Question 1

Currently, a personal casualty loss deduction is allowed only for losses occurring in a Federally declared disaster area.

Accepted Answer

A) True 
 B)False

Question 2

While Susan was on vacation during the current year, someone broke into her home and stole the following items:
? A computer used 60% in connection with Susan as an employee and 40% for her personal use. The cost of the computer was $8,000. Depreciation of $3,000 had been taken on the computer and it had a fair market value of $4,000 at the time of the theft.
? A painting that Susan purchased as an investment for $10,000 had a fair market value of
$17,000.
? Silverware purchased for $3,000 had a fair market value of $5,000.
? Cash of $30,000.
Susan's adjusted gross income, before considering any of these items, is $60,000. Determine the total amount of her itemized deductions resulting from the theft.

Accepted Answer

None

Question 3

A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

Accepted Answer

A) True 
 B)False

Question 4

Currently, a net operating loss can be carried forward only and can offset no more than 80% of taxable income in a subsequent year.

Accepted Answer

A) True 
 B)False

Question 5

Two years ago, Gina loaned Tom $50,000. Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance. Last year, when the balance owing on the loan was $18,000, Tom defaulted on the note. As of the end of last year, there appeared to be no reasonable prospect of Gina recovering the $18,000. As a consequence, Gina claimed the $18,000 as a nonbusiness bad debt. Last year, Gina had AGI of $50,000, which included $16,000 of net long-term capital gains. Gina did not itemize her deductions. During the current year, Tom paid Gina $13,000 in final settlement of the loan. How should Gina account for the payment in the current year?

Accepted Answer

A)  File an amended tax return for last year. 
B)  Report no income for the current year. 
C)  Report $2,000 of income for the current year. 
D)  Report $5,000 of income for the current year. 
E)  None of these. 
A)  File an amended tax return for last year. 
B)  Report no income for the current year. 
C)  Report $2,000 of income for the current year. 
D)  Report $5,000 of income for the current year. 
E)  None of these.

Question 6

In 2017, Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home. Her insurance company told her that her policy did not cover the theft. In 2017, Sarah's other itemized deductions were $2,000, and she had AGI of $30,000. In February 2019, Sarah's insurance company decided that Sarah's policy did cover the theft of the silverware and they paid Sarah $5,000. Determine the tax treatment of the $5,000 received by Sarah during 2019.

Accepted Answer

A)  None of the $5,000 should be included in gross income. 
B)  $2,900 should be included in gross income. 
C)  $5,000 should be included in gross income. 
D)  Last year's return should be amended to include the $5,000. 
E)  None of these. 
A)  None of the $5,000 should be included in gross income. 
B)  $2,900 should be included in gross income. 
C)  $5,000 should be included in gross income. 
D)  Last year's return should be amended to include the $5,000. 
E)  None of these.

Question 7

On July 20, 2018, Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock) for $24,000. On November 10, 2018, Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000. On September 15, 2019, Matt sold the 4,000 shares of stock for $120,000. How should Matt treat the sale of the stock on his 2019 return?

Accepted Answer

A)  $54,000 ordinary loss. 
B)  $100,000 ordinary loss; $46,000 net capital gain. 
C)  $100,000 ordinary loss; $20,000 STCL. 
D)  $130,000 ordinary loss; $66,000 LTCG. 
E)  None of these. 
A)  $54,000 ordinary loss. 
B)  $100,000 ordinary loss; $46,000 net capital gain. 
C)  $100,000 ordinary loss; $20,000 STCL. 
D)  $130,000 ordinary loss; $66,000 LTCG. 
E)  None of these.

Question 8

The purpose of the excess business loss rules is to limit the amount of nonbusiness income (e.g., salaries, interest, dividends) that can be sheltered from tax as a result of business losses.

Accepted Answer

A) True 
 B)False

Question 9

The excess business loss rule applies to partnerships and S corporations (rather than partners and shareholders).

Accepted Answer

A) True 
 B)False

Question 10

The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

Accepted Answer

A) True 
 B)False

Question 11

The amount of a business loss cannot exceed the amount of the taxpayer's NOL for the taxable year.

Accepted Answer

A) True 
 B)False

Question 12

Tonya reports the following items for last year: $\begin{array}{lr}
\text { Salary } & \$ 40,000 \
\text { Short-term capital gain } & 12,000 \
\text { Nonbusiness bad debt } & (23,000) \
\text { Long-term capital gain } & 8,000\\text { For the currentyear. Tonya rep orts the following items: }\
\text { Salary } & \$ 45,000 \
\text { Collection of last year's bad debt } & 23,000
\end{array}$ Determine Tonya's adjusted gross income for the current year.

Accepted Answer

The answer of Tonya reports the following items for last...

Question 13

Research and experimental expenditures do not include the cost of consumer surveys.

Accepted Answer

A) True 
 B)False

Question 14

Last year, Green Corporation incurred the following expenditures in the development of a new plant process: $$\begin{array} { l r } 
\text { Salaries } & \$ 250,000 \
\text { Materials } & 90,000 \
\text { Utilities } & 20,000 \
\text { Quality control testing costs } & 40,000 \
\text { Management study costs } & 5,000 \
\text { Depreciation of equipment } & 18,000
\end{array}$$ During the current year, benefits from the project began being realized in May. If Green Corporation elects a 60 month deferral and amortization period, determine the amount of the deduction for the current year.

