Question 1

The sale of inventory at a loss results in an ordinary loss.

Accepted Answer

A) True 
 B)False  True

Question 2

Individual taxpayers can offset portfolio income with passive losses.

Accepted Answer

A) True 
 B)False  False

Question 3

Atkon Corporation acquired 90% of the stock of Beta Corporation three years ago.Both corporations are located in the United States.Beta has been an energy drink producer,but unfortunately has suffered substantial losses due to government fines and lawsuits.All of its revenues had been from the sales of the energy drinks.Beta has now filed for bankruptcy and is closing the business with no assets remaining for shareholders.Atkon Corporation will recognize

Accepted Answer

A)  a long-term capital loss.
B)  a short-term capital loss.
C)  an ordinary loss.
D)  no gain or loss. C

Question 4

A taxpayer's home is destroyed by fire,resulting in a large casualty loss deduction exceeding the taxpayer's income.The taxpayer will be allowed to carry back and then carry forward a net operating loss due to this personal loss.

Accepted Answer

A) True 
 B)False

Question 5

Becky,a single individual,reports the following taxable items in 2017:

Accepted Answer

The answer of Becky,a single individual,reports the following taxable items...

Question 6

A taxpayer has generated a net operating loss in the current year and is weighing whether to carry back the NOL or elect to carry forward the NOL.The factors to consider in making this decision include all of the following except

Accepted Answer

A)  marginal tax rates in the relevant years.
B)  tax credits available in the carryback years.
C)  time value of money.
D)  refundable tax credits expected in future years.

Question 7

A net operating loss can be carried back three years or carried forward five years.

Accepted Answer

A) True 
 B)False

Question 8

Daniel's cabin was destroyed in a massive tornado in 2017.After consideration of insurance,he has a loss of $15,000.The President of the United States has declared the area a disaster area.Daniel can deduct this loss in

Accepted Answer

A)  2016.
B)  2017.
C)  2018.
D)  either 2016 or 2017.

Question 9

A flood damaged an auto owned by Mr.and Mrs.South on June 15 of this year.The car was only used for personal purposes.  Based on these facts,what is the amount of the South's casualty loss deduction after limitations for this year?

Accepted Answer

A)  $900
B)  $1,000
C)  $4,400
D)  $4,500

Question 10

Lena owns a restaurant which was damaged by a tornado.The following assets were partially destroyed:  Lena has AGI of $50,000.What is the amount of Lena's deductible casualty loss?

Accepted Answer

A)  $54,900
B)  $60,000
C)  $70,000
D)  $180,000

Question 11

If a taxpayer suffers a loss attributable to a disaster in an area subsequently declared a disaster area,the casualty loss may be deducted in the year preceding the year in which the loss actually occurs.

Accepted Answer

A) True 
 B)False

Question 12

A net operating loss (NOL)occurs when taxable income for any year is negative because itemized deductions and total exemptions exceed business income.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not generally classified as a passive activity?

Accepted Answer

A)  an activity in which the taxpayer does not materially participate
B)  a limited partnership interest
C)  rental real estate
D)  a business in which the taxpayer owns an interest and works 1,000 hours a year

Question 14

A taxpayer may deduct a loss resulting from the theft of business and investment property but not a theft of personal-use property.

Accepted Answer

A) True 
 B)False

Question 15

Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production.Vera made a $10,000 loan to the supplier.Unfortunately the supplier filed for bankruptcy and has gone out of business without repaying Vera.Vera will be able to recognize a loss of

Accepted Answer

A)  $10,000.
B)  $3,000.
C)  $7,000.
D)  0)

Question 16

A passive activity includes any rental activity or any trade or business in which the taxpayer does not materially participate.

Accepted Answer

A) True 
 B)False

Question 17

When applying the limitations of the passive activity rules,a taxpayer's AGI is classified into active income,portfolio income and passive income.For this purpose,portfolio income includes dividends,interest,annuities,and royalties.

Accepted Answer

A) True 
 B)False

Question 18

Once an activity has been classified as passive,it is considered passive with regard to that taxpayer until it is sold.

Accepted Answer

A) True 
 B)False

Question 19

An individual taxpayer has negative taxable income for the year.In calculating the net operating loss created,which of the following expenses or losses will be added back to the negative taxable income?

Accepted Answer

A)  capital losses
B)  personal and dependency exemptions
C)  nonbusiness deductions in excess of nonbusiness income
D)  all of the above

Question 20

An individual is considered to materially participate in an activity if any of the following tests are met with the exception of

Accepted Answer

A)  the individual participates in the activity for more than 500 hours during the year.
B)  the individual participates in the activity for 75 hours during the year,and that participation is more than any other individual's participation for the year.
C)  the individual has materially participated in the activity in any five years during the immediate preceding 10 taxable years.
D)  the individual's participation in the activity for the year constitutes substantially all of the participation in the activity by all individuals.

Exam 24: Losses and Bad Debts

The sale of inventory at a loss results in an ordinary loss.

Individual taxpayers can offset portfolio income with passive losses.

A taxpayer's home is destroyed by fire,resulting in a large casualty loss deduction exceeding the taxpayer's income.The taxpayer will be allowed to carry back and then carry forward a net operating loss due to this personal loss.

Becky,a single individual,reports the following taxable items in 2017:

A taxpayer has generated a net operating loss in the current year and is weighing whether to carry back the NOL or elect to carry forward the NOL.The factors to consider in making this decision include all of the following except

A net operating loss can be carried back three years or carried forward five years.

Daniel's cabin was destroyed in a massive tornado in 2017.After consideration of insurance,he has a loss of $15,000.The President of the United States has declared the area a disaster area.Daniel can deduct this loss in

A flood damaged an auto owned by Mr.and Mrs.South on June 15 of this year.The car was only used for personal purposes. Based on these facts,what is the amount of the South's casualty loss deduction after limitations for this year?

Lena owns a restaurant which was damaged by a tornado.The following assets were partially destroyed: Lena has AGI of $50,000.What is the amount of Lena's deductible casualty loss?

If a taxpayer suffers a loss attributable to a disaster in an area subsequently declared a disaster area,the casualty loss may be deducted in the year preceding the year in which the loss actually occurs.

A net operating loss (NOL)occurs when taxable income for any year is negative because itemized deductions and total exemptions exceed business income.

Which of the following is not generally classified as a passive activity?

A taxpayer may deduct a loss resulting from the theft of business and investment property but not a theft of personal-use property.

A passive activity includes any rental activity or any trade or business in which the taxpayer does not materially participate.

When applying the limitations of the passive activity rules,a taxpayer's AGI is classified into active income,portfolio income and passive income.For this purpose,portfolio income includes dividends,interest,annuities,and royalties.

Once an activity has been classified as passive,it is considered passive with regard to that taxpayer until it is sold.

An individual taxpayer has negative taxable income for the year.In calculating the net operating loss created,which of the following expenses or losses will be added back to the negative taxable income?

An individual is considered to materially participate in an activity if any of the following tests are met with the exception of