final-winter2005-v2

final-winter2005-v2 - V2. Name: Date: 1. During the year,...

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Unformatted text preview: V2. Name: Date: 1. During the year, David paid his physician $6,200 for routine treatment and received a $3,000 reimbursement from his insurance company. The $6,200 must be reduced by insurance reimbursement and 7.5% “of A61 to determine his medical expense deduction. 2. Which of the following statements is FALSE? A) Securities generally include corporate stocks, certificates of deposit, notes, bonds, and other debt instruments. B) Interest and dividends are recognized as capital gains. C) The interest on private activity bonds issued by a state or local government is excluded from ordinary income. D) A mutual fund is a diversified portfolio of securities owned and managed by a regulated investment company. 3. The costs of commuting are not deductible for tax purposes. 4. Mr. and Mrs. Liddy had the following tax data for 2003: Wages — Mr. Liddy $ 40,000 Interest income — Mrs. Liddy 5,000 Itemized deductions 9,200 Deductions for AGI ' 3,800 What is their adjusted gross income? A) $39,000 B) $36,200 C) $32,000 D) $45,000 E) $41,200 5. Six years ago, HOPCO granted Lin Sing an option to purchase 1,000 shares of the corporation's stock at a strike price of $55 per share. At the date of grant of the Option, the market price of the stock was $50 per share. When the option was exercised the market price of the stock was $64 per share. How much taxable income must she recognize in the year the option is granted? A) $ 9,000 B) $50,000 C) $64,000 D) $ 0 E) $14,000 Page 1 6. Harold's total tax liability is his tentative alternative minimum tax plus his regular tax liability. 7. The earned income credit is only available to low-income taxpayers that have dependent children living at home. 8. Craig's annual compensation is $200,000. What is the maximum amount that Craig's employer may contribute to a defined contribution plan on his behalf in 2002? A) $50,000 ' ' B) $ 3,000 C) $25,000 D) $40,000 ' 9. Which of the following expenditures made by an individual would NOT qualify as a deductible medical expense? A) Payments to chiropractor for routine care. B) Payments for eyeglasses. C) Premiums for health insurance. D) Payments for prescription vitamins. E) All of the above are deductible medical expenses. 10. Forest, a single taxpayer, sold Section 1244 stock for a $252,000 loss. What is the character of this loss on his tax return? A) $ 50,000 ordinary and $202,000 capital 7 B) $100,000 ordinary and $152,000 capital C) $252,000 capital D) $252,000 ordinary 11. The Harvey's joint income tax liability for 2003 was $1,675. They were entitled to earned income credit of $1,200. $700 in federal income taxes had been Withheld during the year. Which of the following statements is correct. A) They have a carryforward of unused earned income credit of $125. B) Any unused earned income credit is lost. C) They should receive a refund of $1,200. D) They should receive a refund of $225. E)“ They should receive a refund of $1,900. Page 2 12. A taxpayer must have lived in her home at least two of the last five years in order to qualify for the maximum exclusion of gain on sale of personal residence. ' 13. Electing to reinvest dividends does not defer income recognition. 14. ' Six years ago, HOPCO granted Lin Sing an incentive stock option to purchase 1,000 shares of the corporation's Stock at a strike price of $55 per share. At the date of grant of the option, the market price of the stock was $50 per share. When the option was exercised the market price of the stock was $64 per share. How much income must she recognize when the option is granted? A) $ 9,000 _. B) $50,000 C) $64,000 D) $ 0 E) $14,000 15. Gains realized on the sale of personal use assets are included in income. 16. The standard deduction and exemptions are NOT deductible in the determination of alternative minimum taxable income. 17. During 2003, Teddy, a single taxpayer, 25 years old, with good sight, had Schedule C and interest income of $70,000. His self-employment tax was $9,200. He also had itemized deductions of $8,500. His adjusted gross income for 2003 is A) $62,400 B) $70,000 C) $65,400 D) $61,500 E) $60,800 18. Six years ago, HOPCO granted Lin Sing an option to purchase 1,000 shares of the corporation‘s stock at a shike price of $55 per share. At the date of grant of the option, the market price of the stock was $50 per share. When the option was exercised the market price of the stock was $64 per share How much taxable income must she recognize in the year the cption is exercised? A) $ 9,000 B) $50,000 C) $64,000 D) $ 0 E) $14,000 Page 3 19. A hurricane severely damaged Harry's house. His AGI is $74,000. calculate his casualty loss deduction using the following information about the house. Fair Market Value - Insurance Adj. Basis Before After Recovery $137,000 $145,000 $60,000 $40,000 A) $44,900 - B) $37,500 C) $37,600 D) $45,000 20. The tax consequences of a business activity are generally the same as the tax consequences of an investment activity. ‘ 21. Which of the following statements concerning the characteristics of the employer— employee relationship is true? _ A) An employee has the right to direct and control how her duties are performed. B) An employer generally sets the employee's work schedule. C) At the end of each tax year, an employer issues an employee a Form 1099 indicating the amount paid during the year. D) An employee must pay self—employment taxes. 22. Violet bought a new home last year that is her principal (and only) residence. It has a $750,000 mortgage. She can deduct all of the related interest on her tax return. 23. Which of the following statements is CORRECT concerning the alternative minimum tax imposed upon individual taxpayers? ' A) The determination of alternative minimum taxable income begins with taxable income for regular tax purposes. _ B) Alternative minimum tax does not need to be calculated if the taxpayer has no tax preferences. C) An individual is allowed the same exemption as a corporation in the determination of the alternative minimum tax base. D) The alternative minimum tax rates for individuals are 28% on the first $135,000 of the ‘ applicable tax base and 26% on any excess oVer that amount. Page 4 24. Mr. Smith began receiving distributions from his IRA this year. His total distributions were $12,000. The balance in his individual retirement account at the beginning of the year was $200,000, $40,000 of which was a non-deductible contribution. What portion of the $12,000 distribution is taxable? A) s 0 B) $ 9,600 C) $12,000 , D) $ 2,400 25 . Which of the following statements concerning the tax advantages of qualified retirement plans is true? A) Amounts contributed to the plan in any given year from an employee-participant's earned income are not subjected to income taxation in the year of the contribution. B) The plan's earnings are not taxed in the year they are earned. C) The employee-participant may receive his benefits upon retirement in the form of a lump sum, an annuity or a series of fixed payments over a specified time period. D) When the employee—participant retires and withdraws his benefits, the benefits will be subjected to taxation in the year of withdrawal. B) All of the above are true. 26. Tom Johnson (MTR = 35%) sold several blocks of stock during the current year, generating the following capital gains and losses: Short—term Capital Gain $ 3,800 Short—term Capital Loss (5,000) Long-term Capital Gain 39,000 Long—term Capital Loss (35,100) How much of the gain can be taxed at 20%? A) $42,800 B) $ 3,900 C) $ 0 D) $ 2,700 E) $ 5,100 27. The interest paid on debt incurred to acquire, build, or improve a personal residence is a preference item for the computation of the alternative minimum tax. 28. Reggie, a physician, earned $375,000, from his medical practice for the year. He also had $67,000 of net loss from a passive activity. What was his gross income for the year? A) $350,000 ' B) $308,000 C) $375,000 Page 5 29. During the current year, Johnny had adjusted gross income of $100,000. His final itemized deduction consisted of the following: Real Estate Taxes 15,000 Miscellaneous itemized deductions (after2 % limit) 3,100 What is the total dollar amount of positive adjustments he must make in determining his alternative minimum taxable income? A) $18,100 B) $ 3,100 C) s o D)_$15,000 30. Which of the following statements is true? A) The determination as to whether a worker is an employee or an independent contractor is ' made using an objective set of guidelines. - B) An employer has a financial incentive to treat the person at issue as an independent contractor instead of an employee. C) The IRS has a higher probability of collecting taxes from an independent contractor than from an employee. D) If the IRS reclassifies a worker from independent contractor to employee, the employer cannot become liable for the employee's share of the unpaid payroll taxes. 