Unit 15 Review

D) other limited partnerships.

A loss derived from a limited partnership may be offset against income from A) bonuses received in addition to a regular salary. B) capital gains from municipal bonds. C) dividends received from common stocks. D) other limited partnerships.

D) I and II

Many corporations make available dividend reinvestment plans (DRIPs) for their shareholders. Which of the following are among the benefits of using DRIPs? Allowing the investment to compound Discounts from the current market price Reduced taxation The ability to accept the dividend in cash or in additional shares of stock A) I and IV B) II and IV C) I and III D) I and II

B) interest left to compound on a bank-insured certificate of deposit.

An example of an interest-on-interest reinvestment program is A) reinvesting the dividends distributed on a bond fund. B) interest left to compound on a bank-insured certificate of deposit. C) reinvesting the earnings on a bond UIT. D) reinvesting the interest received on a bond.

D) a capital gain.

For tax purposes, the sale of an investment at a profit will result in A) passive income. B) ordinary income. C) alternative minimum tax liability. D) a capital gain.

B) General obligation bond

If an investor is in the highest federal income tax bracket and is subject to the alternative minimum tax, which of the following securities should an agent recommend? A) Treasury bond B) General obligation bond C) Corporate bond D) Industrial revenue bond

A) a $300 short-term capital gain.

A client bought 100 shares of a mutual fund on December 28, 2016, for $4,000 and received a capital gains distribution of $2.40 per share on March 6, 2017, which was taken in cash. He sold his 100 shares for $4,300 on June 19, 2017. For tax purposes, this transaction resulted in A) a $300 short-term capital gain. B) a $240 long-term capital gain. C) a $60 short-term capital gain. D) a $240 long-term capital gain and a $60 short-term capital gain.

A) $168.75.

A customer in the 25% tax bracket bought 200 shares of ABC at $93 per share plus commission of $50. Considering the customer's cost basis, when she sold 100 shares six months later at $96 per share, less commission of $50, her after-tax net was A) $168.75. B) $300.00. C) $150.00. D) $56.25.

A) Sales tax

Which of the following is an example of a regressive tax? A) Sales tax B) Gift tax C) Estate tax D) Income tax

A) FIFO

Your customer redeemed 200 of her 500 Kapco common shares without designating which shares were redeemed. Which of the following methods does the IRS use to determine which shares she redeemed? A) FIFO B) Wash sale rules C) LIFO D) Identified shares

B) $168.75.

A customer in the 25% tax bracket bought 200 shares of ABC at $93 per share plus commission of $50. Considering the customer's cost basis, when she sold 100 shares six months later at $96 per share, less commission of $50, her after-tax net was A) $300.00. B) $168.75. C) $56.25. D) $150.00.

B) capital gains tax.

Investors who buy shares in state-specific municipal bond funds may be subject to A) out-of-state property tax. B) capital gains tax. C) federal income tax. D) no taxation.

D) a bonus paid as a result of your division exceeding its goals.

The term earned income would include A) alimony received as part of a divorce decree executed on January 15, 2019. B) the death benefit from a variable life insurance policy. C) the death benefit from a variable annuity policy. D) a bonus paid as a result of your division exceeding its goals.

C) a bonus paid as a result of your division exceeding its goals.

The term earned income would include A) the death benefit from a variable annuity policy. B) alimony received as part of a divorce decree executed on January 15, 2019. C) a bonus paid as a result of your division exceeding its goals. D) the death benefit from a variable life insurance policy.

B) the marginal rate.

Using industry jargon, the tax on the last dollar of income is at A) the effective rate. B) the marginal rate. C) the final rate. D) the average rate.

A) Stock dividends

Which of the following offers the opportunity to realize a capital gain rather than ordinary income? A) Stock dividends B) Section 529 plans C) Cash dividends D) Deferred annuities

C) interest from private activity bonds.

The alternative minimum tax (AMT) becomes a consideration when a taxpayer has so-called tax preference items. Included in that definition is A) overtime pay from a job. B) interest from U.S. Treasury bonds. C) interest from private activity bonds. D) tips received while working at a restaurant.

B) Head of Household

You are working with a client who received her divorce earlier this year. She has two young children, ages four and seven, who both live with her. In general, it would be most advantageous for the client to file her federal income tax claiming what status? A) Single B) Head of Household C) Married but separated D) Joint

C) 31 days

A customer who sold a bond at a loss must wait how long before he can buy back a substantially identical bond and not have the sale classified as a wash sale? A) 0 days B) 20 days C) 31 days D) 5 days

A) There are more shares in the investor's account.

A number of corporations offer dividend reinvestment plans (DRIPs) where the client's dividends are automatically reinvested in additional shares of the issuer. In the case of a company that pays dividends with some degree of regularity, if the market price per share has declined over the year and assuming no splits, an investor participating in one of these plans would find which of the following to be true? A) There are more shares in the investor's account. B) The value of the investor's account has gone up. C) There are fewer shares in the investor's account. D) The value of the investor's account has gone down.

C) the rate of taxation on any additional taxable income received.

A taxpayer's marginal tax rate is A) generally lower than the effective tax rate. B) the rate of tax paid on margin account interest. C) the rate of taxation on any additional taxable income received. D) the rate of tax paid on total taxable income.

