Reg - R1 MC

Charles and Marcia are married cash-basis taxpayers. In year 8, they had interest income as follows: $500 interest on federal income tax refund $600 interest on state income tax refund $800 interest on federal government obligations $1,000 interest on state government obligations

$1,900 500+600+800 Interest on tax refunds are always taxable Interest on federal gov ob are always taxable Interest on state gov ob depends on what deduction is taken but is normally not taxable

Mosh, a sole proprietor, uses the cash basis of accounting. At the beginning of the current year, accounts receivable were $25,000. During the year, Moshh collected $100,000 from customers. At the end of the year, accounts receivable were $15,000. What was Mosh's gross taxable income for the current year?

$100,000 cash basis tax payer and that is what they received in cash

Tom and Sharlene had the following items of income and expense during the taxable year: Gross income = 35,000 Business license fees = 500 Marketing expenses = 2,000 Salary paid to Sharlene = 10,000 Tom's wages from his job = 67,000 Interest from money market = 1,500 Gain from sale of securities owned for 3 months = 15,000 What is Tom & Sharlene's gross income before adjustments?

$116,000 Net self-employment income + Tom's wages + Interest + Gain from sale = Total gross income

Under a $150,000 insurance policy on her deceased father's life, May Green is to receive $12,000 per year for 15 years. Of the $12,000 received in the current year, the amount subject to income tax is:

$2,000 150,000 / 15 = 10,000 12,000 - 10,000 = 2,000

On December 1 of the current taxable year, Krest, a self-employed cash basis taxpayer, borrowed $200,000 to use in her business. The loan was to be repaid on November 30 of the following year. Krest paid the entire interest amount of $24,000 on December 1 of the current year. What amount of interest was deductible on Krest's current year income tax return?

$2,000 Cash basis taxpayers deduct interest in the year paid or the year to which the interest relates, whichever is later

Flowers, a married taxpayer, purchased an annuity for $64,400 that will pay $700 per month over the life of Flowers and Flowers spouse. At the time of purchase, the couple's joint life expectancy was 23 years. Flowers received payment beginning April 1, year 1, amounting to $6,300 in the first year f the annuity contract. How much is includable in Flowers' gross income in the first year?

$4,200 64,400/23 = 2,800 2,800 x 9/12 = 2,100 6,300 - 2,100 = 4,200

During the year Kay received interest income as follows: On US treasury certificates = $4,000 On refund of prior year's federal income tax = $500 The total amount of interest subject to tax in Kay's current year tax return is:

$4,500

Easel Co. has elected to reimburse employees for business expenses under a nonaccountable plan. Easel does not require employees to provide proof of expenses and allows employees to keep any amount not spent. Under the plan, Mel, an Easel employee for a full year, gets $400 per month for business automobile expenses, At the end of the year Mel informs Easel that the only business expense incurred was for business mileage of 12,000 at a rate of 30 cents per mile, the IRS standard mileage rate at the time. Mel encloses a check for $1,200 to refund the overpayment to Easel. What amount should be reported in Mel's gross income for the year?

$4,800 400x12 = 4,800 Under a nonaccountable plan, any amounts received must be reported as part of wages

Wade Inc granted a nonqualified stock option for 100 shares at $50 per share to Mary, an employee, on May 1 Year 12. On that date, the option was selling on an established market for $4 per share. She sold the stock on September 2, Year 14, for $100 per share. How much gross income and what type did Mary recognize in Year 12?

$400 ordinary income The employee receiving a nonqualified stock option must recognize as ordinary income the value of the option if traded on an established market. Here, that is 100 shares at $4 per share or $400

A painter and an accountant agree to trade their services, The painter provides services valued at $550 and the accountant provides services worth $500. What amount should the accountant report as income or expense?

$550 income NOT $50 income Do NOT net

Evan, an individual, has a 40% interest in EF, an S corporation. At the beginning of the year, Evan's basis in EF was $2,000. During the year, EF distributed $100,000 and reported operating income of $200,000. What amount should Evan include in gross income?

