Question 1

Which of the following statements about the federal gift tax is false?

Accepted Answer

A)  The tax is imposed on the donor. 
B)  The tax is based on the fair market value of the gifted property. 
C)  An individual can give away $5 million (adjusted for inflation) every year without being subject to tax. 
D)  The donor's basis in the gifted property carries over to become the donee's basis.

Question 2

Mr. Quinn recognized a $900 net short-term capital gain and a $1,380 long-term capital gain this year. Which of the following statements is false?

Accepted Answer

A)  If Mr. Quinn's marginal tax rate on ordinary income is 15%, the income tax on his capital gains is $135. 
B)  If Mr. Quinn's marginal tax rate on ordinary income is 39.6%, the income tax on his capital gains is $632. 
C)  Only $1,380 of the capital gain is subject to a preferential tax rate. 
D)  None of the above is false.

Question 3

Mr. and Mrs. Perry own stock in an S corporation, which is their only passive activity. They have an $8,200 passive activity loss carryforward into this year. This year, the Perrys are allocated a $1,600 share of corporate ordinary business income. In December of this year, they recognize a $3,500 long-term capital gain on the sale of their entire stock interest. How much of their loss carryforward can the Perrys deduct this year?

Accepted Answer

A)  $0 
B)  $5,100 
C)  $8,200 
D)  $1,600

Question 4

The tax consequences of a business activity are generally the same as the tax consequences of an investment activity.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements about annuity contracts is true?

Accepted Answer

A)  Annuity contracts provide a fixed income stream. 
B)  Payments received from an annuity contract are tax-exempt. 
C)  Payments received from an annuity contract are fully taxable as ordinary income. 
D)  Payments received from an annuity contract are fully taxable as capital gain.

Question 6

Mrs. Heyer inherited real estate from her mother. The mother's basis in the real estate was $382,000, and the fair market value at the date of the mother's death was $900,000. The mother's taxable estate was only $2.4 million, so the estate did not owe any federal estate tax. This year, Mrs. Heyer sold the real estate for $875,000. Compute her gain or loss recognized on sale.

Accepted Answer

A)  $0 
B)  $25,000 loss 
C)  $493,000 gain 
D)  $875,000 gain

Question 7

Investment interest expense is a miscellaneous itemized deduction subject to the 2% AGI limitation.

Accepted Answer

A) True 
 B)False

Question 8

Mr. and Mrs. Nelson operate a small business as a sole proprietorship. This year, they have the following tax information. $$\begin{array} { | l | r | } 
\hline \text { Net profit frorn sole proprietorship } & \$ 50,000 \
\hline \text { Deduction For sE tax } & \$ 3,533 \
\hline \text { Dividends } & \$ 900 \
\hline \text { Net incorne from rental property } & \$ 2,780 \
\hline \text { Loss from lirited partrership } & \$ 6,000 ) \
\hline
\end{array}$$ Compute Mr. and Mrs. Nelson's AGI.

Accepted Answer

A)  $50,900 
B)  $47,367 
C)  $50,147 
D)  None of the above

Question 9

Mr. Gray recognized a $60,000 loss on sale of his entire interest in a passive activity. He had a $52,000 passive activity loss carryforward from prior years. Mr. Gray can deduct the $52,000 loss in the year of sale.

Accepted Answer

A) True 
 B)False

Question 10

A beneficiary's basis of inherited property equals the decedent's adjusted basis immediately prior to death.

Accepted Answer

A) True 
 B)False

Question 11

Ruth Darma is a shareholder who is not involved in the day-to-day activities of an S corporation. Her interest in the business is a passive activity.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following does not reduce a decedent's taxable estate?

Accepted Answer

A)  The decedent's funeral expenses. 
B)  Testamentary transfers to charitable organizations. 
C)  Testamentary transfers to the decedent's spouse. 
D)  Testamentary transfers to the decedent's children.

Question 13

Mrs. Lindt exchanged 212 shares of Nipher common stock for 773 shares of Newland common stock. Her basis in the Nipher stock was $49,200, and the fair market value of the Newland stock was $138,000. Which of the following statements about the exchange is true?

