ACC 553 Federal Taxation Midterm Exam ( Keller )
ACC
553 Federal Taxation Midterm Exam ( Keller )
MULTIPLE
CHOICE QUESTIONS Chapter 1
To
be guilty of tax evasion, you must:
a. Try
to maximize profits.
b. Try
to minimize your tax liability.
c.
Arrange your affairs so as to keep your taxes as low as possible.
d.
Refuse to disclose a tax liability based on a completed transaction.
. The
major source of federal tax revenue is:
a.
Corporate income tax
b.
Individual income tax
c.
Excise tax
d.
Estate tax
. Since
1980, the group of taxpayers whose tax burden has increased the most is:
a.
Individuals
b.
Corporations
c.
Trusts and estates
d. None
of the above
The
most popular form of doing business in the United States is:
a.
Corporate form
b.
Partnership form
c.
Single proprietorship
d. S
corporation
32. The
IRS levies penalties for which of the following:
a.
Bouncing checks
b. Fraud
c. Late
filing
d. All
of the above
MULTIPLE
CHOICE QUESTIONS—CHAPTER 3
32. Mr.
and Mrs. Twig are both under 65 years of age and have no dependents. Their only
income for the year was his salary of $15,500. During the year they made only a
nominal amount of disbursements of the type that qualify as itemized
deductions. What is their standard deduction on a 2011 joint return?
a.
$3,700
b.
$11,600
c.
$5,800
d.
$8,500
e. None
of the above
33.
Jerry Jenkins is over 65 years of age and has no dependents. His only income
was his salary of $10,500. During the year, he made only a nominal amount of
disbursements of the type that qualify as itemized deductions of $3,290. What
is his standard deduction for 2011?
a.
$5,800
b.
$3,700
c.
$7,250
d.
$3,290
e. None
of the above
34. What
is Jerome Jackson’s standard deduction for 2011 if he has $20,000 in wages and
fi les married filing separately? He also claims one of the two children.
a.
$5,800
b.
$4,850
c. $11,600
d.
$3,700
e. None
of the above
35. What
is the amount of standard deduction for Abigale Abrams in 2011, a divorced
parent, who fully supports her five-year-old daughter?
a.
$5,800
b.
$8,500
c.
$11,600
d.
$7,400
e. None
of the above
36.
Determine the amount of taxable income of Michael Manx in 2011, who is single
and has $300 of wages and$2,000 of interest income for the year. He is claimed
as a dependent by his parents.
a.
$2,000
b.
$2,300
c.
$1,350
d. $300
e. $0
37.
Marvin Miller, who is claimed as a dependent by his parents, received income of
$3,100 from a trust fundand $500 from wages. Marvin had $1,050 in itemized
deductions. What is Marvin’s taxable income?
a.
$2,650
b.
$3,600
c.
$2,550
d.
$1,700
e. None
of the above
MULTIPLE
CHOICE QUESTIONS—CHAPTER 13
19. A
short tax year with the subsequent annualizing of taxable income is required
for which of the following?
a. In
the year of death of an individual
b. In
the year of termination of a partnership
c. In
the first year of a new corporation
d. In
the year of liquidation of a corporation
e. None
of the above
20. What
is the amount of tax to be paid for a short period assuming the tax from
placing the short period on an annual basis is $2,300; the tax computation for
the short period without annualizing is $2,100; and the tax computation using
the full 12 months and prorating is $2,200.
a.
$2,300
b.
$2,200
c.
$2,100
d. $100
e. None
of the above
21.
Which of the following is not a method of accounting?
a. Cash
receipts and disbursements method
b.
Accrual method
c. LIFO
inventory
d.
Long-term contracts method
e. None
of the above
22. The
following statements about the cash basis method of accounting are false,
except:
a. The
prepayment made for future services may be deducted currently.
b.
Interest credited to a savings account is not taxed until withdrawn.
c. Stock
received for services rendered are taxed only in the year sold.
d. The
exchange of services may lead to gross income to both parties.
23. Jake
Turner realized last December that he had almost reached the point where his
medical expenses exceeded the 7.5 percent of AGI limitation. As a result, he
insisted on paying his physician, Dr. Grope, $6,000 on account for future
services for the Turner family. The results of this prepayment are:
a.
