Question 1

The 0.9 percent Medicare tax applies to:

Accepted Answer

A) Earned income 
B) Tax exempt income 
C) Gain on the sale of a principal residence 
D) IRA distributions 
A) Earned income 
B) Tax exempt income 
C) Gain on the sale of a principal residence 
D) IRA distributions

Question 2

John and Susan file a joint income tax return for 2018.They have two dependent children, students, ages 19 and 20.John earns wages of $908,000 and John and Susan have interest income of $102,000.In 2018, they settle a state tax audit and pay $50,000 for back state taxes due to an overly aggressive tax-sheltered investment.Their other expenses for the year include:​ $$\begin{array} { l r } 
\text { Mortgage interest } & \$ 23,000 \
\text { Real estate taxes } & 12,000 \
\text { State taxes withheld } & 33,500 \
\text { Cash contributions } & 56,000 \
\text { CPA fees for assistance with the state audit } & 4,500
\end{array}$$ 
a.Calculate John and Susan's 2018 regular tax and tentative minimum tax on the schedule provided.​​   
b.How much is the total tax liability shown on John and Susan's 2018 Form 1040?

Accepted Answer

@#IMG-DLM&_TB6300_00_TB6300_00

Question 3

Net unearned income of certain minor children is taxed at their parents' tax rates.

Accepted Answer

A) True 
 B)False

Question 4

Lucinda is a self-employed veterinarian in 2018.Her Schedule C net earnings are $86,000 for the year.Calculate the total amount of Lucinda's self-employment tax liability for 2018.

Accepted Answer

$12,151.41

Question 5

ABC Corporation is owned 30 percent by Andy, 30 percent by Barry, 20 percent by Charlie, and 20 percent by Uptown Corporation.Uptown Corporation is owned 90 percent by Charlie and 10 percent by an unrelated party.Barry and Charlie are brothers.Answer each of the following questions about ABC under the constructive ownership rules of Section 267:​
a.What is Andy's constructive ownership percentage under Section 267?
b.What is Barry's constructive ownership percentage under Section 267?
c.What is Charlie's constructive ownership percentage under Section 267?
d.​If Andy sells property to ABC for a $6,000 loss, what amount of that loss can be recognized for tax purposes (before any annual limitations)?​

Accepted Answer

a.30%
b.68% = 30% + 20% + (90%

Question 6

The hybrid method of accounting involves the use of both the accrual and cash methods of accounting.

Accepted Answer

A) True 
 B)False

Question 7

Karen is single and earns wages of $250,000 in 2018.She has no other income.How much is her 0.9 percent Medicare tax on earned income?

Accepted Answer

$450 = 0.9

Question 8

Polly is a cash basis taxpayer with the following transactions during the year: $\begin{array}{llcc}
  \text { Cash received from sales of products } &\$90,000  \
 \text {Cash paid for expenses (except rent and interest)  } &\$30,000\
 \text {Rent paid on a leased building for 24 months beginning December 1  } &\$54,000\
 \text {Prepaid interest on abank loan, paid on December 1 , for the next 3 months  } &\$6,000\
 \text {Four months' rent received on a leased building, on October 1  } &\$8,000\
\end{array}$
 Calculate Polly's income from her business for this calendar year.

Accepted Answer

\[\begin{array} { l r } 
\text { Sales i

Question 9

List at least two AMT preferences and/or adjustments and show the simplified formula for calculating AMT.Do not include dollar exemption amounts or the tax rate schedule.

Accepted Answer

(1)Adjustments and preferences would inc

Question 10

Annualizing" is a method by which the taxpayer can usually decrease the amount of tax he or she pays.

Accepted Answer

A) True 
 B)False

Question 11

Choose the incorrect statement.

