Question 1

Natalie sold a machine for $140,000. The machine originally cost $95,000 and $15,000 of MACRS depreciation had been allowable. The buyer assumed an existing loan of $40,000, paid $30,000 cash down and agreed to pay
$10,000 per year for seven years plus interest. Selling expenses are $10,000. What is the amount of gain to be reported in the year of sale?

Accepted Answer

The answer of Natalie sold a machine for $140,000. The...

Question 2

Harry owns equipment ($50,000 basis and $38,000 FMV) and a building ($140,000 basis and $156,000 FMV), which are used in his business. Harry uses straight- line depreciation for both assets, which were acquired several years ago. Both the equipment and the building are destroyed in a fire, and Harry collects insurance proceeds equal to the assets' FMV. The tax result to Harry for this transaction is

Accepted Answer

A)  the loss on involuntary conversion is treated as an ordinary loss while the gain is treated as a Sec. 1231 gain. 
B)  the involuntary conversions are treated as Sec. 1231 gains and losses. 
C)  the loss on involuntary conversion is treated as a Sec. 1231 loss while the gain is treated as an ordinary gain. 
D)  the involuntary conversions are treated as ordinary gains and losses.

Question 3

The primary purpose of a partnership tax return is to determine the income, deduction, loss and credit items of the partnership and thus the amounts that should be reported by the individual partners.

Accepted Answer

A) True 
 B)False

Question 4

On May 18, of last year, Yuji sold non- publicly traded stock with a cost of $12,000 for $30,000. Yuji collected $10,000 initially and is scheduled to receive $5,000 each year for four years starting this year plus an acceptable rate of interest. After receiving the first scheduled $5,000 payment, Yuji was unable to collect any further payments. After incurring legal fees of $500, Yuji recovered a portion of the stock valued at $13,000. Yuji's basis in the recovered stock is

Accepted Answer

A)  $6,500. 
B)  $13,000. 
C)  $12,500. 
D)  $7,000.

Question 5

Fatima's employer funds child care for all employees' children. She pays nothing for this service. The cost of Fatima's child care is $7,200 a year. How much of the child care benefits are taxable to Fatima?

Accepted Answer

A)  $7,200 
B)  $2,200 
C)  $5,000 
D)  $0

Question 6

A taxpayer had the following income and losses in the current year:  What is the taxpayer's adjusted gross income?

Accepted Answer

A)  $64,500 
B)  $59,500 
C)  $62,500 
D)  $57,500

Question 7

Max sold the following capital assets this year:  What is the amount of and nature of (LT or ST) capital gain or loss?

Accepted Answer

The answer of Max sold the following capital assets this...

Question 8

Amounts paid in connection with the acquisition of a business which represent a covenant not to compete are amortizable over the covenant's remaining life.

Accepted Answer

A) True 
 B)False

Question 9

Mae Li is beneficiary of a $70,000 insurance policy on her father's life. Upon his death, she elects to receive the proceeds in installments from the insurance company that carries the policy. She will receive $16,000 per year for five years. What are the tax consequences each year?

Accepted Answer

A)  $2,000 of the $16,000 payment is taxable each year. 
B)  All $16,000 each year is taxable. 
C)  $10,000 interest is taxable in the first year. 
D)  There is no taxable income.

Question 10

The child and dependent care credit is available to any parent who pays for child care for a child under age 13.

Accepted Answer

A) True 
 B)False

Question 11

Unless the alternate valuation date is elected, the basis of property received from a decedent is generally the property's fair market value at the date of decedent's death.

Accepted Answer

A) True 
 B)False

Question 12

Heather is an advertising executive with a major advertising agency. A significant part of her job is selling advertising campaigns to clients and potential clients. Heather spent $6,000 taking clients and potential clients to lunch and dinners in restaurants and discussed advertising campaigns during the meals. For some major accounts, the dinners were followed by taking the clients to Broadway shows. Heather is reimbursed for these meals and tickets after she turns in receipts and other appropriate documentation. What is the appropriate treatment of the reimbursement?

Accepted Answer

A)  Heather will include the reimbursement in income, but she will not be allowed any deduction for the meals and entertainment expense. 
B)  Heather will exclude the reimbursement from income and will not take any deduction for the expenses. 
C)  Heather will include the reimbursement in income to the extent of 50% of the meals and 100% of the entertainment. 
D)  Heather will include the reimbursement in income, but she will be allowed an itemized deduction for the expenses.

