Question 1

Why was the domestic production activities deduction (DPAD) enacted by Congress?

Accepted Answer

The American Jobs Creation Act of 2004 provision creating DPADs was enacted to replace certain tax provisions that our world trading partners regarded as allowing unfair advantage to U.S.exports.Note, however, in no way is the DPAD limited to exports.

Question 2

The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.

Accepted Answer

A) True 
 B)False  False

Question 3

Roger, an individual, owns a proprietorship called Green Thing. For the year 2012, Roger has the following items:
· Business income-$200,000.
· Business expense-$150,000.
· Loss on a completely destroyed business machine. The machine had an adjusted basis of $25,000 and a fair market value of $20,000.
· Loss on a business truck. The truck had an adjusted basis of $8,000. The repairs to fix the truck cost $10,000.

Accepted Answer

Determine Roger's adjusted gross income for 2012.

Question 4

Last year, Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home. Sarah's insurance company told her that her policy did not cover the theft. Sarah's other itemized deductions last year were $10,000. She had AGI of $30,000 last year. In August of the current year, 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 the current year.

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 the above. 
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 the above.

Question 5

Susan has the following items for 2012:
· Loss on rental property caused by termites-$150,000. Insurance covered 80% of the loss.
· Loss on personal use automobile-$10,000. The insurance policy does not cover the first $3,000 of loss. Susan decided not to file a claim for the loss.
· Loss on a painting stolen from Susan's house. Susan purchased the painting three years ago as an investment. She paid $40,000 for the painting and it was worth $45,000 at the time of the theft. The painting was insured for the fair market value.
· Salary-$40,000.

Accepted Answer

Determine Susan's AG

Question 6

In 2012, Theo, an employee, had a salary of $30,000 and experienced the following losses:   Determine the amount of Theo's itemized deduction from these losses.

Accepted Answer

A) $0. 
B) $2,800. 
C) $2,900. 
D) $4,580. 
E) None of the above. 
A) $0. 
B) $2,800. 
C) $2,900. 
D) $4,580. 
E) None of the above.

Question 7

Regarding research and experimental expenditures, which of the following are not qualified expenditures?

Accepted Answer

A) Costs of improving an existing pilot model. 
B) Costs to develop a plant process. 
C) Costs of developing a formula. 
D) Depreciation on a building used for research. 
E) All of the above are qualified expenditures. 
A) Costs of improving an existing pilot model. 
B) Costs to develop a plant process. 
C) Costs of developing a formula. 
D) Depreciation on a building used for research. 
E) All of the above are qualified expenditures.

Question 8

Bruce, who is single, had the following items for the current year:   Determine Bruce's AGI for the current year.

Accepted Answer

A) $27,000. 
B) $38,000. 
C) $42,000. 
D) $47,000. 
E) None of the above. 
A) $27,000. 
B) $38,000. 
C) $42,000. 
D) $47,000. 
E) None of the above.

Question 9

Gary, who is an employee of Red Corporation, has the following items for 2012:
   Determine Gary's AGI and total amount of itemized deductions for 2012.

Accepted Answer

The answer of Gary, who is an employee of Red...

Question 10

Norm's car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2012.The car's adjusted basis at the time of the accident was $13,000.Its fair market value was $10,000.The car was covered by a $2,000 deductible insurance policy.Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates.His adjusted gross income was $14,000 (before considering the loss).What is Norm's deductible loss?

Accepted Answer

A) $0. 
B) $100. 
C) $500. 
D) $9,500. 
E) None of the above. 
A) $0. 
B) $100. 
C) $500. 
D) $9,500. 
E) None of the above.

Question 11

An NOL carryforward is not used in determining the current year's NOL.

Accepted Answer

A) True 
 B)False

Question 12

Discuss the treatment, including the carryback and carryforward periods, of casualty losses incurred with personal use property.

Accepted Answer

These losses are subject to the $100 per

Question 13

"Other casualty" means casualties similar to those associated with fires, storms, or shipwrecks.

Accepted Answer

A) True 
 B)False

Question 14

Red Corporation incurred a $15,000 bad debt last year. Red Corporation also had an $9,000 long-term capital gain last year. Red's taxable income for last year was $100,000. During the current year, Red Corporation, unexpectedly, collected $7,000 on the debt. How should Red Corporation account for the $7,000 collection?

Accepted Answer

A) $0 income. 
B) $3,000 income. 
C) $4,000 income. 
D) $7,000 income. 
E) None of the above. 
A) $0 income. 
B) $3,000 income. 
C) $4,000 income. 
D) $7,000 income. 
E) None of the above.

Question 15

An unreimbursed employee business expense can create an NOL for an individual.

Accepted Answer

A) True 
 B)False

Question 16

Peggy is in the business of factoring accounts receivable.Last year, she purchased a $30,000 account receivable for $25,000.This year, the account was settled for $25,000.How much loss can Peggy deduct and in which year?

Accepted Answer

A) $5,000 for the current year. 
B) $5,000 for the prior year and $5,000 for the current year. 
C) $5,000 for the prior year. 
D) $10,000 for the current year. 
E) None of the above. 
A) $5,000 for the current year. 
B) $5,000 for the prior year and $5,000 for the current year. 
C) $5,000 for the prior year. 
D) $10,000 for the current year. 
E) None of the above.

Question 17

Last year, Amos had AGI of $50,000. Amos also had a diamond ring stolen which cost $20,000 and was worth $17,000 at the time of the theft. He itemized deductions on last year's tax return. In the current year, Amos recovered $17,000 from the insurance company. Therefore, he must include $11,900 in gross income on the tax return for the current year.

Accepted Answer

A) True 
 B)False

Question 18

On September 3, 2011, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31, 2011, the stock was worth $85,000.On August 15, 2012, Able was notified that the stock was worthless.How should Able report this item on his 2012 tax return?

Accepted Answer

A) $85,000 capital loss. 
B) $85,000 ordinary loss. 
C) $50,000 ordinary loss and $35,000 capital loss. 
D) $60,000 ordinary loss. 
E) None of the above. 
A) $85,000 capital loss. 
B) $85,000 ordinary loss. 
C) $50,000 ordinary loss and $35,000 capital loss. 
D) $60,000 ordinary loss. 
E) None of the above.

Question 19

A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.

Accepted Answer

A) True 
 B)False

Question 20

Alicia was involved in an automobile accident in 2012.Her car was used 60% for business and 40% for personal use.The car had originally cost $40,000.At the time of the accident, the car was worth $20,000 and Alicia had taken $8,000 of depreciation.The car was totally destroyed and Alicia had let her car insurance expire.If Alicia's AGI is $50,000 (before considering the loss), determine her itemized deduction for the casualty loss.

Accepted Answer

A) $4,500. 
B) $6,100. 
C) $8,000. 
D) $24,000. 
E) None of the above. 
A) $4,500. 
B) $6,100. 
C) $8,000. 
D) $24,000. 
E) None of the above.

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

Why was the domestic production activities deduction (DPAD) enacted by Congress?

The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.

In 2012, Theo, an employee, had a salary of $30,000 and experienced the following losses: Determine the amount of Theo's itemized deduction from these losses.

Regarding research and experimental expenditures, which of the following are not qualified expenditures?

Bruce, who is single, had the following items for the current year: Determine Bruce's AGI for the current year.

Gary, who is an employee of Red Corporation, has the following items for 2012: Determine Gary's AGI and total amount of itemized deductions for 2012.

An NOL carryforward is not used in determining the current year's NOL.

Discuss the treatment, including the carryback and carryforward periods, of casualty losses incurred with personal use property.

"Other casualty" means casualties similar to those associated with fires, storms, or shipwrecks.

An unreimbursed employee business expense can create an NOL for an individual.

Peggy is in the business of factoring accounts receivable.Last year, she purchased a $30,000 account receivable for $25,000.This year, the account was settled for $25,000.How much loss can Peggy deduct and in which year?

On September 3, 2011, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31, 2011, the stock was worth $85,000.On August 15, 2012, Able was notified that the stock was worthless.How should Able report this item on his 2012 tax return?

A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.

An Introduction to Taxation and Understanding 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

A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

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

Alternative Minimum Tax

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

Income Taxation of Trusts and Estates

Filters