Accepted Answer

A) Books and records may be kept on a different year-end basis than the year-end used for tax purposes. 
B) The choice to file on a fiscal year-end basis must be made with an initial tax return. 
C) Almost all individuals file tax returns using a calendar year accounting period. 
D) An individual may request IRS approval to change to a fiscal year-end basis if certain conditions are met. 
A) Books and records may be kept on a different year-end basis than the year-end used for tax purposes. 
B) The choice to file on a fiscal year-end basis must be made with an initial tax return. 
C) Almost all individuals file tax returns using a calendar year accounting period. 
D) An individual may request IRS approval to change to a fiscal year-end basis if certain conditions are met.

Question 12

Melody and Todd are married and have employee wages of $250,000 each in 2018.They have no other income.How much additional 0.9% Medicare tax will Melody and Todd have to pay or receive as a refund when they file their 2018 income tax return?

Accepted Answer

A) $1,350 will be due with their return in addition to amounts withheld. 
B) $1,350 will be refunded with their return. 
C) $900 will be refunded with their return. 
D) $3,600 will be due with their return in addition to amounts withheld. 
A) $1,350 will be due with their return in addition to amounts withheld. 
B) $1,350 will be refunded with their return. 
C) $900 will be refunded with their return. 
D) $3,600 will be due with their return in addition to amounts withheld.

Question 13

Dividend income is not subject to the self-employment tax.

Accepted Answer

A) True 
 B)False

Question 14

In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

Accepted Answer

A) True 
 B)False

Question 15

Dan and Maureen file a joint income tax return for 2018.They have two dependent children, ages 7 and 9.Together they earn wages of $830,000.They also receive taxable interest income of $8,000 and interest on City of Los Angeles bonds of $78,000.During 2018, they received a state income tax refund of $3,000 relating to their 2017 state income tax return on which they itemized deductions.Their expenses for the year consist of the following:​ $$\begin{array} { l r } 
\text { Home mortgage interest (on acquisition debt) } & \$ 19,000 \
\text { Interest on credit cards } & 2,000 \
\text { Real property taxes } & 8,300 \
\text { Cash contributions } & 75,000 \
\text { State income taxes withheld } & 48,000
\end{array}$$ Calculate Dan and Maureen's tentative minimum tax liability assuming an AMT exemption amount of $109,400, before any phase-outs.Show your calculations.

Accepted Answer

@#IMG-DLM&_TB6300_00

Question 16

Which one of the following entities cannot use the cash method for tax purposes?

Accepted Answer

A) A large almond farm with $40 million in gross receipts. 
B) A continuing education provider with $20 million in gross receipts and 200 employees. 
C) A law firm operating as a personal service corporation with $5.4 million in gross receipts. 
D) A small sole proprietorship with $150,000 in gross receipts. 
E) All of the above may use the cash method. 
A) A large almond farm with $40 million in gross receipts. 
B) A continuing education provider with $20 million in gross receipts and 200 employees. 
C) A law firm operating as a personal service corporation with $5.4 million in gross receipts. 
D) A small sole proprietorship with $150,000 in gross receipts. 
E) All of the above may use the cash method.

Question 17

In cash basis accounting, for tax purposes:

Accepted Answer

A) Income is recognized when it is actually or constructively received and expenses are recognized when they are actually or constructively incurred, regardless of when paid. 
B) Income is recognized when it is earned regardless of when received and expenses are recognized when they are actually or constructively incurred. 
C) Income is generally recognized when it is actually or constructively received and expenses are generally recognized when they are paid. 
D) The cash basis is not allowed for businesses reported on Schedule C. 
A) Income is recognized when it is actually or constructively received and expenses are recognized when they are actually or constructively incurred, regardless of when paid. 
B) Income is recognized when it is earned regardless of when received and expenses are recognized when they are actually or constructively incurred. 
C) Income is generally recognized when it is actually or constructively received and expenses are generally recognized when they are paid. 
D) The cash basis is not allowed for businesses reported on Schedule C.

Question 18

All S corporations must use the accrual basis of accounting.

Accepted Answer

A) True 
 B)False

Question 19

If the net unearned income of a minor child is to be taxed at trust and estate rates, the parents may elect, under certain conditions, to include the child's gross income on their tax return.

Accepted Answer

A) True 
 B)False

Question 20

Jerry and Julie are brother and sister.Jerry sold stock to Julie for $5,000, its fair market value.The stock cost Jerry $10,000 5 years ago.Also, Jerry sold Carol (an unrelated party)stock for $2,000 that cost $10,000 3 years ago.What is Jerry's recognized loss before the $3,000 capital loss limitation?

Accepted Answer

A) $0 
B) $8,000 
C) $5,000 
D) $13,000 
E) $14,000 
A) $0 
B) $8,000 
C) $5,000 
D) $13,000 
E) $14,000

The 0.9 percent Medicare tax applies to:

Net unearned income of certain minor children is taxed at their parents' tax rates.

Lucinda is a self-employed veterinarian in 2018.Her Schedule C net earnings are $86,000 for the year.Calculate the total amount of Lucinda's self-employment tax liability for 2018.

The hybrid method of accounting involves the use of both the accrual and cash methods of accounting.

Karen is single and earns wages of $250,000 in 2018.She has no other income.How much is her 0.9 percent Medicare tax on earned income?

List at least two AMT preferences and/or adjustments and show the simplified formula for calculating AMT.Do not include dollar exemption amounts or the tax rate schedule.

Annualizing" is a method by which the taxpayer can usually decrease the amount of tax he or she pays.

Choose the incorrect statement.

Melody and Todd are married and have employee wages of $250,000 each in 2018.They have no other income.How much additional 0.9% Medicare tax will Melody and Todd have to pay or receive as a refund when they file their 2018 income tax return?

Dividend income is not subject to the self-employment tax.

In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

Which one of the following entities cannot use the cash method for tax purposes?

In cash basis accounting, for tax purposes:

All S corporations must use the accrual basis of accounting.

If the net unearned income of a minor child is to be taxed at trust and estate rates, the parents may elect, under certain conditions, to include the child's gross income on their tax return.

The Individual Income Tax Return

Gross Income and Exclusions

Additional Income Part 1

Additional Income Part 2

Deductions and Adjustments to Income

Tax Credits

Depreciation and Sale of Business Property

Payroll, Estimated Payments, and Retirement Plans

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters

Exam 6: Accounting Methods and Taxes

The 0.9 percent Medicare tax applies to:

Net unearned income of certain minor children is taxed at their parents' tax rates.

Lucinda is a self-employed veterinarian in 2018.Her Schedule C net earnings are $86,000 for the year.Calculate the total amount of Lucinda's self-employment tax liability for 2018.

The hybrid method of accounting involves the use of both the accrual and cash methods of accounting.

Karen is single and earns wages of $250,000 in 2018.She has no other income.How much is her 0.9 percent Medicare tax on earned income?

List at least two AMT preferences and/or adjustments and show the simplified formula for calculating AMT.Do not include dollar exemption amounts or the tax rate schedule.

Annualizing" is a method by which the taxpayer can usually decrease the amount of tax he or she pays.

Choose the incorrect statement.

Melody and Todd are married and have employee wages of $250,000 each in 2018.They have no other income.How much additional 0.9% Medicare tax will Melody and Todd have to pay or receive as a refund when they file their 2018 income tax return?

Dividend income is not subject to the self-employment tax.

In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

Which one of the following entities cannot use the cash method for tax purposes?

In cash basis accounting, for tax purposes:

All S corporations must use the accrual basis of accounting.

If the net unearned income of a minor child is to be taxed at trust and estate rates, the parents may elect, under certain conditions, to include the child's gross income on their tax return.

The Individual Income Tax Return

Gross Income and Exclusions

Additional Income Part 1

Additional Income Part 2

Deductions and Adjustments to Income

Tax Credits

Depreciation and Sale of Business Property

Payroll, Estimated Payments, and Retirement Plans

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters