of penalties and fines. II. Disallowance of 50% of the cost of business meals and 100% of entertainment. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
C. Both Statements are correct
19. A business expense includes I. an expenditure that satisfies the dominant profit-motive requirement. II. an expenditure that is incurred in a trade or business activity. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
C. Both statements are correct
20. Margo is single and is a self-employed proprietor of a convenience store near the mall. During the current year, Margaret paid $4,000 for health insurance coverage for herself. She paid another $500 for coverage for her unrelated employee, Corky. How should Margaret deduct the health insurance cost? I.Margaret takes $500 as a business expense. II. Margaret takes the $4,000 as a deduction for AGI. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
C. Both statements are correct
23. Business expenses include I. expenditures that have a business purpose II. expenditures that are incurred for the production of income. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
C. Both statements are correct
29. Riley owns some land, which has an oil deposit underneath it. His annual royalties are usually around $100,000. Because Riley is in the highest marginal tax rate bracket, he would like to have some (or all) of the royalty income taxed to his son, Mark, thus lowering the overall tax on the royalty income. To do this I. Riley can gift part of the land to Mark. II.Riley can gift all of the land to Mark. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
C. Both statements are correct
32. Julia spends her summers away from college as a forest ranger in a remote area near Mt. McKinley, Alaska. She lives in a remote dormitory where she also receives free meals. The dormitory's location permits rangers to be on call in case of an emergency. I.The value of the lodging is excluded from Julia's gross income. II.The value of the meals is excluded from Julia's gross income. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
C. Both statements are correct
30. Phillip owns rental real estate with an adjusted basis of $200,000. During the current year, he sells the property for $170,000. I.If Phillip's rental activity is a trade or business, the loss is a Section 1231 loss. II. If Phillip's rental activity is a production-of-income (investment) activity, the loss is a capital loss. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
C. Both statements are correct.
1. Which of Adam Smith's requirements for a good tax system best supports the argument that the federal income tax rate structure should be progressive? a. Certainty. b. Convenience. c. Equality. d. Neutrality. e. Sufficiency.
C. Equality
48. Which of the following statements is true for a corporation that had an NOL during their 2018 tax year. a. It can carry the loss back two years to claim a refund of previously paid income taxes. b. It can carry the loss forward for 20 years and offset 100% of taxable income in those each years. c. It can carry the loss forward indefinitely and offset up to 80% of future years' taxable income. d. It can neither carryback nor carryforward the NOL.
C. It can carry the loss forward indefinitely and offset up to 80% of future years' taxable income.
31. Nancy owns a truck she uses personally. It cost her $18,000 two years ago. Doug offers Nancy $19,000 for the truck. What would be the tax effects if the transaction is completed this year? I. Nancy will realize a capital gain of $1,000 due to the capital recovery concept. II. Nancy must recognize income of $19,000 due to the all-inclusive-income concept. III. Nancy must recognize a capital gain of $1,000 on her current-year tax return because there is no legislative provision to exclude this gain. IV. Nancy will recognize no gain on her tax return due to lack of business purpose with the automobile. a. Statements I and IV are correct. b. Statements I, II, and III are correct. c. Statements I and III are correct. d. Statements II and IV are correct. e. Only statement IV is correct.
C. Statements I and III are correct
17. Which of the following trade or business assets are Section 1245 properties? I. Racehorses. II. Livestock held for breeding purposes. III. Manufacturing equipment. IV. Residential rental property placed in service in 2008. a. Only statement I is correct. b. Statements II and IV are correct. c. Statements I, II, and III are correct. d. Statements I and IV are correct. e. Statements I, II, III, and IV are correct.
C. Statements I, II, and III are correct
28. The ability-to-pay concept is fundamental to the income tax structure. Constructs used to implement this concept include I. Deductions II. Progressive tax rates III. Exclusions IV. Business losses a. Only statement II is correct. b. Statements I, III, and IV are correct. c. Statements I, II, and IV are correct. d. Statements I and III are correct. e. Statements I, II, III, and IV are correct.
C. Statements I, II, and IV are correct
46. During 2018, Jimmy incorporates his data processing business. Jimmy is the sole shareholder. The following assets are transferred to the corporation: Cash $2,000 Computer Equipment: Fair market value 20,000 Adjusted basis 12,000 Original cost 24,000 Furniture: Fair market value 20,000 Adjusted basis 32,000 Original cost 64,000 What will be the basis of the assets to the corporation after the transfer? Computer Equipment Furniture a. $20,000 $20,000 b. $12,000 $20,000 c. $20,000 $32,000 d. $12,000 $32,000 e. $24,000 $64,000
D 12,000 and 32,000
25. Sandra directed her employer to withhold $500 of her wages each month for deposit to her mother's checking account. Which of the following concepts, constructs, or doctrines is the least helpful in determining how Sandra should report the arrangement for tax purposes? a. Assignment of Income Doctrine. b. Claim of Right Doctrine. c. All-inclusive Income Concept. d. Ability-to-pay Concept. e. Constructive Receipt Doctrine.
D. Ability-to-pay Concept
13. If a taxpayer has a choice of receiving income in the current year versus the following year, which of the following tax rates is important in determining the year in which he should include the income? a. Average. b. Effective. c. Composite. d. Marginal.
D. Marginal
16. If an individual sells depreciable real estate at a gain I. the entire gain is taxed at a maximum rate of 15%. II. the gain due to depreciation is taxed as a long-term capital gain. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
D. Neither statement is correct
24. Which of the following is/are currently deductible trade or business expenses? I.Membership dues to an environmental lobbying group. II. Cost of acquiring a new business automobile. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.
D. Neither statement is correct
40. Which of the following assets would be allowed a depreciation deduction? I.A truck used to provide transportation to a job site. II.A car used for personal purposes. III.An apartment building rented out for the production of rental income. IV. A personal-use computer of the taxpayer. a. Only statement II is correct. b. Statements II and IV are correct. c. Only statement I is correct. d. Statements I and III are correct. e. All of the assets are depreciable.
D. Statements I and III are correct
5. Betty is a house painter and owns Trim Beautiful Painting Company. Last month she painted the lake cottage of Anne,a local attorney who performed some litigation work for Betty to help in some delinquent bill collection. The painting, valued at $1,000, was done in exchange for the litigation work. Neither party charged fees. What should be the tax consequences of these events? I. Anne reports $1,000 of income when the painting is completed. II.No cash was received. Therefore, neither party reports income. III. Neither individual reports income because there is no reporting of the event to the IRS IV. Both parties report income because there is no exclusion for barter transactions.. a. Only statement I is correct. b. Statements II and IV are correct. c. Only statement II is correct. d. Statements I and IV are correct. e. Only statement IV is correct.
D. Statements I and IV are correct
2. In June, Catherine receives stock worth $12,000 as a graduation present from her Grandfather. The following November she receives an $800 cash dividend on the stock. Catherine must include the $800 dividend in her gross income, but excludes the $12,000 value of the stock received. The income tax concept(s) that require this treatment include: I. Ability-to-Pay Concept. II. All-inclusive Income Concept III. Constructive Receipt Doctrine. IV.Legislative Grace Concept. a. Only statement III is correct. b. Statements III and IV are correct. c. Statements I and III are correct. d. Statements II and IV are correct. e. Only statement I is correct.
D. Statements II and IV are correct
4. Tyrone sells his personal-use car that had cost $15,000 for $10,000. Why is the loss realized on this transaction disallowed as a deduction? I. Legislative Grace is lacking II. Personal losses are disallowed. III.Business purpose is lacking. a. Only statement I is correct. b. Only statement II is correct. c. Only statement III is correct. d. Statements I and II are correct. e. Statements I, II, and III are correct.
E. Statements I, II, and III are correct
42. Qualified Section 179 property for a retail store includes I.Store shelving. II.Company auto used by salesmen. III.Sidewalks in front of the store. IV.Delivery van owned by the store. a. Only statement I is correct. b. Only statement III is correct. c. Statements I and IV are correct. d. Statements II and III are correct. e. Statements I, II, and IV are correct.
E. Statements I, II, and IV are correct
34. Items that are excluded from gross income include all of the following with the exception of: a. gifts. b. inheritances. c. life insurance proceeds. d. municipal bond interest. e. U.S. Treasury Bills interest.
E. U.S Treasury Bills Interest