Final_Exam - 1. The pay-as-you-go system of taxation in the...

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Unformatted text preview: 1. The pay-as-you-go system of taxation in the U.S. is an example of which of Adam Smith's canons of taxation? a. equality b. convenience c. certainty d. economy -------------------------------------------------------------------------------- 2. In general, personal expenses are: a. always deductible. b. not deductible. c. occasionally deductible. d. often deductible. -------------------------------------------------------------------------------- 3. The federal income tax system has been developed around general concepts. Occasionally, Congress has goals it wishes to achieve through the tax laws that create exceptions to these general concepts. These goals can be put in all but which of the following categories: a. economic b. religious c. political d. social -------------------------------------------------------------------------------- 4. George has the following capital gain/(loss) for the current year: Long-term capital gain, $15,000 Short-term capital gain, $10,000 Long-term capital loss, $(5,000) Short-term capital loss, $(15,000) What is his net capital gain/(loss) for the year? a. $5,000 long-term gain b. $10,000 long-term gain, $5,000 short-term loss c. $5,000 short-term gain d. $-0- -------------------------------------------------------------------------------- 5. Janelle was the beneficiary of her husband's life insurance policy that had a face value of $50,000. She chose to receive the amount in annual installments, over 10 years, in the amount of $5,100 per year. How much is excluded from Janelle's gross income during the 10 years? a. $-0- b. $1,000 c. $2,500 d. $50,000 e. $51,000 -------------------------------------------------------------------------------- 6. Which of the following is not true regarding a discharge of indebtedness? a. If a taxpayer is insolvent, before and after the discharge, the discharge is not included in gross income. b. Corporations, but not individuals, must include discharge of debt in gross income. c. If the debtor is solvent after the discharge, he must include in gross income the extent of his solvency. d. For business debts incurred before 1993 on qualified real property, there is an exclusion allowed for some portion of the discharge. -------------------------------------------------------------------------------- 7. John owns dry-cleaning store. In 2006, he spends $3,000 investigating the feasibility of opening an additional store. He also spent $4,800 investigating the feasibility of opening a doughnut shop next to his dry-cleaning business. He decides not to open a new dry-cleaning store, but opens a doughnut shop on December 1, 2006. How much can John deduct in 2006? a. $-0- b. $80 c. $3,000 d. $3,080 e. $7,800 -------------------------------------------------------------------------------- 8. Vance is self-employed and a member of Putnam Country Club. His monthly dues are $500 per month. During the year he spends 80% of his time at the club entertaining clients. He spent $5,000 for business lunches and $1,000 for valid business entertainment (i.e., golf fees etc.). What amount can Vance deduct for meals and entertainment expenses? a. $3,000 b. $6,000 c. $10,800 d. $12,000 -------------------------------------------------------------------------------- 9. Which of the following is not a deduction for adjusted gross income? a. Trade or business expenses. b. A contribution to an Education IRA. c. Rent and royalty expenses. d. Moving expenses. e. All of these choices are deductions to adjusted gross income. -------------------------------------------------------------------------------- 10. In general, a limited partnership interest is a(n) ________ activity and a working interest in an oil and gas activity is a(n) ________ activity. a. passive; active b. passive; passive c. active; passive d. active; active -------------------------------------------------------------------------------- 11. Which of the following is not true? a. Investment expenses are reduced by 2 percent of AGI. b. Unreimbursed business meal expenses are reduced by the 50 percent limit and 2 percent of AGI. c. Unreimbursed business entertainment are reduced by the 50 percent limit and 2 percent of AGI. d. Gambling loss deductions are subject to the 2 percent of AGI floor. e. All of these choices are true. -------------------------------------------------------------------------------- 12. The standard deduction may be taken in lieu of: a. the dependency exemption. b. a personal exemption. c. itemized deductions. d. earned income credit. -------------------------------------------------------------------------------- 13. Which of the following is real property? a. machinery b. sidewalks c. copyrights d. livestock -------------------------------------------------------------------------------- 14. Harold purchased a 10 percent interest in BVG Partnership for $10,000. During the year, the partnership had income of $50,000 and distributed $20,000 in cash to the partners. What is Harold's adjusted basis at the end of the year? a. $9,000 b. $10,000 c. $13,000 d. $15,000 -------------------------------------------------------------------------------- 15. Michele purchases an apartment building costing $300,000 on June 20, 2004. She properly allocates $20,000 of the cost to the land. Michele sells the building on August 1, 2006. What is her 2006 cost recovery deduction on the property? a. $6,363 b. $7,212 c. $10,181 d. $10,908 -------------------------------------------------------------------------------- 16. Monroe Corporation purchases 5-year MACRS property costing $50,000 on February 18, 20X2. It uses the regular MACRS method but does not elect to expense any of the property under Sec.179. Monroe sells the property on March 18, 20X4. What is Monroe's cost recovery on the property in 20X4? a. $-0- b. $2,000 c. $4,800 d. $9,600 -------------------------------------------------------------------------------- 17. Matthew owns a piece of land that had a fair market value of $100,000. The land has an adjusted basis of $75,000 and is encumbered by a $40,000 mortgage. Matthew sells the land to Bill for $50,000 cash and a tractor that cost Bill $40,000 which is worth $10,000. Bill also assumes the mortgage on the land. What is Matthew's amount realized? a. $60,000 b. $90,000 c. $100,000 d. $140,000 -------------------------------------------------------------------------------- 18. Sarah owns a piece of equipment that cost $80,000 on which she has taken $30,000 of depreciation. She trades it for a new piece of equipment that has a fair market value of $54,000. In addition to the new equipment, she receives $6,000. What is Sarah's recognized gain (loss) on the exchange? a. $(10,000) b. $-0- c. $6,000 d. $10,000 -------------------------------------------------------------------------------- 19. Arthur's apartment building is condemned by the county to allow construction of a new highway. Arthur paid $95,000 for the building, which had an adjusted basis of $55,000 when it was condemned. Arthur receives $110,000 from the county and uses the proceeds to purchase an office building costing $140,000 to use in his business. What is the minimum amount of gain that Arthur must recognize on the condemnation of the apartment building? a. $-0- b. $15,000 c. $30,000 d. $55,000 -------------------------------------------------------------------------------- 20. One characteristic of a personal service corporation is that: a. taxable income is subject to a flat tax rate of 35 percent. b. it operates as a conduit entity. c. it is permitted to reduce portfolio income by passive activity losses. d. it is designed to encourage owner-employees to leave accumulated earnings in the corporation. -------------------------------------------------------------------------------- 21. Derek owns 25% of Wyatt Company, an electing S corporation. Derek's basis in the stock is $33,000 at the beginning of the current year. During the current year, Wyatt distributes a $40,000 dividend. Wyatt Company reports a $100,000 operating loss for the current year. If Derek is a material participant in Wyatt Company, how much of the loss can he deduct on his income tax return? a. $10,000 b. $23,000 c. $25,000 d. $33,000 -------------------------------------------------------------------------------- 22. Elm Group is a partnership that reports an operating income of $40,000 in the current year. Elm also has $30,000 of municipal bond interest and $5,000 of Section 179 expenses. Jenny owns 10% of Elm and withdraws $3,000 from the partnership during the current year. Jenny's basis will increase (decrease) by: a. $(3,000) b. $1,000 c. $3,500 d. $4,000 -------------------------------------------------------------------------------- 23. Bryant is the sole owner of a hardware store and establishes a simplified employee pension plan (SEP) for himself and his two full-time employees. His net self-employment income for the year is $60,000. The maximum amount he can contribute to his SEP is: a. $2,000 b. $7,826 c. $9,000 d. $12,000 e. $40,000 -------------------------------------------------------------------------------- 24. A taxpayer has decided to go to court to resolve his tax deficiency assessment issue. He wants a court with tax expertise but has learned that the Court of Appeals in a different circuit has decided a similar issue against him. Which of the following is true? a. He will probably file in the Tax Court, since the Tax Court does not have to follow the decision of the Court of Appeals in a different circuit. b. He will probably file in the Court of Claims since it has more tax expertise. c. He will probably file in the District Court since it has more tax expertise. d. He will file either in the District Court or the Court of Claims since the Tax Court will follow the decision of the Appeals Court. -------------------------------------------------------------------------------- 25. Which of the following is a primary source of federal income tax law? a. BNAs Tax Management Portfolios b. CCHs Standard Federal Tax Reporter c. Journal of Taxation d. tax treaties -------------------------------------------------------------------------------- ...
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