Question 1

Interest paid on debt incurred to acquire, build, or improve a personal residence is a preference item for computing the alternative minimum tax.

Accepted Answer

A) True 
 B)False

Question 2

Chad won a car valued at $25,000 from a game show. Because he immediately donated the car to the Red Cross, Chad can exclude $25,000 from gross income.

Accepted Answer

A) True 
 B)False

Question 3

Jenna Leigh is employed as a receptionist for a CPA firm, but on evenings and weekends, she bakes wedding cakes. In each of the past four years, Jenna's baking activity resulted in a net profit. This year, the activity generated a $720 net loss. Which of the following statements is true?

Accepted Answer

A) The legal presumption is that Jenna's $720 loss is a business loss. 
B) The legal presumption is that Jenna's $720 loss is a nondeductible hobby loss. 
C) Jenna must include the revenues from her baking activity in gross income but can't deduct any of her related expenses. 
D) Jenna is allowed to report her $720 loss as a miscellaneous itemized deduction. 
A) The legal presumption is that Jenna's $720 loss is a business loss. 
B) The legal presumption is that Jenna's $720 loss is a nondeductible hobby loss. 
C) Jenna must include the revenues from her baking activity in gross income but can't deduct any of her related expenses. 
D) Jenna is allowed to report her $720 loss as a miscellaneous itemized deduction.

Question 4

An activity will be classified as a hobby if the taxpayer fails to make a profit from the activity.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following government transfer payments is included in the recipient's gross income?

Accepted Answer

A) Food stamps 
B) Need-based welfare payments 
C) Unemployment compensation 
D) None of the above is included. 
A) Food stamps 
B) Need-based welfare payments 
C) Unemployment compensation 
D) None of the above is included.

Question 6

Mr. Haugh owns a sporting goods store as a sole proprietorship. This year, he donated baseball equipment (bats, gloves, balls) to the local YMCA to use in their community sports programs. His cost basis in the inventory items was $45,700, and their retail value was $68,200. Which of the following statements about this donation is true?

Accepted Answer

A) Mr.Haugh must recognize $22,500 ordinary business income and is allowed a $68,200 business deduction. 
B) Mr.Haugh must recognize $22,500 ordinary business income and is allowed a $68,200 charitable contribution deduction. 
C) Mr.Haugh is allowed a $45,700 charitable contribution deduction. 
D) Mr.Haugh is allowed a $68,200 charitable contribution deduction. 
A) Mr.Haugh must recognize $22,500 ordinary business income and is allowed a $68,200 business deduction. 
B) Mr.Haugh must recognize $22,500 ordinary business income and is allowed a $68,200 charitable contribution deduction. 
C) Mr.Haugh is allowed a $45,700 charitable contribution deduction. 
D) Mr.Haugh is allowed a $68,200 charitable contribution deduction.

Question 7

Dotty, age 45, incurred the following medical expenses this year.   Dotty's insurance company reimbursed her for $8,800 of these expenses. If Dotty's AGI is $35,400, compute her medical expense deduction.

Accepted Answer

A) $0 
B) $1,320 
C) $10,120 
D) $13,660 
A) $0 
B) $1,320 
C) $10,120 
D) $13,660

Question 8

William took out a $740,000 mortgage to purchase his personal residence. The residence is worth over $1.4 million, and William wants to take out a $200,000 second mortgage and use the proceeds to consolidate his credit card debt. William can deduct 50% of the interest he will pay on the second mortgage.

Accepted Answer

A) True 
 B)False

Question 9

Over the course of the year, Mr. Soo won $8,200 and lost $5,900 gambling in the local casino. Mr. Soo does not itemize deductions on his federal tax return. What is the net effect of his gambling on Mr. Soo's taxable income?

Accepted Answer

A) No effect on taxable income. 
B) $8,200 increase in taxable income. 
C) $2,300 increase in taxable income. 
D) None of the above. 
A) No effect on taxable income. 
B) $8,200 increase in taxable income. 
C) $2,300 increase in taxable income. 
D) None of the above.

Question 10

Which of the following tax payments is allowed as an itemized income tax deduction?

Accepted Answer

A) Federal gift tax 
B) Payroll tax on wages paid to a housekeeper 
C) Social Security tax withheld from salary 
D) Local property tax on personal automobile 
A) Federal gift tax 
B) Payroll tax on wages paid to a housekeeper 
C) Social Security tax withheld from salary 
D) Local property tax on personal automobile

Question 11

Which of the following expenditures is not a medical expense for federal tax purposes?

Accepted Answer

A) Payment for eyeglasses 
B) Health insurance premiums 
C) Payment for prescription antibiotics 
D) All of the above are deductible medical expenses 
A) Payment for eyeglasses 
B) Health insurance premiums 
C) Payment for prescription antibiotics 
D) All of the above are deductible medical expenses

Question 12

Unemployment benefits are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 13

A flood destroyed an antique Persian rug owned by Mr. and Mrs. McConnel. The couple purchased the rug for $13,000 fifteen years ago, but its appraised FMV before the flood was $42,500. Unfortunately, their homeowners' insurance policy does not cover flood damage. Compute the McConnels' casualty loss resulting from the flood.

Accepted Answer

A) $41,900 
B) $42,000 
C) $13,000 
D) $12,900 
A) $41,900 
B) $42,000 
C) $13,000 
D) $12,900

Question 14

Which of the following statements about tax subsidies for higher education is false?

Accepted Answer

A) Individuals can deduct a limited amount of qualified tuition expenses as an above-the-line deduction. 
B) Individuals can deduct a limited amount of interest paid on qualified education loans as an above-the-line deduction. 
C) Individuals can claim an American Opportunity Credit for a limited amount of college tuition, fees, and course materials. 
D) None of the above is false. 
A) Individuals can deduct a limited amount of qualified tuition expenses as an above-the-line deduction. 
B) Individuals can deduct a limited amount of interest paid on qualified education loans as an above-the-line deduction. 
C) Individuals can claim an American Opportunity Credit for a limited amount of college tuition, fees, and course materials. 
D) None of the above is false.

Question 15

Twelve years ago, Mr. Drake incurred a $790,000 mortgage to purchase his principal residence. Last year, he took out a $32,000 loan secured by his considerable equity in the residence and used the proceeds to send his daughter to Stanford University. Which of the following statements is true?

Accepted Answer

A) Mr.Drake can report the interest paid on both his first and second mortgages as an itemized deduction. 
B) Mr.Drake can deduct the interest paid on both his first and second mortgages as an above-the-line deduction. 
C) Mr.Drake can report the interest paid on only his first mortgage as an itemized deduction. 
D) Mr.Drake can report the interest paid on his first mortgage as an above-the-line deduction and the interest paid on his second mortgage as an itemized deduction. 
A) Mr.Drake can report the interest paid on both his first and second mortgages as an itemized deduction. 
B) Mr.Drake can deduct the interest paid on both his first and second mortgages as an above-the-line deduction. 
C) Mr.Drake can report the interest paid on only his first mortgage as an itemized deduction. 
D) Mr.Drake can report the interest paid on his first mortgage as an above-the-line deduction and the interest paid on his second mortgage as an itemized deduction.

Question 16

Ms. Ruang owns a principal residence subject to an $817,000 acquisition mortgage. The home has an $875,000 appraised FMV. What is the maximum home equity debt that Ms. Ruang could incur for federal tax purposes?

Accepted Answer

A) $183,000 
B) $100,000 
C) $58,000 
D) $0 
A) $183,000 
B) $100,000 
C) $58,000 
D) $0

Question 17

Violet took out a $900,000 mortgage to purchase her personal residence. She can deduct the mortgage interest payments as an itemized deduction.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following items is included in the recipient's gross income?

Accepted Answer

A) Life insurance death benefit 
B) Legal award for personal injury 
C) Legal award for punitive damages 
D) Scholarship for tuition, fees, and books 
A) Life insurance death benefit 
B) Legal award for personal injury 
C) Legal award for punitive damages 
D) Scholarship for tuition, fees, and books

Question 19

Mrs. Hanson's financial support this year consisted of: $14,650 Social Security benefits; $9,600 pension from her former employer's qualified retirement plan, and $15,000 cash gifts from her children. Compute Mrs. Hanson's AGI.

Accepted Answer

AGI = $9,6

Question 20

Which of the following statements about the tax consequences of gambling is true?

Accepted Answer

A) Gambling winnings are not taxable, and gambling losses are not deductible. 
B) Gambling losses are deductible as miscellaneous itemized deductions only to the extent of gambling winnings. 
C) Gambling losses are deductible as itemized deductions only to the extent of gambling winnings. 
D) Gambling winnings are taxable, but gambling losses are not deductible. 
A) Gambling winnings are not taxable, and gambling losses are not deductible. 
B) Gambling losses are deductible as miscellaneous itemized deductions only to the extent of gambling winnings. 
C) Gambling losses are deductible as itemized deductions only to the extent of gambling winnings. 
D) Gambling winnings are taxable, but gambling losses are not deductible.

Interest paid on debt incurred to acquire, build, or improve a personal residence is a preference item for computing the alternative minimum tax.

Chad won a car valued at $25,000 from a game show. Because he immediately donated the car to the Red Cross, Chad can exclude $25,000 from gross income.

Jenna Leigh is employed as a receptionist for a CPA firm, but on evenings and weekends, she bakes wedding cakes. In each of the past four years, Jenna's baking activity resulted in a net profit. This year, the activity generated a $720 net loss. Which of the following statements is true?

An activity will be classified as a hobby if the taxpayer fails to make a profit from the activity.

Which of the following government transfer payments is included in the recipient's gross income?

Dotty, age 45, incurred the following medical expenses this year. Dotty's insurance company reimbursed her for $8,800 of these expenses. If Dotty's AGI is $35,400, compute her medical expense deduction.

Over the course of the year, Mr. Soo won $8,200 and lost $5,900 gambling in the local casino. Mr. Soo does not itemize deductions on his federal tax return. What is the net effect of his gambling on Mr. Soo's taxable income?

Which of the following tax payments is allowed as an itemized income tax deduction?

Which of the following expenditures is not a medical expense for federal tax purposes?

Unemployment benefits are excluded from gross income.

Which of the following statements about tax subsidies for higher education is false?

Twelve years ago, Mr. Drake incurred a $790,000 mortgage to purchase his principal residence. Last year, he took out a $32,000 loan secured by his considerable equity in the residence and used the proceeds to send his daughter to Stanford University. Which of the following statements is true?

Ms. Ruang owns a principal residence subject to an $817,000 acquisition mortgage. The home has an $875,000 appraised FMV. What is the maximum home equity debt that Ms. Ruang could incur for federal tax purposes?

Violet took out a $900,000 mortgage to purchase her personal residence. She can deduct the mortgage interest payments as an itemized deduction.

Which of the following items is included in the recipient's gross income?

Mrs. Hanson's financial support this year consisted of: $14,650 Social Security benefits; $9,600 pension from her former employer's qualified retirement plan, and $15,000 cash gifts from her children. Compute Mrs. Hanson's AGI.

Which of the following statements about the tax consequences of gambling 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

Investment and Personal Financial Planning

The Tax Compliance Process a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

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Exam 17: Tax Consequences of Personal Activities

Interest paid on debt incurred to acquire, build, or improve a personal residence is a preference item for computing the alternative minimum tax.

Chad won a car valued at $25,000 from a game show. Because he immediately donated the car to the Red Cross, Chad can exclude $25,000 from gross income.

Jenna Leigh is employed as a receptionist for a CPA firm, but on evenings and weekends, she bakes wedding cakes. In each of the past four years, Jenna's baking activity resulted in a net profit. This year, the activity generated a $720 net loss. Which of the following statements is true?

An activity will be classified as a hobby if the taxpayer fails to make a profit from the activity.

Which of the following government transfer payments is included in the recipient's gross income?

Dotty, age 45, incurred the following medical expenses this year. Dotty's insurance company reimbursed her for $8,800 of these expenses. If Dotty's AGI is $35,400, compute her medical expense deduction.

Over the course of the year, Mr. Soo won $8,200 and lost $5,900 gambling in the local casino. Mr. Soo does not itemize deductions on his federal tax return. What is the net effect of his gambling on Mr. Soo's taxable income?

Which of the following tax payments is allowed as an itemized income tax deduction?

Which of the following expenditures is not a medical expense for federal tax purposes?

Unemployment benefits are excluded from gross income.

Which of the following statements about tax subsidies for higher education is false?

Twelve years ago, Mr. Drake incurred a $790,000 mortgage to purchase his principal residence. Last year, he took out a $32,000 loan secured by his considerable equity in the residence and used the proceeds to send his daughter to Stanford University. Which of the following statements is true?

Ms. Ruang owns a principal residence subject to an $817,000 acquisition mortgage. The home has an $875,000 appraised FMV. What is the maximum home equity debt that Ms. Ruang could incur for federal tax purposes?

Violet took out a $900,000 mortgage to purchase her personal residence. She can deduct the mortgage interest payments as an itemized deduction.

Which of the following items is included in the recipient's gross income?

Mrs. Hanson's financial support this year consisted of: $14,650 Social Security benefits; $9,600 pension from her former employer's qualified retirement plan, and $15,000 cash gifts from her children. Compute Mrs. Hanson's AGI.

Which of the following statements about the tax consequences of gambling 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

Investment and Personal Financial Planning

The Tax Compliance Process a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

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