Accepted Answer

A)  $48,000 
B)  $50,400 
C)  $54,667 
D)  $57,067 
E)  None of these. 
A)  $48,000 
B)  $50,400 
C)  $54,667 
D)  $57,067 
E)  None of these.

Question 15

On February 20, 2018, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2019, the stock became worthless. During 2019, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain. How should Bill treat these items on his 2019 tax return?

Accepted Answer

A)  $4,000 long-term capital loss and $9,000 short-term capital loss. 
B)  $4,000 long-term capital loss and $3,000 short-term capital loss. 
C)  $8,000 ordinary loss and $3,000 short-term capital loss. 
D)  $8,000 ordinary loss and $5,000 short-term capital loss. 
E)  $8,000 long-term capital loss and $6,000 short-term capital loss. 
A)  $4,000 long-term capital loss and $9,000 short-term capital loss. 
B)  $4,000 long-term capital loss and $3,000 short-term capital loss. 
C)  $8,000 ordinary loss and $3,000 short-term capital loss. 
D)  $8,000 ordinary loss and $5,000 short-term capital loss. 
E)  $8,000 long-term capital loss and $6,000 short-term capital loss.

Question 16

Mary incurred a $20,000 nonbusiness bad debt last year. She also had an $18,000 long-term capital gain last year. Her taxable income for last year was $25,000. During the current year, she unexpectedly collected $12,000 on the debt. How should Mary account for the collection?

Accepted Answer

A)  $0 income 
B)  $8,000 income 
C)  $11,000 income 
D)  $12,000 income 
E)  None of these. 
A)  $0 income 
B)  $8,000 income 
C)  $11,000 income 
D)  $12,000 income 
E)  None of these.

Question 17

If a taxpayer sells her or his § 1244 stock at a loss, all of the loss will be ordinary loss.

Accepted Answer

A) True 
 B)False

Question 18

In 2019, Theo, a single taxpayer, operates a sole proprietorship in which he materially participates. His proprietorship generates gross income of $320,000 and deductions of $600,000, resulting is a loss of $280,000. The large deductions are due to the acquisition of equipment and the use of immediate expense and additional first-year depreciation to deduct all of the acquisitions. What is Theo's excess business loss for the year?

Accepted Answer

A)  $-0-. 
B)  $25,000. 
C)  $250,000. 
D)  $280,000 
E)  None of these. 
A)  $-0-. 
B)  $25,000. 
C)  $250,000. 
D)  $280,000 
E)  None of these.

Question 19

A business bad debt is a debt unrelated to the taxpayer's trade or business either when it was created or when it became worthless.

Accepted Answer

A) True 
 B)False

Question 20

A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.

Accepted Answer

A) True 
 B)False

Currently, a personal casualty loss deduction is allowed only for losses occurring in a Federally declared disaster area.

A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

Currently, a net operating loss can be carried forward only and can offset no more than 80% of taxable income in a subsequent year.

The purpose of the excess business loss rules is to limit the amount of nonbusiness income (e.g., salaries, interest, dividends) that can be sheltered from tax as a result of business losses.

The excess business loss rule applies to partnerships and S corporations (rather than partners and shareholders).

The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

The amount of a business loss cannot exceed the amount of the taxpayer's NOL for the taxable year.

Research and experimental expenditures do not include the cost of consumer surveys.

Mary incurred a $20,000 nonbusiness bad debt last year. She also had an $18,000 long-term capital gain last year. Her taxable income for last year was $25,000. During the current year, she unexpectedly collected $12,000 on the debt. How should Mary account for the collection?

If a taxpayer sells her or his § 1244 stock at a loss, all of the loss will be ordinary loss.

A business bad debt is a debt unrelated to the taxpayer's trade or business either when it was created or when it became worthless.

A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.

Understanding and Working With the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters

Exam 7: Deductions and Losses: Certain Business Expenses and Losses

Currently, a personal casualty loss deduction is allowed only for losses occurring in a Federally declared disaster area.

A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

Currently, a net operating loss can be carried forward only and can offset no more than 80% of taxable income in a subsequent year.

The purpose of the excess business loss rules is to limit the amount of nonbusiness income (e.g., salaries, interest, dividends) that can be sheltered from tax as a result of business losses.

The excess business loss rule applies to partnerships and S corporations (rather than partners and shareholders).

The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

The amount of a business loss cannot exceed the amount of the taxpayer's NOL for the taxable year.

Research and experimental expenditures do not include the cost of consumer surveys.

Mary incurred a $20,000 nonbusiness bad debt last year. She also had an $18,000 long-term capital gain last year. Her taxable income for last year was $25,000. During the current year, she unexpectedly collected $12,000 on the debt. How should Mary account for the collection?

If a taxpayer sells her or his § 1244 stock at a loss, all of the loss will be ordinary loss.

A business bad debt is a debt unrelated to the taxpayer's trade or business either when it was created or when it became worthless.

A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.

Understanding and Working With the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters