Question 1

The interest earned on investments in U.S. debt obligations is subject to state taxation.

Accepted Answer

A) True 
 B)False

Question 2

Mr. Ames, an unmarried individual, made a gift of real estate to his nephew. Compute the amount subject to the federal gift tax in each of the following situations.
a. FMV of the real estate was $1,800,000, and the transfer was Mr. Ames first taxable gift.
b. FMV of the real estate was $7,250,000 and the transfer was Mr. Ames first taxable gift.
c. FMV of the real estate was $2,300,000. Two years ago, Mr. Ames made his first taxable gift of marketable securities with a $3,920,000 FMV in excess of the annual exclusion.

Accepted Answer

a. $0 (taxable gift less $5 million life

Question 3

Mr. Ricardo exchanged 75 shares of Haslet common stock for 516 shares of Newland common stock pursuant to a reorganization of the two corporations. His basis in the Haslet stock was $49,200, and the fair market value of the Newland stock was $138,000. Which of the following statements about the exchange is true?

Accepted Answer

A)  Mr. Ricardo recognizes no gain and takes a $138,000 basis in the Newland stock. 
B)  Mr. Ricardo recognizes an $88,800 gain and takes a $138,000 basis in the Newland stock. 
C)  Mr. Ricardo recognizes no gain and takes a zero basis in the Newland stock. 
D)  Mr. Ricardo recognizes no gain and takes a $49,200 basis in the Newland stock. 
A)  Mr. Ricardo recognizes no gain and takes a $138,000 basis in the Newland stock. 
B)  Mr. Ricardo recognizes an $88,800 gain and takes a $138,000 basis in the Newland stock. 
C)  Mr. Ricardo recognizes no gain and takes a zero basis in the Newland stock. 
D)  Mr. Ricardo recognizes no gain and takes a $49,200 basis in the Newland stock.

Question 4

Jane, a cash basis individual, purchased a publicly traded bond at a $6,000 market discount. Which of the following statements is true?

Accepted Answer

A)  Jane must accrue the market discount as interest income over the life of the bond. 
B)  If Jane holds the bond to maturity, she will recognize a $6,000 capital gain. 
C)  If Jane holds the bond to maturity, she will recognize $6,000 ordinary income. 
D)  None of the statements is true. 
A)  Jane must accrue the market discount as interest income over the life of the bond. 
B)  If Jane holds the bond to maturity, she will recognize a $6,000 capital gain. 
C)  If Jane holds the bond to maturity, she will recognize $6,000 ordinary income. 
D)  None of the statements is true.

Question 5

Mrs. Lindt exchanged 212 shares of Nipher common stock for 773 shares of Newland common stock. Her basis in the Nipher stock was $49,200, and the fair market value of the Newland stock was $138,000. Which of the following statements about the exchange is true?

Accepted Answer

A)  Mrs. Lindt's basis in her Newland stock is $138,000. 
B)  Mrs. Lindt recognizes no gain on the exchange because she did not receive any cash. 
C)  If the exchange is pursuant to a reorganization of Nipher and Newland, Mrs. Lindt recognizes no gain. 
D)  None of the above is true. 
A)  Mrs. Lindt's basis in her Newland stock is $138,000. 
B)  Mrs. Lindt recognizes no gain on the exchange because she did not receive any cash. 
C)  If the exchange is pursuant to a reorganization of Nipher and Newland, Mrs. Lindt recognizes no gain. 
D)  None of the above is true.

Question 6

Ms. Kerry, who itemized deductions on Schedule A, paid $15,000 interest on funds borrowed to acquire taxable bonds. She also paid $660 of management fees that were fully deductible on Schedule A. Her AGI is $100,000, which includes $19,700 of interest income. How much of the interest expense can she deduct?

Accepted Answer

A)  $0 
B)  $19,039 
C)  $19,699 
D)  $15,001 
A)  $0 
B)  $19,039 
C)  $19,699 
D)  $15,001

Question 7

Ms. Regga, a physician, earned $375,000 from her medical practice and $20,500 interest and qualified dividends from her investment portfolio. She was allocated a $67,000 loss from a passive activity. Compute Ms. Regga's AGI.

Accepted Answer

A)  $328,500 
B)  $375,000 
C)  $395,500 
D)  None of the above 
A)  $328,500 
B)  $375,000 
C)  $395,500 
D)  None of the above

Question 8

An owner of undeveloped land held for investment must capitalize the property taxes paid on the land each year.

Accepted Answer

A) True 
 B)False

Question 9

Ms. Watts owns stock in two S corporations, MKP Corporation and Reynolds Inc. This year, Ms. Watts had the following income and loss items.   If Ms. Watts materially participates in the business of both corporations, compute her AGI.

Accepted Answer

A)  $85,700 
B)  $113,700 
C)  $127,700 
D)  $155,700 
A)  $85,700 
B)  $113,700 
C)  $127,700 
D)  $155,700

Question 10

Mr. Carp, a single taxpayer, recognized a $44,000 long-term capital gain, a $12,000 short-term capital gain, and a $10,000 long-term capital loss. Compute Mr. Carp's tax if his taxable income before consideration of his capital transactions is $405,000.

Accepted Answer

Net long-term capital gain is $34,000 ($

Question 11

Two years ago, James loaned $60,000 to his friend. The debt is now uncollectible. If the loan created a bona fide debt, James recognizes a short-term capital loss.

Accepted Answer

A) True 
 B)False

Question 12

Mr. and Mrs. Perry own stock in an S corporation, which is their only passive activity. They have an $8,200 passive activity loss carryforward into this year. This year, the Perrys are allocated a $1,600 share of corporate ordinary business income. In December of this year, they recognize a $3,500 long-term capital gain on the sale of their entire stock interest. How much of their loss carryforward can the Perrys deduct this year?

Accepted Answer

A)  $0 
B)  $5,100 
C)  $8,200 
D)  $1,600 
A)  $0 
B)  $5,100 
C)  $8,200 
D)  $1,600

Question 13

Beverly earned a $75,000 salary and recognized a $7,200 loss on the sale of corporate stock this year. Compute her AGI in each of the following independent cases.
a. Beverly had no other capital transactions this year.
b. Beverly recognized a $13,500 capital gain on the sale of mutual fund shares.
c. Beverly received a $9,500 capital gain distribution from a mutual fund and had a $3,200 capital loss carryforward from a previous year.

Accepted Answer

a. $72,000 AGI = $75,000 salary - $3,000

Question 14

Mr. Lee made the following transfers this year. Which of the transfers are treated as gifts for federal tax purposes?

Accepted Answer

A)  Political contribution to the Democratic party 
B)  Charitable contribution to the United Way 
C)  Payment to a hospital for the medical expenses of his 39-year old son 
D)  None of the above are treated as gifts. 
A)  Political contribution to the Democratic party 
B)  Charitable contribution to the United Way 
C)  Payment to a hospital for the medical expenses of his 39-year old son 
D)  None of the above are treated as gifts.

Question 15

Mrs. Heyer inherited real estate from her mother. The mother's basis in the real estate was $382,000, and the fair market value at the date of the mother's death was $900,000. The mother's taxable estate was only $2.4 million, so the estate did not owe any federal estate tax. This year, Mrs. Heyer sold the real estate for $875,000. Compute her gain or loss recognized on sale.

Accepted Answer

A)  $0 
B)  $25,000 loss 
C)  $493,000 gain 
D)  $875,000 gain 
A)  $0 
B)  $25,000 loss 
C)  $493,000 gain 
D)  $875,000 gain

Question 16

An owner of a life insurance policy that includes an investment element must recognize income equal to the annual increase in the policy's cash surrender value.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements about annuity contracts is true?

Accepted Answer

A)  Annuity contracts provide a fixed income stream. 
B)  Payments received from an annuity contract are tax-exempt. 
C)  Payments received from an annuity contract are fully taxable as ordinary income. 
D)  Payments received from an annuity contract are fully taxable as capital gain. 
A)  Annuity contracts provide a fixed income stream. 
B)  Payments received from an annuity contract are tax-exempt. 
C)  Payments received from an annuity contract are fully taxable as ordinary income. 
D)  Payments received from an annuity contract are fully taxable as capital gain.

Question 18

Individual taxpayers are not allowed to deduct capital losses in excess of capital gains.

Accepted Answer

A) True 
 B)False

Question 19

Last year, Mr. Margot purchased a limited interest in a business partnership, which is her only passive activity. Last year, she was allocated $14,900 of the partnership's ordinary business loss. This year, she was allocated $7,700 of the partnership's ordinary business income. Which of the following statements is false?

Accepted Answer

A)  Last year, Mr. Margot could not deduct any of her allocated partnership loss. 
B)  This year, Mr. Margot can deduct $7,700 of last year's loss. 
C)  Mr. Margot has a $7,200 passive activity loss carryforward into next year. 
D)  None of the above statements is false. 
A)  Last year, Mr. Margot could not deduct any of her allocated partnership loss. 
B)  This year, Mr. Margot can deduct $7,700 of last year's loss. 
C)  Mr. Margot has a $7,200 passive activity loss carryforward into next year. 
D)  None of the above statements is false.

Question 20

Which of the following statements about Section 1244 stock is true?

Accepted Answer

A)  Some portion of a loss recognized on sale of Section 1244 stock is an ordinary deduction. 
B)  Gain recognized on sale of Section 1244 stock is taxed at a 28% maximum rate. 
C)  Individuals may purchase Section 1244 stock directly from the issuing corporation or from another shareholder. 
D)  Corporations may issue an unlimited amount of Section 1244 stock. 
A)  Some portion of a loss recognized on sale of Section 1244 stock is an ordinary deduction. 
B)  Gain recognized on sale of Section 1244 stock is taxed at a 28% maximum rate. 
C)  Individuals may purchase Section 1244 stock directly from the issuing corporation or from another shareholder. 
D)  Corporations may issue an unlimited amount of Section 1244 stock.

The interest earned on investments in U.S. debt obligations is subject to state taxation.

Jane, a cash basis individual, purchased a publicly traded bond at a $6,000 market discount. Which of the following statements is true?

Mrs. Lindt exchanged 212 shares of Nipher common stock for 773 shares of Newland common stock. Her basis in the Nipher stock was $49,200, and the fair market value of the Newland stock was $138,000. Which of the following statements about the exchange is true?

Ms. Regga, a physician, earned $375,000 from her medical practice and $20,500 interest and qualified dividends from her investment portfolio. She was allocated a $67,000 loss from a passive activity. Compute Ms. Regga's AGI.

An owner of undeveloped land held for investment must capitalize the property taxes paid on the land each year.

Ms. Watts owns stock in two S corporations, MKP Corporation and Reynolds Inc. This year, Ms. Watts had the following income and loss items. If Ms. Watts materially participates in the business of both corporations, compute her AGI.

Mr. Carp, a single taxpayer, recognized a $44,000 long-term capital gain, a $12,000 short-term capital gain, and a $10,000 long-term capital loss. Compute Mr. Carp's tax if his taxable income before consideration of his capital transactions is $405,000.

Two years ago, James loaned $60,000 to his friend. The debt is now uncollectible. If the loan created a bona fide debt, James recognizes a short-term capital loss.

Mr. Lee made the following transfers this year. Which of the transfers are treated as gifts for federal tax purposes?

An owner of a life insurance policy that includes an investment element must recognize income equal to the annual increase in the policy's cash surrender value.

Which of the following statements about annuity contracts is true?

Individual taxpayers are not allowed to deduct capital losses in excess of capital gains.

Which of the following statements about Section 1244 stock is true?

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 16: Investment and Personal Financial Planning

The interest earned on investments in U.S. debt obligations is subject to state taxation.

Jane, a cash basis individual, purchased a publicly traded bond at a $6,000 market discount. Which of the following statements is true?

Mrs. Lindt exchanged 212 shares of Nipher common stock for 773 shares of Newland common stock. Her basis in the Nipher stock was $49,200, and the fair market value of the Newland stock was $138,000. Which of the following statements about the exchange is true?

Ms. Regga, a physician, earned $375,000 from her medical practice and $20,500 interest and qualified dividends from her investment portfolio. She was allocated a $67,000 loss from a passive activity. Compute Ms. Regga's AGI.

An owner of undeveloped land held for investment must capitalize the property taxes paid on the land each year.

Ms. Watts owns stock in two S corporations, MKP Corporation and Reynolds Inc. This year, Ms. Watts had the following income and loss items. If Ms. Watts materially participates in the business of both corporations, compute her AGI.

Mr. Carp, a single taxpayer, recognized a $44,000 long-term capital gain, a $12,000 short-term capital gain, and a $10,000 long-term capital loss. Compute Mr. Carp's tax if his taxable income before consideration of his capital transactions is $405,000.

Two years ago, James loaned $60,000 to his friend. The debt is now uncollectible. If the loan created a bona fide debt, James recognizes a short-term capital loss.

Mr. Lee made the following transfers this year. Which of the transfers are treated as gifts for federal tax purposes?

An owner of a life insurance policy that includes an investment element must recognize income equal to the annual increase in the policy's cash surrender value.

Which of the following statements about annuity contracts is true?

Individual taxpayers are not allowed to deduct capital losses in excess of capital gains.

Which of the following statements about Section 1244 stock is true?

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters