Question 1

A fire totally destroyed office equipment and furniture which Monica uses in her business. The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire. The furniture's adjusted basis was $5,000 and its FMV was $2,000 before the fire. Monica's AGI for the year is $60,000. Monica does not have insurance on the destroyed assets. How much is Monica's deductible casualty loss?

Accepted Answer

A)  $20,000 
B)  $13,900 
C)  $5,900 
D)  $12,000

Question 2

On January 31 of the current year, Sophia pays $1,000 for an option to acquire 100 shares of Texas Corporation common stock for $105 per share at any time prior to December 31. As of December 31, Sophia had not exercised the option or sold it. Which of the following statements is correct?

Accepted Answer

A)  Sophia may recognize a $1,000 LTCL. 
B)  Sophia may recognize a $1,000 STCL. 
C)  Sophia may recognize a $1,000 ordinary income. 
D)  Sophia may not recognize a loss.

Question 3

Which of the following statements regarding involuntary conversions is incorrect?

Accepted Answer

A)  The taxpayer- use test applies to the involuntary conversion of rental property owned by an investor. 
B)  With some exceptions, the replacement property must be similar or related in service or use to the property converted. 
C)  The functional- use test is more restrictive than the like- kind test. 
D)  Real property used in a trade or business that is condemned must be replaced with property which has the same functional use as the converted property.

Question 4

During the current year, Kayla recognizes a $40,000 Sec. 1231 gain on sale of land and a $22,000 Sec. 1231 loss on the sale of land. Prior to this, Kayla's only Sec. 1231 item was a $10,000 loss six years ago. Kayla is in the 24% marginal tax bracket. The amount of tax resulting from these transactions is

Accepted Answer

A)  $5,040. 
B)  $4,000. 
C)  $2,700. 
D)  $3,600.

Question 5

Corporations must divide their deductions between deductions for and deductions from AGI.

Accepted Answer

A) True 
 B)False

Question 6

As a corporation, the S corporation can elect a fiscal year of its choosing.

Accepted Answer

A) True 
 B)False

Question 7

A cash- basis taxpayer pays a bill with a credit card. The underlying expenditure is not deductible until the credit card bill is paid.

Accepted Answer

A) True 
 B)False

Question 8

Kickbacks and bribes paid to federal officials are deductible only if related to the taxpayer's trade or business.

Accepted Answer

A) True 
 B)False

Question 9

Jared wants his daughter, Jacqueline, to learn about the stock market. He loans Jacqueline $30,000, but does not require Jacqueline to pay interest. Jared tells Jacqueline that she can repay him from the proceeds of future stock sales. Discuss the tax issues that Jared should consider.

Accepted Answer

The answer of Jared wants his daughter, Jacqueline, to learn...

Question 10

Why did Congress establish Health Savings Accounts (HSAs)? How do HSAs operate?

Accepted Answer

The answer of Why did Congress establish Health Savings Accounts...

Question 11

All of the following business forms offer limited liability except the

Accepted Answer

A)  corporation. 
B)  S corporation. 
C)  limited liability company. 
D)  partnership.

Question 12

What is the effect of a change in a partner's interest in the partnership during the year?

Accepted Answer

The answer of What is the effect of a change...

Question 13

If a 13- year- old has earned income of $500 and interest and dividends of $2,500, all of the income can be reported on the parent's return.

Accepted Answer

A) True 
 B)False

Question 14

An electrician completes a rewiring job and is paid $1,000 by the customer in November. The customer has a small fire in his house and sues the electrician for the repayment of the $1,000 fee plus damages in December. The electrician reaches a settlement with the customer in the following February and refunds the $1,000 fee. How should the electrician treat these events when he files his tax return in April?

Accepted Answer

A)  The income will be reported for the year of receipt, and then an amended return will be filed in the following year to claim the refund. 
B)  No income will be reported. 
C)  Both the income and the deduction will be reported on the same tax return (for the year of receipt). 
D)  The income will be reported for the year of receipt, and a tax deduction will be claimed on the tax return for the year of repayment.

