ACCT3350-1, ACCT3350-2, ACCT3350-3
Natalie is married to Chad, who abandoned her in early June of 2021. She has not seen or communicated with him since then. She maintains a household in which she and her two dependent children live. Which of the following statements about Natalie's filing status in 2021 is correct? a.Natalie can file a joint return with Chad. b.Natalie can use the rates for single taxpayers. c.Natalie can file as a head of household. d.Natalie can file as a surviving spouse.
c. head of household
In which of the following situations, if any, may the individual not be claimed as a dependent of the taxpayer? a.A former spouse who lives with the taxpayer (divorce took place last year). b.A married daughter who lives with the taxpayer. c.A half-brother who does not live with the taxpayer and is a citizen and resident of Honduras. d.A stepmother who does not live with the taxpayer.
c.A half-brother who does not live with the taxpayer and is a citizen and resident of Honduras.
For purposes of determining gross income, which of the following is true? a.A mechanic completed repairs on an automobile during the year and collected money from the customer. The customer was not satisfied with the repairs and sued the mechanic for a refund. The mechanic can defer recognition of the income until the suit has been settled. b.An employee receives stock worth $1,000 from her employer as compensation for her services. The employee cannot sell the stock for three years and must forfeit the stock if she leaves her job before she is able to sell it. The employee must include $1,000 in her gross income in the year she receives the stock. c.A taxpayer who finds a wallet full of money is required to recognize income even though someone may eventually ask for the return of the money. d.All of these choices are false.
c.A taxpayer who finds a wallet full of money is required to recognize income even though someone may eventually ask for the return of the money.
Which of the following, if any, is a deduction for AGI? a.Child support payments. b.Medical expenses. c.Contributions to a traditional Individual Retirement Account. d.Loss on the sale of a personal residence.
c.Contributions to a traditional Individual Retirement Account.
Harpreet, whose spouse died in December 2020, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2021? (Note: Harpreet is the executor of her spouse's estate.) a.Single b.Surviving spouse c.Head of household d.Married, filing separately
c.Head of household
Which of the following statements relating to the standard deduction, if any, is correct? a.If spouses file separate returns, both must claim the standard deduction (rather than itemize their deductions from AGI). b.If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed. c.If a taxpayer is claimed as a dependent of another, the additional standard deduction is allowed in full (i.e., no adjustment is necessary). d.If a taxpayer dies during the year, the standard deduction must be prorated.
c.If a taxpayer is claimed as a dependent of another, the additional standard deduction is allowed in full (i.e., no adjustment is necessary).
With respect to unearned income from services, which of the following is true? a.If an accrual basis taxpayer sells a 24-month service contract on July 1, 2021, one-half (12/24) the income is recognized in 2022. b.A cash basis taxpayer can spread the income from a 24-month service contract over the contract period. c.If an accrual basis taxpayer sells a 36-month service contract on July 1, 2021 for $3,600, the taxpayer's 2021 gross income from the contract is $600. d.An accrual basis taxpayer will always recognize the income over the period the services will be rendered.
c.If an accrual basis taxpayer sells a 36-month service contract on July 1, 2021 for $3,600, the taxpayer's 2021 gross income from the contract is $600.
The annual increase in the cash surrender value of a life insurance policy: a.Reduces the deduction for life insurance expense. b.Is taxed when the individual dies and the heirs collect the insurance proceeds. c.Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value. d.Must be included in gross income each year under the original issue discount rules.
c.Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value.
On January 2, 2021, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2021, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2021: a.Tim must include all of the interest in his gross income. b.Jane reports $450 of interest income, and Tim reports $1,350 of interest income. c.Jane reports $1,350 of interest income, and Tim reports $450 of interest income. d.Jane must report $1,800 gross income.
c.Jane reports $1,350 of interest income, and Tim reports $450 of interest income.
Jerry purchased a U.S. Series EE savings bond for $744. The bond has a maturity value in 10 years of $1,000 and yields 3% interest. This is the first Series EE bond that Jerry has ever owned. a.The interest on the bonds is exempt from Federal income tax. b.Jerry can report all of the $256 as a capital gain in the year it matures. c.Jerry can defer the interest income until the bond matures in 10 years. d.Jerry must report $25.60[($1,000 - $744)/10] interest income each year he owns the bond.
c.Jerry can defer the interest income until the bond matures in 10 years.
The amount of Social Security benefits received by an individual that they must include in gross income: a.May not exceed the portion contributed by the employer. b.May not exceed 50% of the Social Security benefits received. c.May be zero or as much as 85% of the Social Security benefits received, depending upon the taxpayer's Social Security benefits and other income. d.Is computed in the same manner as an annuity [exclusion = (cost/expected return) × amount received].
c.May be zero or as much as 85% of the Social Security benefits received, depending upon the taxpayer's Social Security benefits and other income.
As a general rule: I.Income from property is taxed to the person who owns the property. II.Income from services is taxed to the person who earns the income. III.The assignee of income from property must pay tax on the income .IV.The person who receives the benefit of the income must pay the tax on the income. a.Only III and IV are true. b.I, II, III, and IV are true. c.Only I and II are true. d.I, II, and III are true, but IV is false.
c.Only I and II are true.
