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Midterm-b - Midterm Exam Answer Section MULTIPLE CHOICE 1...

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Midterm Exam Answer Section MULTIPLE CHOICE 1. ANS: D $2,100 + $800 + $500 [50%($600 + $400)] = $3,400 . No allocation is required for domestic transportation costs (i.e., the airfare). PTS: 1 2. ANS: D Asset A $ 700 Asset B 1,500 Asset C 500 $2,700 Less: Statutory floor (500) Less: AGI limitation (10% × $18,000) (1,800) Casualty loss deduction $ 400 PTS: 1 3. ANS: A A cash basis taxpayer recognizes the income when it is actually or constructively received. The accrual basis taxpayer who receives prepaid income for services can prorate the income in the year of receipt but must include the balance of the income in the second year. This limited deferral is provided under Revenue Procedure 2004-34. PTS: 1 4. ANS: E Alimony payments (choice a.) are deductions for AGI. Child support payments (choice b.), funeral expenses (choice c.), and personal capital losses (choice d.) are nondeductible items. PTS: 1 5. ANS: A Kyle, who filed a joint return in 2006, was entitled to file as a surviving spouse in 2007 and 2008. In 2009, he will be entitled to file as a head of household. PTS: 1 6. ANS: D Except for alimony (choice a.), all other items (choices b., c., and d.) are deductions from AGI. PTS: 1 7. ANS: E PTS: 1 8. ANS: B Amount of loss (adjusted basis for business property that is completely destroyed) $90,000 Less: Insurance proceeds received ($75,000 × 95%) (71,250) Business loss $18,750 A business casualty loss is classified as an ordinary loss.
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PTS: 1 9. ANS: A PTS: 1 10. ANS: C Moving expenses and teaching supplies are deductions for AGI (choices b. and c.). Gambling losses are miscellaneous itemized deductions but are not subject to the 2% adjustment (choice a.). PTS: 1 11. ANS: E $70,000 (salary) + $50,000 (punitive damages) + $4,000 (cash dividends) = $124,000 . The damages from personal injury and the municipal bond interest are nontaxable exclusions. PTS: 1 12. ANS: C Saul’s AGI is calculated as follows: Gross income $50,000 Deductions for AGI: Alimony $12,000 IRA 5,000 Expenses on rental property 6,000 (23,000) AGI $27,000 PTS: 1 13. ANS: E The standard deduction is not an alternative; it is a component of the tax formula (choice a.). Personal and dependency exemptions are subtracted
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