Question 15

Cobra Inc. sold stock for a $25,000 loss five years ago. It has been carrying over the capital loss for five years, and the loss will expire at the end of this year because Cobra has not had any capital gains. Earlier this year Cobra sold a parcel of land held four years for business use and will recognize a $30,000 gain. Cobra is thinking about selling some machinery used in its business for the past three years. During this time technology has dramatically changed so Cobra will recognize a $32,000 loss on the sale of the machinery. Cobra is trying to decide whether to sell the machinery at year- end or early next year. Cobra is profitable and has a consistent marginal tax rate of 21%. When should Cobra sell the equipment?

Accepted Answer

A)  early next year 
B)  current year, but arrange an installment sale to spread the loss recognition over the two years 
C)  current year 
D)  either the current year or next year

Question 16

DEF Corporation and MNO Corporation are both C corporations. To date, DEF has earned $100,000 of taxable income, and MNO has earned $500,000. Each corporation expects to earn another $100,000 of taxable income before year- end. MNO will pay more tax on its incremental $100,000 of taxable income than will MNO.

Accepted Answer

A) True 
 B)False

Question 17

When an individual taxpayer has NSTCL and NLTCG, the loss is offset against NLTCG from the 28% group, then NLTCG from the 25% group, and finally against NLTCG from the 15% or 20% group.

Accepted Answer

A) True 
 B)False

Question 18

In 1980, Mr. Lyle purchased a factory building to use in business for $480,000. When Mr. Lyle sells the building for $580,000, he has taken depreciation of $470,000. Straight- line depreciation would have been $400,000. Mr. Lyle must report

Accepted Answer

A)  $70,000 of ordinary income and $500,000 of Sec. 1231 gain. 
B)  $570,000 of ordinary gain. 
C)  $470,000 of ordinary gain and $100,000 of Sec. 1231 gain. 
D)  $570,000 of Sec. 1231 gain.

Question 19

Antonio owns land held for investment with a basis of $28,000. The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000. What is Antonio's realized gain?

Accepted Answer

A)  $20,000 
B)  $0 
C)  $48,000 
D)  $28,000

Question 20

Describe the differences between the American Opportunity Tax credit and the Lifetime Learning credit.

Accepted Answer

The answer of Describe the differences between the American Opportunity...

Exam 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

On January 31 of the current year, Sophia pays $1,000 for an option to acquire 100 shares of Texas Corporation common stock for $105 per share at any time prior to December 31. As of December 31, Sophia had not exercised the option or sold it. Which of the following statements is correct?

Which of the following statements regarding involuntary conversions is incorrect?

Corporations must divide their deductions between deductions for and deductions from AGI.

As a corporation, the S corporation can elect a fiscal year of its choosing.

A cash- basis taxpayer pays a bill with a credit card. The underlying expenditure is not deductible until the credit card bill is paid.

Kickbacks and bribes paid to federal officials are deductible only if related to the taxpayer's trade or business.

Jared wants his daughter, Jacqueline, to learn about the stock market. He loans Jacqueline $30,000, but does not require Jacqueline to pay interest. Jared tells Jacqueline that she can repay him from the proceeds of future stock sales. Discuss the tax issues that Jared should consider.

Why did Congress establish Health Savings Accounts (HSAs)? How do HSAs operate?

All of the following business forms offer limited liability except the

What is the effect of a change in a partner's interest in the partnership during the year?

If a 13- year- old has earned income of $500 and interest and dividends of $2,500, all of the income can be reported on the parent's return.

When an individual taxpayer has NSTCL and NLTCG, the loss is offset against NLTCG from the 28% group, then NLTCG from the 25% group, and finally against NLTCG from the 15% or 20% group.

In 1980, Mr. Lyle purchased a factory building to use in business for $480,000. When Mr. Lyle sells the building for $580,000, he has taken depreciation of $470,000. Straight- line depreciation would have been $400,000. Mr. Lyle must report

Antonio owns land held for investment with a basis of $28,000. The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000. What is Antonio's realized gain?

Describe the differences between the American Opportunity Tax credit and the Lifetime Learning credit.