$80,000 You must use the whole 200,000 not just the amount of 100,000

Logan, an employee of Argon Industries, earned a salary of $60,000 in Year 2, In addition, the following two transactions between Logan and Argon occurred in Year 2: Logan received a bonus of 100 shares of publically traded stock worth $13,000 with a basis to Argon of $8,000 and Logan purcahsed 1,000 shares of unrestricted Argon stock pursuant to a nonqualifying stock option plan for $10 per share when stock was valued at $25 per share. What amount of compensation should Argon report in Logan's Form W-2 for Year 2?

$88,000 60,000 + 13,000 + ((25-10)*1000) = 88,000

The uniform capitalization method must be used by: 1) Manufacturers of tangible personal property 2) Retailers of personal property with $2 million in average gross receipts for the three preceding years

1 only

Jensen reported the following items during the current year: Fair value of a condiminium oned by Jensen's employer = 1,400 Cash found in a desk purchased for $30 at a flea market = 400 Inheritance = 11,000 The employer allowed Jensen to use the condominium for free in recognition of outstanding achievement. Based on this information, what is Jensen's gross income for the year?

1,800 1,400 + 400

Johnson worked for ABC Co. and earned a salary of $100,000. Johnson also received, as a fringe benefit, group term-life insurance at twice Jonson's salary. Assume the annual IRS established uniform cost of insurance is $2.76 per $1,000. What amount must Johnson include in gross income?

100,414 200,000 - 50,000 = 150,000 150,000 x 2.76 / 1,000 = 414 include cost/fmv of fringe benefits in income

Marty Smarty is a CPA in private practice. FOr the current year ended December 31, Marty had the following items of income and expenses with respect to his CPA Practice: Gross revenue = 275 Rent expense = 24 Wages paid to employees = 60 Wages paid to Marty = 120 Payroll taxes for employees = 5 Payroll taxes for Marty = 9 Supplies expense = 10 Insurance expense = 8 Depreciation expense = 15 Business meals = 4 Health insurance for employees = 5 Health insurance for Marty = 2 Business bad debt loss (allowance) = 3 State income taxes for the business = 10 What is Marty's taxable income on Schedule C for the CPA practice for the current year?

146 Gross revenue - (Rent expense + Wages paid to employees + Payroll taxes for employees + Supplies expense + Insurance expense + Depreciation expense + Business meals/2 + Health insurance for employees)

James Corp issue stock options to employees under an Employee Stock Purchase Plan, Which of the following statements is correct? 1) The option exercise price may not be less than the lesser of 95% of the FMV of the stock when granted or exercised 2) The option cannot be exercised more than 27 months after the grant date

2 only The rule for 1 is 85% 2 is a requirement of an ESPP

An individual received $50,000 during the current year pursuant to a divorce decree. A check for $25,000 was identified as annual alimony, checks totaling $10,000 as annual child support, and a check for $15,000 as a property settlement. What amount should be included in the individual's gross income?

25,000 Property settlements are treated similar to child support in terms of taxes

Randolph is a single individual who always claims the standard deduction. Randolph received the following in the current year: Wages = 22,000 Unemployment compensation = 6,000 Pension distribution (100% taxable) = 4,000 A state tax refund from the previous year = 425 What is Randolph's gross income?

32000 22+6+4 If the tax payer claims the standard deduction, the state tax was not deducted in the year it was paid so it is not taxable

In the current year Jensen had the following items: Salary = 50 Inheritance = 25 Alimony from ex-spouse = 12 Child support from ex-spouse = 9 Capital loss on investment stock sale = -6 What is his AGI?

59 50+12-3 Can always take 3,000 loss on capital losses regardless of capital gain

An individual taxpayer reports the following items for the current year: Ordinary income from partnership A, operating a movie theater in which the taxpayer materially participates = 70,000 Net loss from partnership B operating an equipment rental business in which the taxpayer does not materially participate = (9,000) Rental income from building rented to a third party = 7,000 Short-term capital gain from sale of stock = 4,000 What is the taxpayer's adjusted gross income for the year?

