Practice Test 1-1

Federal Taxation: Basic Principles (2009)

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Practice Test 1 True/False Indicate whether the statement is true or false. ____ 1. Kim, a resident of Korea, is a citizen of the U.S. Any income Kim receives from land he owns in Korea is not subject to the U.S. income tax. ____ 2. In 2008, Sally is 72 and single. If she has itemized deductions of $6,000, she should claim the standard deduc- tion alternative. ____ 3. Enrique is a citizen of Honduras and a resident of the U.S. If he files a U.S. income tax return, Enrique cannot claim the standard deduction. ____ 4. In 2008, Hal furnishes more than half of the support of his ex-wife and her father, neither of whom lives with him. The divorce occurred in 2007. Hal may claim the father-in-law but not the ex-wife as dependents. ____ 5. Darren, age 20 and not disabled, earns $4,500 during 2008. Darren’s parents cannot claim him as a dependent unless he is a full-time student. ____ 6. In January 2008, Jake’s wife dies and he does not remarry. For tax year 2008, Jake may not be able to use the filing status available to married persons filing joint returns. ____ 7. For tax purposes, married persons filing separate returns are treated the same as single taxpayers. ____ 8. In 2008, Jimmy, a cash basis taxpayer, was offered $3,000,000 for signing a professional baseball contract. He rejected the offer in favor of $900,000 per year for 4 years beginning in 2009. Jimmy must recognize $3,000,000 income in 2008 because it was constructively received by him. ____ 9. A partner must include in gross income his or her share of the partnership’s income for the year whether or not the partner withdraws anything from the partnership. ____ 10. An advantage to operating a business as an S corporation is that the shareholder has no gross income from the S corporation unless the shareholder makes a withdrawal during the tax year. ____ 11. If Aeriel gives her son, Fred, the right to collect dividends on stock that she owns, Aeriel is taxed on the di- vidends. But if Aeriel gives the stock to Fred and then he receives dividends, he is taxed on the dividends. ____ 12. Paula transfers stock to her former spouse, Fred. The transfer is pursuant to a divorce agreement. Paula’s cost of the stock was $50,000 and its fair market value on the date of the transfer is $75,000. Fred later sells the stock for $78,000. Fred’s recognized gain from the sale of the stock is $3,000. ____ 13. Terri purchased an annuity for $100,000. She was to receive $8,000 per year and her life expectancy was 20 years. She died after receiving 15 payments. Terri’s final return should reflect a loss of $40,000 (5 payments not made × $8,000). ____ 14. Leah works part-time as a waitress in a restaurant. Her employer paid her $5,000 and she received $6,000 in tips. Because the customers are not required to give her tips, Leah can exclude the $6,000 from her gross in- come.
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____ 15. A scholarship is a gift and thus may be excluded from gross income. ____ 16.
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Practice Test 1-1 - Practice Test 1 True/False Indicate...

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