Turner’s deduction: when paid; Dr. Grope’s income: when received
b.
Turner’s deduction: when services are rendered; Dr. Grope’s income: when
received
c.
Turner’s deduction: when services are rendered; Dr. Grope’s income: when services
are rendered
d.
Turner’s deduction: when paid; Dr. Grope’s income: when services are rendered
24.
Robert Graves sold his house to George Tombs for a total of $100,000. Earnest
money of $5,000 was received at the end of the year prior to the closing. The
remaining $15,000 of the down payment was received at closing. George assumed a
$50,000 mortgage on the property and signed a second mortgage for $30,000. If
Robert’s
basis was $35,000 the tax results, in part, are as follows:
a.
Contract price: $65,000; gross profit: 100%; payments in year of sale: $35,000
b.
Contract price: $50,000; gross profit: 100%; payments in year of sale: $50,000
c.
Contract price: $65,000; gross profit: 100%; payments in year of sale: $20,000
d.
Contract price: $80,000; gross profit: 65/80%; payments in year of sale:
$30,000
MULTIPLE
CHOICE QUESTIONS—CHAPTER 4
40. All
of the following are considered “constructive receipt” of income, except:
a. Lori
was informed her check for services rendered was available but she did not pick
it up.
b.
Pierre earned income that was received by his agent but was not received by
Pierre.
c.
Jacque bought a 9-month certificate of deposit in November 2011. It earned $200
interest in 2011. She can withdraw the principal and interest in 2011 if she
pays a penalty of one month’s interest ($100).
d. A
payment on a sale of real property place in escrow pending settlement at which
time title would convey.
41. In
which of the following situations will the divorced custodial parent be
entitled to the dependency exemption for the child?
a. The
noncustodial parent provides $1,500 of support for the child and the custodial
parent provides $1,200.
b. The
custodial and noncustodial parent both provide $1,500 of support for the child.
c. The
custodial parent provides $1,500 of support for the child and the noncustodial
parent provides $1,200.
d. All
of the above.
42. In
July 1996, Dan Farley leased a building to Robert Shelter for a period of 15
years at a monthly rental of $1,000 with no option to renew. At that time the
building had a remaining estimated useful life of 20 years.Prior to taking
possession of the building, Shelter made improvements at a cost of $18,000.
These improvements had an estimated useful life of 20 years at the commencement
of the lease period. The lease expired on June 30, 2011, at which point the
improvements had a fair market value of $2,000. The amount that Farley, the
landlord, should include in his gross income for 2011 is:6 mo * 1000 = 6000
a.
$6,000
b.
$8,000
c.
$12,000
d. $24,000
43.
Roger Burrows, age 19, is a full-time student at Marshall College and a
candidate for a bachelor’s degree.
During
2011, he received the following payments:
State
scholarship for tuition $3,600
Loan
from college financial aid office 1,500
Cash
support from parents 3,000
Cash
dividends on qualified investments 700
Cash
prize award in contest 500
$9,300
What is
Burrows’s adjusted gross income for 2011?700+500=1200
a.
$1,100
b.
$1,200
c.
$4,800
d.
$9,300
44.
Kevin is a candidate for an undergraduate degree at a local university. During
2011, he was granted a fellowship that provided the following:
Tuition
$18,000
Books
and supplies 2,000
Room and
board 14,800
What
amount can Kevin exclude from gross income in 2011?18000+2000=20000
a.
$18,000
b. $20,000
c.
$25,000
d.
$32,800
e.
$34,800
MULTIPLE
CHOICE QUESTIONS—CHAPTER 5
27. Mr.
W. is 66 years old and single. His income for 2011 consisted of the following:
Taxable
pension $10,000
Taxable
interest 2,000
Taxable
dividends 5,000
Social
security payments 5,000
Tax-exempt
interest 7,000(sum =26500) less base amount 25000=1500, 50% excess =750
He did
not have any adjustments to income. What amount of W’s social security benefits
is taxable?
a. $0
b. $750
c.
$1,500
d.
$2,000
28. Mr.
and Mrs. Birch are both over 65 years of age and are fi ling a joint return.