Question 13

On May 1, 2012, Empire Properties Corp., a calendar- year taxpayer, purchased an office building for $1,000,000, which $400,000 was allocable to the land. The corporation sold the property this year on September 23, 2018.
a. What was the corporation's depreciation for the building in 2012, using statutory percentages under MACRS
b. What was the corporation's depreciation for the building in 2018, using statutory percentages under MACRS

Accepted Answer

The answer of On May 1, 2012, Empire Properties Corp.,...

Question 14

The Sixteenth Amendment to the U.S. Constitution permits the passage of a federal income tax law.

Accepted Answer

A) True 
 B)False

Question 15

What is an important aspect of a limited liability partnership?

Accepted Answer

A)  All partners have unlimited liability. 
B)  All partners have limited liability regarding all partnership activities. 
C)  A partner has unlimited liability arising from his or her own acts of negligence or misconduct or similar acts of any person under his or her direct supervision, but does not have unlimited liability in other matters. 
D)  It is the same as a limited partnership where the general partner has unlimited liability.

Question 16

Worthy Corporation elected to be taxed as an S corporation on January 1, of last year, effective last year. It had previously been a C corporation. On the effective date of the S election, Worthy had land with a $70,000 basis and a $210,000 FMV. No net unrealized losses exist on the date of the S corporation election. The land is sold this year for $250,000. The tax result of the sale by Worthy is

Accepted Answer

A)  a gain of $180,000, none of which is subject to the built- in gains tax. 
B)  a gain of $140,000 subject to the built- in gains tax and passes though to shareholders, plus a $40,000 gain subject to the regular S corporation pass- through rules. 
C)  a gain of $180,000, all of which is subject to the built- in gains tax. 
D)  no gain or loss recognized.

Question 17

Maura makes a gift of a van to a local food bank run by a charity. Maura had used the van in her trade or business. The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed. What is the amount of Maura's charitable contribution deduction?

Accepted Answer

A)  $6,500 
B)  $2,500 
C)  $31,000 
D)  $4,000

Question 18

All of the following statements are true regarding nonliquidating distributions of a partnership except

Accepted Answer

A)  in no circumstances may the partner's basis in the partnership interest be reduced below zero as a result of a nonliquidating distribution. 
B)  in no circumstances will the partner or the partnership recognize gain or loss from a nonliquidating distribution. 
C)  if, after money distributions reduce the partnership basis, the adjusted basis of distributed property does not exceed the partner's basis in the partnership interest, the basis of the distributed property carries over to the partner. 
D)  if money is distributed in excess of the partnership interest, the partner receiving the distribution has capital gain.

Question 19

When two or more people qualify to claim the same person as a dependent, a taxpayer who is entitled to the exemption through the qualified child rules has priority over a taxpayer who meets the requirements for other relatives.

Accepted Answer

A) True 
 B)False

Question 20

Because Jim and his family enjoy camping, he bought a pickup truck last year for personal use. The truck cost
$40,000. Jim is starting a landscaping business this year and will now be using the truck in the business full- time. Based on online searches, similar trucks are selling for $32,000. When determining his business income, Jim will be able to calculate depreciation on the truck, using the $40,000 cost as basis.

Accepted Answer

A) True 
 B)False

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

The primary purpose of a partnership tax return is to determine the income, deduction, loss and credit items of the partnership and thus the amounts that should be reported by the individual partners.

Fatima's employer funds child care for all employees' children. She pays nothing for this service. The cost of Fatima's child care is $7,200 a year. How much of the child care benefits are taxable to Fatima?

A taxpayer had the following income and losses in the current year: What is the taxpayer's adjusted gross income?

Max sold the following capital assets this year: What is the amount of and nature of (LT or ST) capital gain or loss?

Amounts paid in connection with the acquisition of a business which represent a covenant not to compete are amortizable over the covenant's remaining life.

Mae Li is beneficiary of a $70,000 insurance policy on her father's life. Upon his death, she elects to receive the proceeds in installments from the insurance company that carries the policy. She will receive $16,000 per year for five years. What are the tax consequences each year?

The child and dependent care credit is available to any parent who pays for child care for a child under age 13.

Unless the alternate valuation date is elected, the basis of property received from a decedent is generally the property's fair market value at the date of decedent's death.

The Sixteenth Amendment to the U.S. Constitution permits the passage of a federal income tax law.

What is an important aspect of a limited liability partnership?

Maura makes a gift of a van to a local food bank run by a charity. Maura had used the van in her trade or business. The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed. What is the amount of Maura's charitable contribution deduction?

All of the following statements are true regarding nonliquidating distributions of a partnership except

When two or more people qualify to claim the same person as a dependent, a taxpayer who is entitled to the exemption through the qualified child rules has priority over a taxpayer who meets the requirements for other relatives.