Which of the following is a deduction for AGI? a.Contribution to a traditional IRA. b.Roof repairs to a personal use home. c.Property tax on personal residence. d.Safe deposit box rental fee in which stock certificates are stored.
a. Contribution to a traditional IRA
Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation. Sarah is not an employee of the corporation. a.Sarah must recognize imputed interest expense and the corporation must recognize imputed interest income. b.Sarah must recognize imputed dividend income and the corporation may recognize imputed interest expense. c.Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense. d.Neither Sarah's nor the corporation's gross income is affected by the loans because no interest was charged.
c.Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense.
Which, if any, of the following taxes are regressive (rather than progressive)? a.Federal estate tax b.Federal gift tax c.State general sales tax d.Federal individual income tax
c.State general sales tax
Carlos purchased an apartment building on November 16, 2021, for $3,000,000. Determine the cost recovery deduction for 2021. a.$13,650 b.$9,630 c.$22,740 d.$11,910
a.$13650 3000000x.004555=13650
On a particular Saturday, Tom had planned to paint a room in his house, but his employer gave him the opportunity to work that day. If Tom works, he must hire a painter for $120. Assuming Tom is in the 24% marginal tax bracket, what is the least amount he must get paid to be able to pay the painter and still have a positive cash flow from working? a.$158. b.$0. c.$500. d.$120.
a.$158. 120/(1-.24)=158
Orange Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($600 per year) or two years in advance ($960). In September 2021, the company collected the following amounts applicable to future services: October 2021-September 2023 services (200 two-year contracts): $192,000 October 2021-September 2022 services (200 one-year contracts) : 120,000 Total: $312,000 As a result of this, Orange Cable should report as gross income for 2022, the year following receipt: a.$258,000. b.$54,000. c.$78,000. d.$312,000.
a.$258,000.
Under the terms of a divorce agreement entered into in 2017, Kim was to pay her husband Tom $7,000 per month in alimony. Kim's payments will be reduced to $3,000 per month when their 9 year-old son becomes 21. Tom has custody of their son. For a 12 month period, Kim can deduct from gross income (and Tom must include in gross income): a.$36,000. b.$60,000. c.$48,000. d.$0.
a.$36,000. 3000x12=36000
During 2021, Hiroto had the following transactions: Salary: $50,000 Bank loan (proceeds used to buy personal auto): 10,000 Alimony paid (divorce was finalized in 2010).:12,000 Child support paid: 6,000 Gift from aunt: 20,000 Hiroto's AGI is: a.$38,000. b.$56,000. c.$44,000. d.$32,000.
a.$38,000.
Regarding proper ethical accounting guidelines, which, if any, of the following is correct? a.If a client has made a mistake in a prior year's return and refuses to correct it, the accountant should withdraw from the engagement. b.If the exact amount of a deduction is not certain (e.g., around mid-$600s), it should be recorded as an odd amount (i.e., $649) so as to increase the appearance of greater certainty. c.The use of client estimates in preparing a return may be acceptable. d.Under no circumstances should a question on a tax return be left unanswered.
c.The use of client estimates in preparing a return may be acceptable.
Green Company, an accrual basis taxpayer, provides business-consulting services. Clients generally pay a retainer at the beginning of a 12-month period. This entitles the client to no more than 40 hours of services. Once the client has received 40 hours of services, Green charges $500 per hour. Green Company allocates the retainer to income based on the number of hours worked on the contract. At the end of 2021, the company reported as a liability in its financial statements $50,000 of unearned revenues from these contracts. The company also reported $10,000 in unearned rent income received in 2021 from excess office space leased to other companies. Considering only this information, how much gross income must Green report in 2022 for tax purposes? a.$50,000. b.$60,000. c.$-0-. d.$10,000.
a.$50,000.
For the current year, David has wages of $80,000 and the following property transactions: Stock investment sales—Long-term capital gain: $ 9,000 Short-term capital loss: (12,000) Loss on sale of camper (purchased four years ago and used for family vacations):(2,000) What is David's AGI for the current year? a.$77,000. b.$78,000. c.$76,000. d.$89,000.
a.$77,000. 80000+9000-12000=77000
Perry, a single taxpayer, has taxable income of $198,000 and is in the 32% tax bracket. During 2021, he had the following capital asset transactions:Gain from the sale of a stamp collection (held for 10 years)$30,000Gain from the sale of an investment in land (held for 4 years)10,000Gain from the sale of stock investment (held for 8 months)4,000Perry's tax consequences from these gains are as follows: a.(15% × $10,000) + (28% × $30,000) + (32% × $4,000). b.(15% × $40,000) + (32% × $4,000). c.(0% × $10,000) + (28% × $30,000) + (32% × $4,000). d.(15% × $30,000) + (32% × $4,000).
a.(15% × $10,000) + (28% × $30,000) + (32% × $4,000).
Regarding the tax formula and its relationship to Form 1040, which of the following statements, if any, is correct? a.A "Schedule 1 deduction" refers to a deduction for AGI. b.A taxpayer's AGI amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040. c.Most exclusions from gross income are reported on Schedule 2 of Form 1040. d.An above-the-line deduction refers to a deduction from AGI.
a.A "Schedule 1 deduction" refers to a deduction for AGI.
Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate? a.A tax holiday issued 10 years ago has expired. b.A resident dies and leaves his farm to his church. c.A large property owner issues a conservation easement as to some of her land. d.A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. e.None of these choices are correct.
a.A tax holiday issued 10 years ago has expired.