31. Mrs. Paley, who had no gross income, died July 14, 2003. Her husband did not remarry in 2003 or 2004. They had two grown children who are successful lawyers. Mr. Paley will file as a surviving spouse in both 2003 and 2004. 32. An individual's taxable income is equal to adjusted gross income less exemptions and the larger of the standard deduction or itemized deductions. 33. Which of the following statements is true? A) Electing to reinvest dividends in additional shares of stock decreases basis. 13) Receiving a nontaxahle distribution with respect to stock increases basis. C) Recognizing original issue discount increases basis. D) Paying brokers‘ fees to acquire stock reduces basis. Page 6 34. Kate had a long-term capital gain of $25,700 and a short—term capital loss of $33,000. What is the NET tax imposed or the NET tax benefit savings received from these transactions if her marginal tax rate is 34%? A) Net tax imposed of $2,482. B) Net tax imposed of $1,460. C) Net tax benefit received of $1,020. D) Net tax benefit received of $600. 35. The interest earned on a state or local government bond is exempt fiom taxation at the federal level. 36. Six years ago, HOPCO granted Lin Sing an incentive stock option to purchase 1,000 shares of the corporation's stock at a strike price of $55 per share. At the date of grant of the option, the market price of the stock was $50 per share. When the option was exercised, the market price of the stock was $64 per share. How much taxable income must she recognize in the year the option is exercised? A) $ 9,000 B) $50,000 C) $64,000 D) $ 0 E) $14,000 Page 7 l $45,000 IN TAXABLE WAGES $2,221.00 FICA WITHHELD $1,500 IN FEDERAL INCOME TAXES WITHHELD $800 IN CALIFORNIA INCOME TAXES WITHHELD $111 IN CALIFORNIA SDI WITHHELD. $20,000 INNET SCHEDULE (3 INCOME . TAXPAYER IS SINGLE, UNDER 65, AND NOT BLIND GAME SHOW JEOPARDY WINNINGS OF $12,000 TAXPAYER HAS 3 DEPENDENT CHILDREN ALL UNDER AGE 18 LOTTERY WINNINGS - $10,000. IRA CONTRIBUTION - $3,000 TO A ROTH IRA ALIMONY ~ $12,000 ‘ CHILD SUPPORT $17,000 MEDICAL EXPENSES - FAMILY — $12,000 PROPERTY TAXES - $2,500 MORTGAGE INTEREST - $10,000 EMPLOYEE EXPENSES - $3,000 INTEREST INCOME ~ MUNICIPAL BONDS — $1,000 INTEREST INCOME -C CORPORATE BONDS - $5,000 DIVIDENDS — QUALIFIED - $500 LTCG $12,000 STCL ($17,000) CASH CHARITABLE CONTRIBUTIONS - $1,000. TOTAL SELF EMPLOYMENT TAX OF $5,000 UNEMPLOYMENT BENEFITS « $4,000 DEDUCTIBLE MOVING EXPENSE - $2,500 WHAT IS THE TAHAYERS GROSS INCOME AND AGI FOR THE YEAR? Answer Key A mama E E (D ('D SPWSQMewwe U>muggu HE" 0CD ,_.,_. IUD—I . True . True Hap—AI—I wew U True True [\JI—It—Ip—nt—I OPWHQ w>0 . False mmwmmmmmmmmmmmw PPPPE‘PPPOTJQ‘P‘PPJN?‘ OOSEW>OEUYHW>EW mm m (b ca (1: True L...) F" C1 Page 8 $45,000 IN‘TAXAELE WAGES $2,221.00 FICA WITHHELD $1,500 IN FEDERAL INCOME TAXES WITHHELD $800 IN CALIFORNIA INCOME TAXES WITHHELD $111 IN CALIFORNIA SDI WITHHELD. ‘1 g: 0 ‘30 $20,000 IN NET SCHEDULE C INCOME , (9 - o TAXPAYER IS SINGLE, UNDER 65, AND NOT BLIND 69 2°: ° ° . a GAME SHOW IEOPARDY WINNINGS OF $12,000 ® I "1 9 ‘5 TAXPAYER HAS 3 DEPENDENT CHILDREN ALL UNDER AGE 18 C9 {0 o o 0 . I LOTTERY WINNINGS - $10,000. IRA CONTRIBUTION - $3,000 TO A ROTH IRA ALIMONY - $12,000 CHILD SUPPORT $17,000 MEDICAL EXPENSES - FAMILY - $12,000 PROPERTY TAXES - $2,500 MORTGAGE INTEREST - $10,000 EMPLOYEE-EXPENSES — $3,000 INTEREST INCOME — MUNICIPAL BONDS - $1,000 INTEREST INCOME —C CORPORATE BONDS - $5,000 DIVIDENDS — QUALIFIED - $500 LTCG $12,000 STCL ($17,000) CASH CHARITABLE CONTRIBUTIONS - $1,000. TOTAL SELF EMPLOYMENT TAX OF $5,000 UNEMPLOYMENT BENEFITS - $4,000 a . ('1‘ DEDUCTIBLB MOVING EXPENSE - $2,500 ' g o 07 _ _ a” r , WHAT IS THE TAHAYERS GROSS INCOME AND AGI FOR THE YEAR? . A o 00 ,. B 6 @7 ‘1: ...
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This note was uploaded on 04/14/2008 for the course ECON 138A taught by Professor Schneider during the Spring '08 term at UCSB.

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final-winter2005-v2 - V2. Name: Date: 1. During the year,...

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