Question 1

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

Accepted Answer

A) True 
 B)False

Question 2

A theft loss is taken in the year the theft is discovered.

Accepted Answer

A) True 
 B)False

Question 3

The amount of a loss on insured business use property is reduced by the insurance coverage if no claim is made against the insurer.

Accepted Answer

A) True 
 B)False

Question 4

A loss from a worthless security is always treated as a short-term capital loss.

Accepted Answer

A) True 
 B)False

Question 5

What are the three methods of handling research and experimental expenditures incurred in a trade or business? Under what circumstances would you choose each?

Accepted Answer

The follow

Question 6

The domestic production activities deduction (DPAD) for 2012 cannot exceed 50% of all W-2 wages paid to employees by the taxpayer during the tax year.

Accepted Answer

A) True 
 B)False

Question 7

On July 20, 2010, 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, 2011, Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000. On September 15, 2012, Matt sold the 4,000 shares of stock for $120,000. How should Matt treat the sale of the stock on his 2012 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 the above. 
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 the above.

Question 8

If qualified production activities income (QPAI) cannot be used in the calculation of the domestic production activities deduction in 2012 because of the taxable income limitation, the product of the amount not allowed multiplied by 9% can be carried over for 5 years.

Accepted Answer

A) True 
 B)False

Question 9

Mike, single, age 31, had the following items for 2012:
   Compute Mike's taxable income for 2012.

Accepted Answer

The answer of Mike, single, age 31, had the following...

Question 10

On June 2, 2011, Fred's TV Sales sold Mark a large HD TV, on account, for $12,000. Fred's TV Sales uses the accrual method. In 2012, when the balance on the account was $8,000, Mark filed for bankruptcy. Fred was notified that he could not expect to receive any of the amount owed to him. In 2013, final settlement was made and Fred received $1,000. How much bad debt loss can Fred deduct in 2013?

Accepted Answer

A) $0. 
B) $7,000. 
C) $8,000. 
D) $12,000. 
E) None of the above. 
A) $0. 
B) $7,000. 
C) $8,000. 
D) $12,000. 
E) None of the above.

Question 11

Which of the following events would produce a deductible loss?

Accepted Answer

A) Erosion of personal use land due to rain or wind. 
B) Termite infestation of a personal residence over a several year period. 
C) Damages to personal automobile resulting from a taxpayer's negligence. 
D) A misplaced diamond ring. 
E) None of the above. 
A) Erosion of personal use land due to rain or wind. 
B) Termite infestation of a personal residence over a several year period. 
C) Damages to personal automobile resulting from a taxpayer's negligence. 
D) A misplaced diamond ring. 
E) None of the above.

Question 12

In 2012, Juan's home was burglarized.Juan had the following items stolen:   Juan's homeowner's policy had a $50,000 deductible clause for thefts.If Juan's salary for the year is $50,000, determine the amount of his itemized deductions as a result of the theft.

Accepted Answer

A) $3,100. 
B) $6,000. 
C) $26,100. 
D) $26,500. 
E) None of the above. 
A) $3,100. 
B) $6,000. 
C) $26,100. 
D) $26,500. 
E) None of the above.

Question 13

Five years ago, Tom loaned his son John $20,000 to start a business.A note was executed with an interest rate of 8%, which is the Federal rate.The note required monthly payments of the interest with the $20,000 due at the end of ten years.John always made the interest payments until last year.During the current year, John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800.Tom is a cash basis taxpayer whose only income is salary and interest income.The proper treatment for the nonpayment of the note is:

Accepted Answer

A) No deduction. 
B) $3,000 deduction. 
C) $20,000 deduction. 
D) $21,800 deduction. 
E) None of the above. 
A) No deduction. 
B) $3,000 deduction. 
C) $20,000 deduction. 
D) $21,800 deduction. 
E) None of the above.

Question 14

Taxpayers must sell or exchange their § 1244 stock in order to recognize an ordinary loss (does not apply to stock becoming worthless).

Accepted Answer

A) True 
 B)False

Question 15

Red Company is a proprietorship owned by Sally, a single individual. Red manufactures and sells widgets. During 2012, an examination of Red's records shows the following items:
   Determine Sally's domestic production activities deduction for 2012.

Accepted Answer

The answer of Red Company is a proprietorship owned by...

Question 16

Jed is an electrician. Jed and his wife are accrual basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement. Jed was never able to collect the judgement nor the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year?

Accepted Answer

A) $0. 
B) $2,000. 
C) $3,000. 
D) $5,000. 
E) None of the above. 
A) $0. 
B) $2,000. 
C) $3,000. 
D) $5,000. 
E) None of the above.

Question 17

For the year 2012, Amber Corporation has taxable income of $880,000, alternative minimum taxable income of $600,000, and qualified production activities income (QPAI) of $640,000. The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000. Amber's DPAD for 2012 is:

Accepted Answer

A) $54,000. 
B) $57,600. 
C) $58,000. 
D) $79,200. 
E) None of the above. 
A) $54,000. 
B) $57,600. 
C) $58,000. 
D) $79,200. 
E) None of the above.

Question 18

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 19

A farming NOL may be carried back 2 years.

Accepted Answer

A) True 
 B)False

Question 20

When a nonbusiness casualty loss is spread between two taxable years, the loss in the second year is reduced by 10% of adjusted gross income for the first year.

Accepted Answer

A) True 
 B)False

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

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

A theft loss is taken in the year the theft is discovered.

The amount of a loss on insured business use property is reduced by the insurance coverage if no claim is made against the insurer.

A loss from a worthless security is always treated as a short-term capital loss.

What are the three methods of handling research and experimental expenditures incurred in a trade or business? Under what circumstances would you choose each?

The domestic production activities deduction (DPAD) for 2012 cannot exceed 50% of all W-2 wages paid to employees by the taxpayer during the tax year.

If qualified production activities income (QPAI) cannot be used in the calculation of the domestic production activities deduction in 2012 because of the taxable income limitation, the product of the amount not allowed multiplied by 9% can be carried over for 5 years.

Mike, single, age 31, had the following items for 2012: Compute Mike's taxable income for 2012.

Which of the following events would produce a deductible loss?

In 2012, Juan's home was burglarized.Juan had the following items stolen: Juan's homeowner's policy had a $50,000 deductible clause for thefts.If Juan's salary for the year is $50,000, determine the amount of his itemized deductions as a result of the theft.

Taxpayers must sell or exchange their § 1244 stock in order to recognize an ordinary loss (does not apply to stock becoming worthless).

Red Company is a proprietorship owned by Sally, a single individual. Red manufactures and sells widgets. During 2012, an examination of Red's records shows the following items: Determine Sally's domestic production activities deduction for 2012.

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 farming NOL may be carried back 2 years.

When a nonbusiness casualty loss is spread between two taxable years, the loss in the second year is reduced by 10% of adjusted gross income for the first year.

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