74,000 ordinary income + rental income - loss (up to other passive income) + short term gain = 70 + 7 - 7 + 4 = 74

What is the tax treatment of net losses in excess of the at-risk amount for an activity?

Any losses in excess of the at-risk amount are suspended and carried forward without expiration and are deductible against income in future years from that activity

Sanderson has made deductible contributions to his traditional IRA for many years. Sanderson recently retired at age 60 and recieved a distribution of $150,000. In which way, if any, will the distribution be taxed?

As ordinary income it was deducted going in, so it is taxed coming out

Joe and Barb are married, but Barb refuses to sign a Year 12 joint return. On Joe's separate Year 12 return, an exemption may be claimed for Bard if:

Barb had no gross income and was not claimed as another person's dependent in Year 12

In a tax year where the taxpayer pays qualified education expenses, interest income in the redemption of qualified US Series EE Bonds may be excluded from gross income. The exclusion is subject to a modified gross income limitation and a limit of aggregate bonds proceeds in excess of qualified higher-education expenses. Which if the following is (are) true? 1) the exclusion applies for education expenses incurred by the taxpayer, the taxpayer's spouse, or any person whom the taxpayer may claim as a dependent for the year 2) "otherwise qualified higher-education expenses" must be reduced by qualified scholarships not includible in gross income

Both 1 and 2

Nicole and Andrew Harris contribute to more than half of the support of their three children, Travis, Luke, and John. Travis, age 20, worked full time at the local deli and earned $20,000. Luke, 18, is a part-time college student who earned $5,000 working as a resident assistant in the student dormitory where he lived half of the year. John, age 25, is an aspiring actor who lives at home with Nicole and Andrew. John earned $2,500 for the three commercials he starred in. How many exemptions can Nicole and Andrew claim on their year 1 joint tax return?

Four Travis does not qualify (too much income) Luke qualifies (19 and lives at home, except for school) John qualifies (over half of support and low income)

Which of the following items must be separately stated on Form 1120S, US Income Tax Return for an S Corporation, Schedule K-1? Section 1245 gains Unearned revenue Mark-to-market income Gain or loss from the sale of collectibles

Gain or loss from the sale of collectibles

What are some these that go into current year net earnings from self-employment?

Gross business receipts - COGS - Rent expense - Liability insurance premium

Dave and Pam Stevens contributed to the support of their three children, Lisa, Tanya, and Hannah, and Pam's divorced mother, Ellen. For the current year, Lisa, a 26-year-old sales clerk, earned $27,000. Tanya, a 23-year-old, full-time college graduate student in accounting, earned $35,000 working for a CPA firm. Hannah, a 20-year-old artist, earned nothing during the year, but is still aspiring to sell her first piece ad has signed on with an art studio. Ellen received $10,000 in nontaxable social security benefits and $2,000 in dividend income. All are US citizens and are over half supported by Dave and Pam. How many exemptions may Dave and Pam claim on their current year joint income tax return?

Five Tanya qualifies (full time student under 24) Hannah qualifies (no income and supported) Ellen qualifies (low income and supported)

A cash basis taxpayer should report gross income:

For the year in which income is either actually or constructively received, whether in cash or property

Robbe, a cash basis single taxpayer, reported $50,000 of adjusted gross income last year and claimed itemized deductions of $5,500 of state income taxes paid last year. Robbe's itemized deduction amount, which exceeded the standard deduction available to single taxpayers for last year by $1,150, was fully deductible and it was not subject to any limitations or phaseouts. In the current year, Robbe received a $1,500 state tax refund relating to the prior year. What is the proper treatment of the state tax refund?

Include $1,50 in income in the current year the amount originally deducted was only 1,150 (he amount over the standard deductiojn

IRC Section 263A requires the capitalization of certain indirect costs related to inventory when a qualifying business is manufacturing tangible personal property. What is a cost not required to be capitalized as part of this adjustment?

Marketing

IRC Section 263A requires the capitalization of certain indirect costs related to inventory when a qualifying business is manufacturing tangible personal property. What are some costs required to be capitalized as part of this adjustment?

Payroll, Securities services, Recruiting

$10,000 was taken out of an IRA early to use on a down payment of a first house. This amount had been previously deducted as an adjustment on an individual tax return in the year of contribution. How much of the distribution is subject to the premature distribution penalty tax, and how much must be included in the tax return in the year of distribution?

Penalty tax = $0 Gross income = $10,000 no penalty for first home purchase amount hadn't previously been taxed so it must be now

Parker, whose spouse died during the preceding year, has not remarried. Parker maintains a home for a dependent child. What is Parker's most advantageous filing status?

Qualifying widow(er) with dependent child May use widow(er) status for each of two years following the year of death of his or her spouse

John created a trust for the benefit of his son, COnnor. John does not have the right to change any terms of the trust once established and has no roght to income. All trust income is to be distributed to Connor on an annual basis. How should the trust income be reported?

Reported on Form 1041, with a Schedule K-1 issued to Connor

In year 4 , after Mindy's three children have grown and moved out of the house, Mindy (unmarried) moved her mother, Mary, into an assisted living facility for which Mindy pays 75% of the cost. Mindy had not previously lived with Mary and Mary paid for her own living expenses while she lived in her own home. What filing status should Mindy use for year 4, assuming Mary moved into the assisted living facility on August 1, year 4?

Single Not head of household because Mary did not live in the assisted living home for the full year

Can a suspended passive activity loss be carried forward or back?

Suspended losses can be carried forward but not back

The Morgan Trust, a complex trust, had distributable net income in Year 4 of 10,000. Of the 10,000 of DNI, 4,000 was distributed to trust beneficiaries. OF the 4,000 distributed, which taxpayer(s), if any, are responsible for the tax liability on the 4,000 distribution?

The trust beneficiaries

Jim and Kay Ross contributed to the support of their two children, Dale and Kim, and Jim's widowed parent, Grant, For ear 27, Dale, a 19- year old full time college student, earned $4,500 as a babysitter. Kim, a 23-year-old bank teller, earned $12,000. Grant received $5,000 in dividend income and $4,000 in nontaxable Social Security benefits. Grant and Kim are US citizens and were over one-half supported by Jim and Kay, but neither of the two currently reside with Jim and Kay. Dale's main place of residence is with Jim and Kay, and he is currently on a temporary absence to attend school. How many exemptions can Jim and Kay claim on their Year 27 joint income tax return?

Three Grants $5,000 exceeds the minimum

When should a corporate taxpayer elect to forgo carryback of a net operating loss and instead carry the net operating loss forward?

When the taxpayer has low marginal tax rates in carry back years and expects to be in higher marginal rates in the future

Is the following a condition that must be met for tax exemption of accumulated interest on Series EE US Savings Bonds (used for payment of child's college tuition)? "Purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse)"

Yes

Will "a repair completed prior to year end but not invoiced" result in an accruable expense for an accrual basis taxpayer?

Yes

Which of the following conditions must be present in a post-1984 divorce agreement for a payment to qualify as deductible alimony? 1) payments must be in cash or is equivalent 2) the payments must end at the recipient's death

both 1 and 2

Mom and Pop partnership had the following results during the taxable year: Income(loss) from operations = (100,000) Capital gain from sale of land = 25,000 Charitable contributions = 10,000 Junior, a 50 percent partner, ahd an adjusted basis of $40,000 at Dec 31, without regard to the current year income or loss items. In preparing his individual income tax return, Junior should report what amounts of ordinary loss, capital gain, and charitable contributions?

ordinary loss = 47,500 capital gain = 12,500 charitable contributions = 5,000 the ordinary loss is limited to Juniors basis and at-risk amounts basis = 40,000 + 12,500 - 5,000

The rule limiting the allowability of passive activity losses and credits applies to:

personal service corporations

How much of group term life insurance is a nontaxable fringe benefit?

the first $50,000