Under the alimony rules: a.Alimony paid per a 2015 divorce agreement is included in the gross income of the recipient of the payments. b.To determine whether a cash payment is alimony, one must consult the state laws that define alimony. c.A person who earns $90,000 and pays $20,000 in alimony per a divorce agreement entered into in 2020, is allowed to deduct the $20,000. d.A person who receives a property division has experienced an increase in wealth and thus should be subject to tax.
a.Alimony paid per a 2015 divorce agreement is included in the gross income of the recipient of the payments.
Which of the following taxes is paid only by the employer? a.FUTA b.Social Security tax c.Medicare tax d.FICA
a.FUTA
In 2020 Todd purchased an annuity for $150,000. The annuity is to pay him $2,500 per month for the rest of his life. His life expectancy is 100 months. Which of the following is correct? a.For each $2,500 payment received in the first year, Todd must include $1,000 in gross income. b.Todd is not required to recognize any income until he has collected 60 payments (60 × $2,500 = $150,000). c.For each $2,500 payment received in the first year, Todd must include $1,500 in gross income. d.If Todd collects 20 payments and then dies in 2022, Todd's estate should amend his tax returns for 2020 and 2021 and eliminate all of the reported income from the annuity for those years.
a.For each $2,500 payment received in the first year, Todd must include $1,000 in gross income.
Betty purchased an annuity for $24,000 in 2021. Under the contract, she will receive $300 each month for the rest of her life. According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment. a.If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th payment must be included in taxable income. b.If Betty collects $3,000 in 2021, her gross income is $630 (0.03 × $21,000). c.If Betty lives to collect only 60 payments before her death, she will report a $6,000 loss from the annuity [$24,000 - (60 × $300) = $6,000] on her final return. d.Betty has no gross income until she has collected $24,000.
a.If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th payment must be included in taxable income.
In terms of the tax formula applicable to individual taxpayers, which of the following statements, if any, is correct? a.In arriving at taxable income, a taxpayer must choose between the standard deduction and itemized deductions. b.In arriving at taxable income, a taxpayer must choose between the standard deduction and the deduction for qualified business income. c.The tax formula does not apply if a taxpayer elects to claim the standard deduction. d.In arriving at AGI, personal and dependency exemptions are subtracted from gross income.
a.In arriving at taxable income, a taxpayer must choose between the standard deduction and itemized deductions.
Which of the following is a characteristic of the audit process? a.Less important issues are handled by means of a correspondence audit. b.Self-employed taxpayers are less likely to be selected for audit than employed taxpayers. c.Most taxpayer audits involve "special" agents. d.If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts.
a.Less important issues are handled by means of a correspondence audit.
Jeremy is married to Amy, who abandoned him in 2020. He has not seen or communicated with her since April of that year. He maintains a household in which their son, Evan, lives. Evan is age 25 and earns over $6,000 each year. For tax year 2021, Jeremy's filing status is: a.Married, filing separately. b.Surviving spouse. c.Head of household. d.Married, filing jointly.
a.Married, filing separately.
The purpose of the tax rules that apply to below-market loans between family members is to: a.Prevent shifting of income among family members. b.Prevent the artificial deferral of income recognition. c.Prevent gifts from being disguised as bad debt expenses. d.Discourage loans between related parties.
a.Prevent shifting of income among family members
The tax concept and economic concept of income are in agreement on which of the following: a.Rent income for 2021 collected in 2020 is income for 2020. b.The fair rental value of an owner-occupied home should be included in income. c.The increase in value of assets held for the entire year should be included in income for the year. d.Income includes the value of things grown or produced by the taxpayer for the taxpayer's own consumption.
a.Rent income for 2021 collected in 2020 is income for 2020.
The quote engraved on the IRS building in Washington, DC, at the entrance states: a.Taxes are what we pay for civilized society. b.Nothing is certain, except death and taxes. c.Taxes are the most difficult thing in the world to understand. d.Everyone welcome.
a.Taxes are what we pay for civilized society.
In terms of probability, which of the following taxpayers would be least likely to be audited by the IRS? a.Taxpayer just won a $1 million slot machine jackpot at a Las Vegas casino. b.Taxpayer is an employed electrician. c.Taxpayer just received a $3 million personal injury award as a result of a lawsuit. d.Taxpayer owns and operates a check-cashing service.
b.Taxpayer is an employed electrician.
In which of the following situations, if any, will the kiddie tax not apply? a.The child has unearned income that exceeds more than half of his (or her) support. b.The child has unearned income of $2,200 or less. c.The child is married but does not file a joint return. d.The child is under age 24 and a full-time student.
b.The child has unearned income of $2,200 or less.
The taxable portion of Social Security benefits may be affected by: a.The number of quarters the individual worked. b.The individual's tax-exempt interest income. c.The individual's standard deduction. d.The taxpayer's itemized deductions.
b.The individual's tax-exempt interest incom
Assume a cash basis taxpayer purchased a three-year certificate of deposit on January 1 of the current year. Under the original issue discount (OID) rules which of the following is true? a.The OID will be included in gross income for the year of purchase. b.The interest income will be recognized over three years but will be greater in the third year than in the first year. c.The interest income will be recognized equally over three years. d.All of the income must be recognized in the year of maturity.
b.The interest income will be recognized over three years but will be greater in the third year than in the first year.
Which the following, if any, of is a correct statement relating to the kiddie tax in 2021? a.If the kiddie tax applies, the parents must include the income of the child on their own income tax return. b.The kiddie tax does not apply if both parents of the child are deceased. c.If the parents are divorced, the income of the noncustodial parent is used to determine the allocable parental tax. d.The components for the application of the kiddie tax are not subject to adjustment for inflation.
b.The kiddie tax does not apply if both parents of the child are deceased.
Which of the following is not a requirement for a payment between former spouses to be considered alimony? a.The payments must cease upon the death of the payee. b.The payments must extend over at least three years. c.The payor and payee must not live in the same household at the time of the payments. d.The payments must be in cash.
b.The payments must extend over at least three years.
Regarding the rules applicable to filing of income tax returns, which of the following, if any, is an incorrectstatement: a.Married persons who file joint returns cannot later (after the due date of the return) substitute separate returns. b.Married persons who file separate returns can later (after the due date of the return) substitute a joint return. c.The usual test as to when a taxpayer must file a return is based on the total of the following: personal exemption + basic standard deduction + both additional standard deductions. d.Special filing requirement rules exist for taxpayers who are claimed as dependents of another.
c.The usual test as to when a taxpayer must file a return is based on the total of the following: personal exemption + basic standard deduction + both additional standard deductions.
Theresa, a cash basis taxpayer, purchased a bond on July 1, 2016, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2021, she sold the bond for $9,800, which included $200 of accrued interest. a.Theresa has $200 interest income and a $200 gain from the bond in 2021. b.Theresa's loss on the sale of the bond is $600. c.Theresa has $200 interest income and a $400 loss from the bond in 2021. d.Theresa has a $100 loss from the sale of the bond and no interest income.
c.Theresa has $200 interest income and a $400 loss from the bond in 2021.
Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is: a.To avoid a future decline in value of the property transferred. b.To shift income to higher bracket donees. c.To take advantage of the per donee annual exclusion. d.To take advantage of the higher unified transfer tax credit available under the gift tax.
c.To take advantage of the per donee annual exclusion.
In December 2021, Todd, a cash basis taxpayer, paid $1,200 of fire insurance premiums for the calendar year 2022 on a building he held for rental income. Todd deducted the $1,200 of insurance premiums on his 2021 tax return. He had $150,000 of taxable income that year. On June 30, 2022, he sold the building and, as a result, received a $500 refund on his fire insurance premiums. As a result of the above: a.Todd should add the $500 to his sales proceeds from the building. b.Todd should amend his 2021 return and claim $500 less insurance expense. c.Todd should include the $500 in 2022 gross income in accordance with the tax benefit rule. d.Todd should include the $500 in 2022 gross income in accordance with the claim of right doctrine.
c.Todd should include the $500 in 2022 gross income in accordance with the tax benefit rule.
Which of the following, if any, is a deduction for AGI? a.Interest on home mortgage. b.Charitable contributions. c.Unreimbursed moving expenses of an employee (who is in the military). d.State and local sales taxes.
c.Unreimbursed moving expenses of an employee (who is in the military).
Our tax laws encourage taxpayers to ____ assets that have appreciated in value and ____ assets that have declined in value. a.sell; sell. b.keep; keep. c.keep; sell. d.sell; keep.
c.keep; sell.
Sammy, a calendar year cash basis taxpayer who is age 66, has the following transactions in 2021: Salary from job: $90,000 Alimony received from ex-wife (pre-2019 divorce): 10,000 Medical expenses: 7,000 Based on this information, Sammy has: a.AGI of $90,000. b.AGI of $95,000. c.AGI of $99,500. d.Deduction for medical expenses of $0.
d. Deduction for medical expenses of $0
On January 1, Dave loaned his daughter, Debra, $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year. a.Debra must recognize $6,090 of imputed interest income. b.Dave must recognize $6,090 of imputed interest income regardless of the amount of Debra's investment income. c.Debra must recognize $6,090 of imputed interest income if Dave has at least $6,090 of investment income. d.If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income.
d.If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income.
Louise works in a foreign branch of her employer's business. She earned $5,000 per month throughout the relevant period. Which of the following is correct? a.If Louise began work in the foreign country on May 1, 2020, she must work through November 30, 2021 in order to exclude $55,000 from gross income in 2021 but none in 2020. b.If Louise worked in the foreign branch from May 1, 2020 until October 31, 2021, she cannot exclude anything from gross income because she was not present in the country for 330 days in either year. c.Louise will not be allowed to exclude any foreign earned income because she made less than $108,700. d.If Louise worked in the foreign branch from May 1, 2020 until October 31, 2021, she may exclude $40,000 from gross income in 2020 and exclude $50,000 in 2021.
d.If Louise worked in the foreign branch from May 1, 2020 until October 31, 2021, she may exclude $40,000 from gross income in 2020 and exclude $50,000 in 2021.
Al is single, age 60, and has gross income of $140,000. His deductible expenses are as follows: Alimony(divorce finalized in 2017): $20,000 Charitable contributions: 4,000 Contribution to a traditional IRA: 5,500 Expenses paid on rental property: 7,500 Interest on home mortgage and property taxes on personal residence: 7,200 State income tax: 2,200 What is Al's AGI? a.$107,000. b.$103,000. c.$127,000. d.$94,100.
a. $107000 140000-20000-5500-7500=107000
Hannah is single, had gross income of $50,000, and incurred the following expenses: Charitable contribution: $2,000 Taxes and interest on home: 7,000 Legal fees incurred in a tax dispute: 1,000 Medical expenses: 3,000 Penalty on early withdrawal of savings: 250 Her AGI is: a.$49,750. b.$39,750. c.$39,000. d.$40,000.
a. $49750 50000-250=49750
Abhijeet owns a 30% interest in the capital and profits of Emerald Company (a calendar year partnership). For tax year 2021, the partnership earned revenue of $900,000 and had operating expenses of $660,000. During the year, Abhijeet withdrew from the partnership a total of $90,000. He also invested an additional $30,000 in the partnership. For 2021, Abhijeet's gross income from the partnership is: a.$72,000. b.$162,000. c.$90,000. d.$132,000.
a. $72000 (900000-660000)x30%=72000
Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2021. Copper Company is a publicly held company that has declared a $2.00 per share dividend on September 30th every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $2.00 per share dividend on September 30th, 2021 payable on October 15th, to stockholders of record as of October 10th. The daughter received the $2,000 dividend on October 18, 2021. a.The daughter must recognize the income because she owned the stock on October 10th. b.Darryl must recognize $1,500 of the dividend because he owned the stock for three-fourths of the year. c.Darryl must recognize the $2,000 dividend as his income because he constructively received the dividend. d.Darryl must recognize the income of $2,000 because the purpose of the gift was to avoid taxes.
a.The daughter must recognize the income because she owned the stock on October 10th.
What are the effects of a below-market loan for $100,000 made by a corporation to its chief executive officer as an enticement to get him to remain with the company? a.The employee has imputed compensation income and the corporation has imputed interest income. b.The corporation has imputed interest income and dividends paid. c.The corporation has imputed interest income and the employee is deemed to have received a gift. d.The employee has no income unless the funds are invested and produce investment income for the year.
a.The employee has imputed compensation income and the corporation has imputed interest income.
The alimony rules applicable to divorces entered into before 2019: a.Treat child support payments and alimony differently. b.Are based on the principle that the person who earns the income should pay the tax. c.Look to state law to determine the definition of alimony. d.Permit tax deductions for property divisions.
a.Treat child support payments and alimony differently.
Kyle and Liza are married and under 65 years of age. During 2021, they furnish more than half of the support of their 19-year old daughter, Kendra, who lives with them. She graduated from high school in May 2020. Kendra earns $15,000 from a part-time job, most of which she sets aside for future college expenses. Kyle and Liza also provide more than half of the support of Kyle's cousin who lives with them. Liza's father, who died on January 3, 2021, at age 90, has for many years qualified as their dependent. How many dependents can Kyle and Liza claim? a.Two b.Three c.None d.One
a.Two
The Hutters filed a joint return for 2021. They provide more than 50% of the support of Carla, Ellie, and Aaron. Carla (age 18) is a cousin and earns $2,800 from a part-time job. Ellie (age 25) is their daughter and is a full-time law student. She received a $7,500 scholarship for tuition from her law school. Aaron is a brother who is a citizen of Israel but resides in France. Carla and Ellie live with the Hutters. How many dependents can the Hutters claim? a.Two b.Three c.None d.One
a.Two
A qualifying child cannot include: a.A brother who is 28 years of age and disabled. b.A married son who files a joint return. c.A grandmother. d.A daughter who is away at college.
c.A grandmother.
The proposed flat tax: a.Would not require individuals to file returns. b.Is a type of consumption tax. c.Would tax the increment in value as goods move through the production and manufacturing stages to the marketplace. d.Would increase the number of deductions available to individuals
b. Is a type of consumption tax
Hannah, age 70 and single, is claimed as a dependent by her daughter. During 2021, Hannah had interest income of $2,550 and $850 of earned income from babysitting. Hannah's taxable income is: a.$2,250. b.$500. c.$900. d.$2,550.
b.$500.
Ayla, age 17, is claimed by her parents as a dependent. During 2021, she had interest income from a bank savings account of $2,000 and income from a part-time job of $4,200. Ayla's taxable income is: a.$4,200 - $4,550 = $0. b.$6,200 - $4,550 = $1,650. c.$6,200 - $4,200 = $2,000. d.$6,200 - $12,550 = $0.
b.$6,200 - $4,550 = $1,650.
During 2021, Enrique had the following transactions: Salary: $70,000 Interest income on Xerox bonds: 2,000 Inheritance from uncle: 40,000 Contribution to traditional IRA: 5,500 Capital losses: 2,500 Enrique's AGI is: a.$102,000. b.$64,000. c.$62,000. d.$67,000.
b.$64,000. 70000+2000-5500-2500=64000
Which, if any, of the following transactions will decrease a taxing jurisdiction's ad valorem tax revenue imposed on real estate? a.A public school is razed and turned into a city park. b.A tax holiday is granted to an out-of-state business that is searching for a new factory site. c.A local university sells a dormitory that will be converted for use as an apartment building. d.An abandoned church is converted to a restaurant.
b.A tax holiday is granted to an out-of-state business that is searching for a new factory site.
"Bracket creep" is avoided by: a.Using sunset provisions. b.Adjusting the rate brackets for inflation annually. c.The statute of limitations. d.Providing special tax rules for small businesses.
b.Adjusting the rate brackets for inflation annually.
Ellen, age 12, lives in the same household with her father, grandfather, and uncle. The cost of maintaining the household is provided by her grandfather (40%) and her uncle (60%). Disregarding tie-breaker rules, Ellen is a qualifying child as to: a.Only her uncle. b.All parties involved (i.e., father, grandfather, and uncle). c.Only her grandfather and uncle. d.Only her father.
b.All parties involved (i.e., father, grandfather, and uncle).
Social considerations can be used to justify: a.Allowing accelerated amortization for the cost of installing pollution control facilities. b.Allowance of a credit for child care expenses. c.Allowing a Federal income tax deduction for state and local sales taxes. d.Allowing excess capital losses to be carried over to other years.
b.Allowance of a credit for child care expenses.
Asia, a successful executive, is negotiating a compensation plan with her potential employer. The employer has offered to pay Asia a $600,000 annual salary, payable at the rate of $50,000 per month. Asia counteroffers to receive a monthly salary of $40,000 ($480,000 annually) and a $180,000 bonus in five years when Asia will be age 65. a.If the employer accepts Asia's counteroffer, Asia will recognize as gross income $55,000 per month [($480,000 + $180,000)/12]. b.If the employer accepts Asia's counteroffer, Asia will recognize $40,000 income each month for the year and $180,000 in year 5. c.If the employer accepts Asia's counteroffer, Asia must recognize imputed interest income on the $180,000 to be received in five years. d.If the employer accepts Asia's counteroffer, Asia will recognize $660,000 at the time the offer is accepted.
b.If the employer accepts Asia's counteroffer, Asia will recognize $40,000 income each month for the year and $180,000 in year 5.
Jasmine made a $60,000 interest-free loan to her son, Farhad, who used the money to start a new business. Farhad's only sources of income were $25,000 from the business and $490 of interest on his checking account. The relevant Federal interest rate was 5%. Based on this information: a.Farhad's gross income must be increased by the $3,000 (0.05 × $60,000) imputed interest income on the below-market loan. b.Jasmine does not recognize any imputed interest income and Farhad does not recognize any imputed interest expense. c.Farhad's business net profit will be reduced by $3,000 (0.05 × $60,000) of interest expense. d.Jasmine must recognize $3,000 (0.05 × $60,000) of imputed interest income on the below-market loan.
b.Jasmine does not recognize any imputed interest income and Farhad does not recognize any imputed interest expense.
Which of the following taxpayers may file as a head of household in 2021? Marco provides all of the support for his mother, Sienna, who lives by herself in an apartment in Fort Lauderdale. Marco pays the rent and other expenses for the apartment and properly claims his mother as a dependent. Tammy provides over one-half the support for her 18-year old brother, Dan. He earned $4,500 in 2021 working at a fast-food restaurant and is saving his money to attend college in 2022. Dan lives in Tammy's home. Juan's spouse left him late in December of 2020. No legal action was taken and Juan has not heard from his spouse in 2021. Juan supported his 6-year-old son, who lived with him throughout 2021. a.Marco and Juan only b.Marco, Tammy, and Juan c.Tammy only d.Marco only
b.Marco, Tammy, and Juan
If a residence is used primarily for personal use (rented for fewer than 15 days per year), which of the following is correct? a.No expenses are deductible. b.No income is included in AGI. c.Expenses must be allocated between rental and personal use. d.Only "No income is included in AGI" and "No expenses are deductible" are correct.
b.No income is included in AGI.
Which of the following items, if any, is deductible? a.Contributions to mayor's reelection campaign. b.Substantiated gambling losses (not in excess of gambling winnings) from state lottery. c.Premiums paid on personal life insurance policy. d.Speeding ticket incurred while on business.
b.Substantiated gambling losses (not in excess of gambling winnings) from state lottery.
Office Palace, Inc., leased an all-in-one printer to a new customer, Ashley, on December 27, 2021. The printer was to rent for $600 per month for a period of 36 months beginning January 1, 2022. Ashley was required to pay the first and last month's rent at the time the lease was signed. Ashley was also required to pay a $1,500 damage deposit. Office Palace must recognize as income for the lease: a.$2,700 in 2021, if Office Palace is a cash or accrual basis taxpayer. b.$7,800 in 2022, if Office Palace is a cash basis taxpayer. c.$1,200 in 2021. d.$0 in 2021, if Office Palace is an accrual basis taxpayer.
c.$1,200 in 2021.
Tony, age 15, is claimed as a dependent by his grandmother. During 2021, he had interest income from Boeing Corporation bonds of $1,000 and earnings from a part-time job of $800. Tony's taxable income is: a.$1,800. b.$1,800 - $1,100 = $700. c.$1,800 - $1,150 = $650. d.$1,800 - $12,550 = $0.
c.$1,800 - $1,150 = $650.
Debbie is age 67 and unmarried. Her only sources of income are $200,000 in taxable interest and $20,000 of Social Security benefits. Debbie's adjusted gross income for the year is: a.$203,000. b.$200,000. c.$217,000. d.$220,000.
c.$217,000. 200000+(20000x85%)=217000
Maroon & Orange Gym, Inc., uses the accrual method of accounting. The corporation sells memberships that entitle the member to use the facilities at any time. A one-year membership costs $480 ($480/12 = $40 per month); a two-year membership costs $720 ($720/24 = $30 per month). Cash payment is required at the beginning of the membership period. On July 1, 2021, the company sold a one-year membership and a two-year membership. For financial reporting purposes, Maroon reports the membership income ratably over the number of months involved. How much gross income should the company report as gross income from the two contracts in 2022, the year following payment? a.$600. b.$-0-. c.$780. d.$1,200.
c.$780.
In 2021, Nai-Yu had the following transactions: Salary: $90,000 Short-term capital gain from a stock investment: 4,000 Moving expense to change jobs: (11,000) Receipt of repayment of $20,000 loan she made to her sister in 2015 (includes no interest): 20,000 State income taxes: (5,000) Nai-Yu's AGI is: a.$103,000. b.$98,000. c.$94,000. d.$83,000.
c.$94,000.