Their income for 2011 consisted of the following:
Taxable
interest $6,000
Taxable
dividends 8,000
Social
security payments (Mr. and Mrs. Birch combined) 15,000 ½ = 7500
Tax-exempt
interest 4,000
Taxable
pension 15,000sum = (40500-base 32000)=8500/2 = 4250
They did
not have any adjustments to income. What amount of Mr. and Mrs. Birch’s social
security benefits is taxable?
a. $0
b.
$4,250
c.
$7,500
d.
$7,750
29.
During 2011, Anne Apple received tangible personal property as a safety
achievement award from her employer. The award was not a qualified plan award.
The property cost the employer $500 and had a fairmarket value of $600. How
much must Anne include in her 2011 gross income?
a. $0
b. $200
c. $500
d. $600
30.
During 2011, Edward East had wages of $10,000 and received unemployment
compensation of $6,200 from thestate. Edward is single and 45 years old. What
is the amount of unemployment compensation to be included in hisgross income?a.
$0
b.
$2,100
c.
$4,200
d.
$6,200
31. On
June 3, 2011, Leon Wren, an electrician, was injured in an accident during the
course of his employment.As a result of injuries sustained, he received the
following payments during 2011:Damages for personal injuries $8,000
Worker’s
compensation 3,000; Reimbursement from his employer’s accident and health plan
for medical expenses paid by Wren 1,200The amount to be included in Wren’s 2011
gross income should be:
a. $0
b.
$1,200
c.
$3,000
d.
$12,200
TRUE-FALSE
QUESTIONS—CHAPTER 6
1. An
ordinary expenditure is one which is commonly incurred by other businesses.TRUE
2. Hobby
expenditures are deductible to the extent of hobby gross income.TRUE
3. If an
employee accounts to the employer for business-related expenses and is reimbursed
by the employer, the expenses must still be reported on the employee’s tax
return.FALSE
4.
Job-seeking expenses are not deductible if an individual finds a job in a new
trade or business.TRUE
5. Rents
and royalties expenses are deductible from adjusted gross income.FALSE
6. Tax
deductions for tax planning and tax compliance expenses may only be claimed for
expenses incurred in planning and compliance with respect to federal and state
income taxes.FALSE
7. The
Cohan case set a requirement for tax purposes that adequate substantiation is
required for every tax deduction claimed on a tax return.FALSE
8.
Advertising which is intended to influence public reaction to proposed
legislation normally is not a deductible business expense for tax purposes.TRUE
9. The
amount of a bad debt deduction is always limited to the adjusted basis of the
debt in the hands of the taxpayer.TRUE
10. Full
worthlessness of a debt must be proven in order to claim a business bad debt
deduction.FALSE
MULTIPLE
CHOICE QUESTIONS—CHAPTER 7
31. Ann
Jones uses a dry cleaning machine in her business, and it was completely
destroyed by fire. At the timeof the fire, the adjusted basis was $20,000 and
its fair market value was $18,000. How much is Ann’s loss?
a.
$18,000
b.
$2,000
c. $20,000
d. None
of the above
32. Ann
Jones uses a dry cleaning machine in her business, and it was partially
destroyed by fire. At the time ofthe fire, the adjusted basis was $20,000 and
its fair market value was $18,000. The adjusted basis after the fireis $10,000
and the fair market value after the casualty is $10,000. How much is the
casualty loss?
a.
$10,000
b.
$8,000
c.
$18,000
d.
$20,000
33. ABC,
Inc. of Jasper, Georgia suffered a casualty loss of $150,000 in March 2011.
This loss was caused byheavy rains that completely flooded their factory. As a
result of these rains, the President declared NorthGeorgia (including Jasper) a
disaster area on March 23, 2011. In what year can ABC, Inc. elect to deduct the
casualty
loss?
a. 2011
or 2012
b. 2010
or 2011
c. 2011
d. 2010
34.
Which of the following is not a passive activity?
a.
Owning a business and not materially participating
b.
Having rental condos
c.
Owning a limited partnership interest in a real estate limited partnership
d.
Owning a working interest in oil and gas properties
35. All
of the outstanding stock of a closely held C corporation is owned equally by
Evelyn Humo and SteveBufusno. In 2011, the corporation generates taxable income
of $20,000 from its active business activities.In addition, it earns $20,000 of
interest from investments and incurs a $40,000 loss from a passive activity.
How much
income does the C corporation report for 2011?
a.
$10,000 of portfolio income
b. $0
c.
$20,000 of portfolio income
d. None
of the above
36. All
of the outstanding stock of a closely held C corporation is owned equally by
Evelyn Humo and SteveBufusno. In 2011, the corporation generates taxable income
of $20,000 from its active business activities.In addition, it earns $20,000 of
interest from investments and incurs a $40,000 loss from a passive activity.
How much
of a passive loss carryover does the corporation have?
a.
$20,000
b. $0
c.
$40,000
d. None
of the above
TRUE-FALSE
QUESTIONS—CHAPTER 8
1.
Itemized deductions only reduce taxable income if the taxpayer’s itemized
deductions exceed the standarddeduction amount.TRUE
2.
Individual taxpayers are allowed to deduct unreimbursed medical and dental
expenses paid during the yearfor themselves, their spouse, and dependents.TRUE
3.
Medical expenses recovered after being claimed as a deduction in the previous
year must be included inincome in the year of recovery to the extent that the
deduction decreased taxable income in the year theywere deducted.TRUE
4. An
individual has an insurance policy that will pay $500 a week no matter what the
hospital expenses are,for 100 weeks in the event of hospitalization. The
premium on this policy qualifies as a deductible medicalexpense subject to the
applicable limitations.FALSE
5.
Vitamin pills taken daily for general health are a qualified medical expense.FALSE
6. To
alleviate an obesity problem, a doctor puts a patient on a special diet. The
total cost of the patient’s foodfor the special diet is a deductible medical
expense.FALSE
MULTIPLE
CHOICE QUESTIONS—CHAPTER 14
23.
Which of the following items are eligible for immediate expensing and 180-month
amortization?
(1.) Fee
to CPA to handle Subchapter S election
(2.)
Refreshments served at organizational meetings
(3.)
Underwriting commission
(4.)
Legal fees in connection with incorporation
(5.)
Recording fees upon transfer of assets to corporation
a. (2),
(4), and (5)
b. (1),
(2), and (5)
c. (1),
(2), (3), (4), and (5)
d. (1),
(2), and (4)
24. Sandra Sherman incorporates her apartment
building. It has a basis of $50,000, a value of $150,000, issubject to a
mortgage of $70,000 and has a depreciation recapture potential of $12,000. If
Sandra receivesstock worth $80,000, she will recognize:
a. No
gain.
b.
$30,000 of gain, $12,000 of which is ordinary.
c.
$12,000 of ordinary income.
d.
$20,000 of gain, $12,000 of which is ordinary.
25. Evan Erman transferred inventory to a
corporation in a Code Sec. 351 transaction. His basis in the inventory
was$10,000 and its value was $8,000. If he received $2,000 in cash and 100 shares
of stock, the resulting bases are:
a.
Evan’s stock: $8,000; Corporation’s inventory: $10,000
b.
Evan’s stock: $10,000; Corporation’s inventory: $10,000
c.
Evan’s stock: $10,000; Corporation’s inventory: $8,000
d.
Evan’s stock: $8,000; Corporation’s inventory: $12,000
26.
Algernon Amsley transferred the following to his controlled corporation in
exchange for stock:
Basis
Value
Building
$20,000 $50,000
Cash
10,000 10,000
Mortgage
on building 40,000 40,000
IBM
stock 15,000 12,000
Algernon
must recognize a gain of:
a.
$20,000
b. $0
c.
$10,000
d.
$27,000
27. One
year Potter, Inc. had gross income from sales of $210,000, business expenses of
$230,000, and dividendincome from U.S. corporations of $150,000. Potter’s 80
percent dividends-received deduction was:
a.
$104,000
b.
$120,000
c. $0
d.
$150,000
28.
Prior to a charitable gift to the Plato University of land with a basis of
$6,000 and a value of $13,000, All-Set, Inc. had taxable income of $50,000. If
the dividends-received deduction was $80,000, the charitablecontribution
deduction is:
a.
$5,000
b.
$6,000
c.
$2,925
d.
$5,800
No comments:
Post a Comment