Accepted Answer

A)  Mrs. Lindt's basis in her Newland stock is $138,000. 
B)  Mrs. Lindt recognizes no gain on the exchange because she did not receive any cash. 
C)  If the exchange is pursuant to a reorganization of Nipher and Newland, Mrs. Lindt recognizes no gain. 
D)  None of the above is true.

Question 14

The income generated from an investment activity is primarily attributable to invested capital rather than the owner's personal involvement in the activity.

Accepted Answer

A) True 
 B)False

Question 15

Lindsey owns and actively manages an apartment complex. This year, the complex generated a $40,300 net loss. If Lindsey's AGI before considering this loss is $118,200 and she owns no other passive activities, how much of the loss is deductible this year?

Accepted Answer

A)  $0 
B)  $9,100 
C)  $25,000 
D)  None of the above

Question 16

Which of the following are included in a decedent's taxable estate?

Accepted Answer

A)  Real property owned by the decedent and included in the probate estate. 
B)  Proceeds of a life insurance policy on the decedent's life if the decedent owned the policy. 
C)  An individual retirement account owned by the decedent and payable to the beneficiary named in the account. 
D)  All of the above are included.

Question 17

Ms. Mollani owns stock in two S corporations, Aloha and Honu. This year, she had the following income and loss items:
 $$\begin{array} { | l | c | } 
\hline \text { Salary } & \$ 45,000 \
\hline \text { Business income from Aloha } & \$ 12,000 \
\hline \text { Business loss fron Horu } & \$ ( 17,000 ) \
\hline
\end{array}$$

Accepted Answer

The answer of Ms. Mollani owns stock in two S...

Question 18

Only accrual basis individuals are required to accrue original issue discount on a bond as annual interest income.

Accepted Answer

A) True 
 B)False

Question 19

Mr. Carp, a single taxpayer, recognized a $44,000 long-term capital gain, a $12,000 short-term capital gain, and a $10,000 long-term capital loss. Compute Mr. Carp's 2016 income and Medicare contribution tax if his taxable income before consideration of his capital transactions is $465,000, none of which is investment income

Accepted Answer

The answer of Mr. Carp, a single taxpayer, recognized a...

Question 20

On April 19 of this year, Sandy learned that her stock investment had become worthless. The stock is deemed to be worthless on December 31 of this year.

Accepted Answer

A) True 
 B)False

Exam 16: Investment and Personal Financial Planning

Which of the following statements about the federal gift tax is false?

Mr. Quinn recognized a $900 net short-term capital gain and a $1,380 long-term capital gain this year. Which of the following statements is false?

The tax consequences of a business activity are generally the same as the tax consequences of an investment activity.

Which of the following statements about annuity contracts is true?

Investment interest expense is a miscellaneous itemized deduction subject to the 2% AGI limitation.

Mr. Gray recognized a $60,000 loss on sale of his entire interest in a passive activity. He had a $52,000 passive activity loss carryforward from prior years. Mr. Gray can deduct the $52,000 loss in the year of sale.

A beneficiary's basis of inherited property equals the decedent's adjusted basis immediately prior to death.

Ruth Darma is a shareholder who is not involved in the day-to-day activities of an S corporation. Her interest in the business is a passive activity.

Which of the following does not reduce a decedent's taxable estate?

Mrs. Lindt exchanged 212 shares of Nipher common stock for 773 shares of Newland common stock. Her basis in the Nipher stock was $49,200, and the fair market value of the Newland stock was $138,000. Which of the following statements about the exchange is true?

The income generated from an investment activity is primarily attributable to invested capital rather than the owner's personal involvement in the activity.

Lindsey owns and actively manages an apartment complex. This year, the complex generated a $40,300 net loss. If Lindsey's AGI before considering this loss is $118,200 and she owns no other passive activities, how much of the loss is deductible this year?

Which of the following are included in a decedent's taxable estate?

Only accrual basis individuals are required to accrue original issue discount on a bond as annual interest income.

On April 19 of this year, Sandy learned that her stock investment had become worthless. The stock is deemed to be worthless on December 31 of this year.