Kirby, a single taxpayer, has taxable income of $40,000 and is in the 12% tax bracket. During 2021, she had the following capital asset transactions: Long-term gain from the sale of a coin collection: $11,000 Long-term gain from the sale of a land investment: 10,000 Short-term gain from the sale of a stock investment: 2,000 Kirby's tax consequences from these gains are as follows: a.(12% × $13,000) + (28% × $11,000). b.(12% × $23,000). c.(0% × $10,000) + (12% × $13,000). d.(5% × $10,000) + (12% × $13,000).
c.(0% × $10,000) + (12% × $13,000).
With respect to the unearned income from services, which of the following is true? a.An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed within three years following the year of receipt. b.The treatment of unearned income is the same for tax and financial accounting for accrual basis taxpayers. c.A cash basis taxpayer must report all of the income in the year received. d.An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less.
c.A cash basis taxpayer must report all of the income in the year received.
During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss. Presuming adequate income, how much of these losses may Kim claim? a.$1,000. b.$3,000. c.$0. d.$2,000.
d. 2000
Maroon Corporation expects its employees' income tax rates to increase next year. The employees use the cash method. The company presently pays on the last day of each month. The company is considering changing its policy so that the December salaries will be paid on the first day of the following year. What would be the effect on an employee of the proposed change in company policy beginning December 2021? a. The employee would be required to recognize the December 2021 salary in December 2021 because it is constructively received at the end of the month. b.The employee can elect to either include the December 2021 salary in 2021 or 2022. c.The employee would be required to recognize the December 2021 salary in December 2021 because the employee has a claim of right to the income when it is earned. d.The employee will not be required to recognize the December 2021 salary until it is received, in 2022.
d. The employee will not be required to recognize the December 2021 salary until it is received, in 2022.
During 2021, Sandeep had the following transactions: Salary: $ 80,000 Interest income on City of Baltimore bonds: 1,000 Damages for personal injury (car accident): 100,000 Punitive damages (same car accident): 200,000 Cash dividends from Chevron Corporation stock: 7,000 Sandeep's AGI is: a.$285,000. b.$187,000. c.$387,000. d.$287,000.
d.$287,000. 80000+200000+7000=287000
Thelma and Mitch were divorced in 2020. The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000. Under the terms of the divorce agreement, Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for six years, or until Thelma's death, whichever should occur first. Thelma and Mitch lived apart when the payments were made by Mitch. He paid the $600,000 to Thelma over the six-year period. The divorce agreement did not contain the word "alimony." Then, Mitch sold the stocks for $1,300,000. Mitch's recognized gain from the sale is: a.$-0-. b.$1,000,000 ($1,300,000 - $300,000). c.$300,000 ($1,300,000 - $1,000,000). d.$700,000 ($1,300,000 - $600,000).
d.$700,000 ($1,300,000 - $600,000).
Jay, a single taxpayer, purchased an annuity to help provide income during his retirement. He paid $36,000 for the annuity that provided a monthly benefit starting at his retirement date for the rest of Jay's life. His life expectancy at the time of his retirement was 180 months. Jay collected 192 payments before he died. Which of the following is true? a.If Jay's income is below $25,000, none of the payments he receives are taxable. b.Since Jay is no longer working, none of the payments must be included in his gross income. c.The first $36,000 received is a nontaxable recovery of capital, and all subsequent annuity payments are taxable. d.All of the last 12 payments he received are taxable.
d.All of the last 12 payments he received are taxable.
On November 1, 2021, Bob, a cash basis taxpayer, gave Dave common stock. On October 30, 2021, the corporation had declared a dividend payable to shareholders of record as of November 22, 2021. The dividend was paid on December 15, 2021. The corporation has paid the $1,200 dividend once each year for the past ten years, during which Bob owned the stock. When Dave collected the dividend on December 15, 2021: a.Dave must include all of the dividend in his gross income. b.Dave should treat the $1,200 as a recovery of capital. c.Bob must include $1,000 (10/12 x $1,200) of the dividend in his gross income. d.Bob must include all of the dividend in his gross income.
d.Bob must include all of the dividend in his gross income.
Daniel purchased a bond on July 1, 2021, at par of $10,000 plus accrued interest of $300. On December 31, 2021, Daniel collected the $600 interest for the year. On January 1, 2022, Daniel sold the bond for $10,200. a.Daniel must recognize $600 interest income for 2021 and a $100 loss on the sale of the bond in 2022. b.Daniel must recognize $300 interest income for 2021 and a $100 loss on the sale of the bond in 2022. c.Daniel must recognize $600 interest income for 2021 and a $200 gain on the sale of the bond in 2022. d.Daniel must recognize $300 interest income for 2021 and a $200 gain on the sale of the bond in 2022.
d.Daniel must recognize $300 interest income for 2021 and a $200 gain on the sale of the bond in 2022.
Regarding the Tax Tables related to the Federal income tax, which of the following statements is correct? a.The Tax Tables will always yield the same amount of tax as the Tax Rate Schedules. b.Taxpayers can elect as to whether they use the Tax Tables or the Tax Rate Schedules. c.The Tax Tables can be used by an estate but not by a trust. d.For any one year, the Tax Tables are issued by the IRS after the Tax Rate Schedules.
d.For any one year, the Tax Tables are issued by the IRS after the Tax Rate Schedules.
Freddy purchased a certificate of deposit for $20,000 on July 1, 2021. The certificate's maturity value in two years (June 30, 2023) is $21,218, yielding 3% before-tax interest. a.Freddy must recognize $1,218 gross income in 2021. b.Freddy must recognize $600 (0.03 × $20,000) gross income in 2023. c.Freddy must recognize $1,218 gross income in 2023. d.Freddy must recognize $300 (0.03 × $20,000 × 0.5) gross income in 2021.
d.Freddy must recognize $300 (0.03 × $20,000 × 0.5) gross income in 2021.
Kyle, whose spouse died in December 2018, filed a joint tax return for 2018. He did not remarry but has continued to maintain his home in which his two dependent children live. What is Kyle's filing status in 2021? a.Single b.Surviving spouse c.Married filing separately d.Head of household
d.Head of household
Mark, a calendar year taxpayer, purchased an annuity for $50,000 in 2020. The annuity was to pay him $3,000 on the first day of each year, beginning in 2020, for the remainder of his life. Mark's life expectancy at the time he purchased the annuity was 20 years. In 2022 Mark developed a deadly disease, and doctors estimated that he would live for no more than 24 months. a.If Mark is still alive at the end of 2022, he is not required to recognize any gross income because of his terminal illness. b.If Mark dies in 2023, his returns for the two previous years can be amended to allocate the entire cost of the annuity to the years in which he received payments and reported gross income. c.If Mark is still alive in 2042, his recovery of capital for that year is $500. d.If Mark dies in 2023, a loss can be claimed on his final return for his unrecovered cost of the annuity.
d.If Mark dies in 2023, a loss can be claimed on his final return for his unrecovered cost of the annuity.
The annual increase in the cash surrender value of a life insurance policy: a.Is exempt because it is life insurance proceeds. b.Is taxed according to the original issue discount rules. c.Reduces the deduction for life insurance expense. d.Is not included in gross income because the policy must be surrendered to receive the cash surrender value.
d.Is not included in gross income because the policy must be surrendered to receive the cash surrender value.
During 2021, Trevor has the following capital transactions: LTCG: $ 6,000 Long-term collectible gain: 2,000 STCG: 4,000 STCL: 10,000 After the netting process, the following results: a.LTCG of $6,000, long-term collectible gain of $2,000, and a STCL carryover to 2022 of $3,000. b.LTCG of $6,000, long-term collectible gain of $2,000, and a STCL of $6,000. c.Long-term collectible gain of $2,000. d.LTCG of $2,000.
d.LTCG of $2,000.
Travis and Andrea were divorced in 2017. Their only marital property consisted of a personal residence (fair market value of $400,000, cost of $200,000), and publicly traded stocks (fair market value of $800,000, cost basis of $500,000). Under the terms of the divorce agreement, Andrea received the personal residence and Travis received the stocks. In addition, Andrea was to receive $50,000 for eight years. I.If the $50,000 annual payments are to be made to Andrea or her estate (if she dies before the end of the eight years), the payments will qualify as alimony. II.Andrea has a taxable gain from an exchange of her one-half interest in the stocks for Travis' one-half interest in the house and cash. III.If Travis sells the stocks for $900,000, he must recognize a $400,000 gain. a.Only I and III are true. b.I, II, and III are true. c.Only I and II are true. d.Only III is true.
d.Only III is true.
Which of the statements regarding the standard deduction, if any, is correct? a.The standard deduction may be taken as a for AGI deduction. b.The basic standard deduction is indexed for inflation but the additional standard deduction is not. c.The standard deduction is not available to taxpayers who are dependents. d.Some taxpayers may qualify for two types of standard deductions.
d.Some taxpayers may qualify for two types of standard deductions.
The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future. a.Sue must recognize $2,000 gross income in the current year, and when the cable is installed, she must reduce her cost basis in the land by $2,000. b.Sue must recognize $2,000 gross income in the current year if the company did not install the cable during the year. c.Sue must recognize $2,000 gross income in the current year regardless of whether the company installed the cable during the year. d.Sue is not required to recognize gross income from the receipt of the funds.
d.Sue is not required to recognize gross income from the receipt of the funds.
Tax functions that accounting and finance professionals may assist clients with include all but the following: a.Cash management to ensure timely payment of taxes. b.Tax compliance. c.Tax planning. d.Tax evasion.
d.Tax evasion.
Evan and Eileen Carter are married and file a joint return for 2021. Both are under 65 years of age. They provide more than half of the support of their daughter, Pamela (age 25), who is a full-time medical student. Pamela receives a $5,000 scholarship covering her tuition at college. Evan and Eileen furnish all of the support of Belinda (Evan's grandmother), who is age 80 and lives in a nursing home. They also support Peggy (age 66), who is a friend of the family and lives with them. How many dependents may the Carters claim? a.Two b.None c.One d.Three
d.Three
Both economic and social considerations can be used to justify: a.Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials). b.Favorable tax treatment for accident and health plans provided for employees and financed by employers. c.Allowance of a deduction for state and local income taxes paid. d.Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.
d.Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.
Millie, age 80, is supported during the current year as follows: Percent of Support Weston (a son): 20% Faith (a daughter): 35% Jake (a cousin): 25% Brayden (unrelated close family friend): 20% During the year, Millie lives in an assisted living facility. Under a multiple support agreement, indicate which parties can qualify to claim Millie as a dependent. a.Faith. b.Faith, Jake, and Brayden. c.Weston, Faith, Jake, and Brayden. d.Weston and Faith.
d.Weston and Faith.