C) The shares are not subject to taxation

An investor purchases 1,000 shares of ABC at $42 per share. One year later, the stock is trading at $50 per share and the investor receives 50 shares of ABC as a stock dividend. How will this dividend be currently taxed? A) As a $2,100 capital gain B) As a $2,500 capital gain C) The shares are not subject to taxation D) As $2,500 ordinary income

C) The shares are not subject to taxation

An investor purchases 1,000 shares of ABC at $42 per share. One year later, the stock is trading at $50 per share and the investor receives 50 shares of ABC as a stock dividend. How will this dividend be currently taxed? A) As a $2,500 capital gain B) As a $2,100 capital gain C) The shares are not subject to taxation D) As $2,500 ordinary income

A) interest received on school district GO bonds.

Each of the following could cause an investor to be subject to the alternative minimum tax except A) interest received on school district GO bonds. B) interest received on private activity municipal bonds. C) accelerated depreciation taken on certain property. D) excess intangible drilling costs.

C) Interest on a private-purpose municipal bond

If a high-income taxpayer is subject to the AMT, which of the following preference items must be added to adjusted gross income to calculate his tax liability? A) Distributions from a corporate bond mutual fund B) Dividends paid on preferred stock C) Interest on a private-purpose municipal bond D) Interest on a general obligation municipal bond

A) straight-line depreciation.

Tax preference items are used for the purpose of computing the alternative minimum tax. They include all of the following except A) straight-line depreciation. B) excess intangible drilling costs. C) certain incentive stock options. D) accelerated depreciation.

B) I, II, and III

There are many sources of taxable income to an individual. Included might be money received from which of the following? Sole proprietorship Subchapter S corporation Investments Life insurance death benefit A) I, II, III, and IV B) I, II, and III C) II and III D) I and II

A) use LIFO.

An investor has made the following purchases, all in the same calendar year: 100 ABC at $20 on January 15; 200 ABC at $25 on April 4; and 100 ABC at $30 on July 23. With ABC currently selling at $22, if this investor needed to sell 200 ABC, the best decision from a tax standpoint would probably be to A) use LIFO. B) hold the stock until the price reaches $25. C) use FIFO. D) use average cost.

B) gender

The amount of federal income tax a U.S. citizen residing in the country will pay is dependent on all of these except A) age. B) gender. C) state of residence. D) filing status.

B) Purchasing an ABCE put option

An investor purchases 100 shares of ABCE common stock at $70 per share. Thirteen months later, the stock is sold when the market price is $50 per share. Which of the following activities made 20 days after the sale of the stock at $50 per share would not violate the wash sale rule? A) Purchasing an ABCE call option B) Purchasing an ABCE put option C) Purchasing 100 shares of ABCE common stock D) Purchasing five ABCE convertible bonds with a conversion price of $50

D) $470 short-term loss

Sally Sherman purchased 100 shares of Chocolate Manufacturers Corporation (CMC) for $19 per share on February 12. She received a 10% stock dividend on May 18. She sold all of her CMC at $13 per share in June of the same year. What were her tax results? A) $575 short-term loss; $105 long-term gain B) $575 long-term loss C) $575 long-term gain, $105 short-term loss D) $470 short-term loss

A) in both plans, all income is taxable in the year received, whether reinvested or not.

Many different investments offer the opportunity to reinvest income. If one were to compare the difference between interest-on-interest reinvestment plans and dividend and capital gain reinvestment plans, A) in both plans, all income is taxable in the year received, whether reinvested or not. B) in the case of dividend and capital gains reinvestment plans, taxes are deferred until liquidation. C) in the case of interest-on-interest plans, taxes are deferred until liquidation. D) in both cases, all income is deferred until liquidation.

C) a long-term capital loss.

An investor purchased 500 shares of stock on January 10, 2020, at $50 per share and sold it on August 4 of the following year for $40 per share. As a result, the investor realized A) a short-term capital gain. B) a long-term capital gain. C) a long-term capital loss. D) a short-term capital loss.

C) subject to the alternative minimum tax.

Owners of private activity municipal bonds might find themselves A) in violation of MSRB rules if proper disclosures are not made. B) receiving less interest than with a similar GO bond. C) subject to the alternative minimum tax. D) taking an extraordinarily high risk.

D) I and IV

An investment adviser representative specializes in the senior market. A number of his clients have reached the age where they are contemplating selling their homes and moving into an assisted living facility. The profit made on the sale of their homes will be used to defray the costs of their new residence. Under current tax laws, which of the following are true? A single person pays no tax on the first $250,000 of net profit realized on the sale of a primary residence that has been occupied for at least two of the past five years. A single person pays no tax on the first $500,000 of net profit realized on the sale of a primary residence that has been occupied for at least two of the past five years. A married couple pays no tax on the first $250,000 of net profit realized on the sale of a primary residence that has been occupied for at least two of the past five years. A married couple pays no tax on the first $500,000 of net profit realized on the sale of a primary residence that has been occupied for at least two of the past five years. A) II and III B) II and IV C) I and III D) I and IV

B) high annual income earners and disallows some deductions and exemptions used to calculate adjusted gross income.

The alternative minimum tax (AMT) is assessed against A) low annual income earners and allows special deductions for them to be taken. B) high annual income earners and disallows some deductions and exemptions used to calculate adjusted gross income. C) all self-employed individuals. D) high annual income earners and gives them special deductions to take that lower income earners do not get.