FedIncTaxFall2007Test2

FedIncTaxFall2007Test2 - ‘I A, Name: - Ker Class: Date:...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
Background image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ‘I A, Name: - Ker Class: Date: ID: Federal Income Taxation, Fall 2007 - Test #2 True/False Indicate whether the statement is true or false. 1. 10. 11. 12. 13. 14. 15. Ed died while employed by Violet Company. His wife collected $50,000 on a group—term life insurance policy that Violet provided its employees, and $5,000 of accrued salary Ed had earned prior to his death. Ed’s wife is not required to recognize any income from the receipt of the $55,000. Meg’s employer carries insurance on its employees that will pay an employee his or her regular salary while the employee is away from work due to illness. Meg was absent from work for two months as a result of a kidney infection. Meg’s employer’s insurance company paid Meg’s regular salary of $8,000 while she was away from work. Meg is required to include the sick pay in her gross income. Carla is president of the New State University and is provided a house on campus so that she will be readily accessible in the case of an emergency and to entertain faculty, students, alumni, and prospective donors. In her contract, she is required to live in the house. The rental value of the residence would be $48,000 a year. Carla must include the $48,000 rental value of the home in her gross income. A cash basis taxpayer took an itemized deduction of $5,500 for state income tax paid in 2007. His total itemized deductions in 2007 were $18,000. In 2008, he received a $900 refund of his 2007 state income tax. The taxpayer must include the $900 refund in his 2008 Federal gross income in accordance with the tax benefit rule. ingrance premiums that are paid to insure against casualty losses of personal use property are deductions for Under the “one-year rule” for the current period deduction of prepaid expenses of cash basis taxpayers, the asset must expire or be consumed by the end of the tax year following the year of payment. If a taxpayer operates an illegal business, no deductions are permitted. If a taxpayer makes a profit in three of the five consecutive years ending with the taxable year, the burden of proof is on the IRS to prove the activity is a hobby rather than a trade or business. A nonbusiness bad debt is a debt unrelated to the taxpayer’s trade or business either when it was created or when it became worthless. A loss is allowed for a security that declines in value. A taxpayer must carry any NOL incurred back two years. Under MACRS, the cost of three-year properly is recovered over four years. Residential rental real estate placed in service after May 12, 1993, has a cost recovery period of 39 years. Goodwill associated with the acquisition of a business cannot be amortized. \ Percentage depletion may not exceed 50% of the taxable income from the property before the allowance for depletion. _. _._.__._.....____———-—-—— Name: ID: A Multiple Choice Identifiz the choice that best completes the statement or answers the question. ‘0 (I 16. The taxpayer’s marginal tax bracket is 40% (combined Federal and state rates). Which would the taxpayer prefer? A a. $1.41 taxable income rather than $1.00 tax-exempt income. /- W —“ v {5” WI . is” b. $.59 tax-exempt income rather than $1.00 taxable income. /, w ~— -‘/O t {6’0 I c. $1.75 taxable income rather than $1.00 tax-exempt income. / 73’ " , 79 A ‘05 472:“ d. $1.60 taxable income rather than $1.00 tax—exempt income. /. 4’0 ‘ 'W/ ’ fa e. None ofthe above. A scholarship recipient at City University must include in gross income the scholarship proceeds used to pay for: Only tuition. Tuition, books, and supplies, but not meals and lodging. Books, supplies, meals, and lodging. Meals and lodging. . None of the above. 09-99mm Olaf was injured in an automobile accident and received $25,000 for his physical injury, $10,000 for his loss of income, and $50,000 punitive damages. As a result of the: award, the amount Olaf must include in gross income is: a_ $10,000. A W; / [iv-M,» b. $50,000. V 7 ‘ j 0. $60,000. d. $85,000. e. None ofthe above. Adam repairs power lines for the Egret Utilities Company. He is generally working on a power line during the lunch hour. He must eat when and where he can and still get his work done. He usually purchases something at a convenience store and cats in his truck. Egret reimburses Adam for the cost of his meals. a. Adam must include the reimbursement in his gross income. 5/5 m 01 I'm 14.; b. Adam can exclude the reimbursement from his gross income since the meals are provided for the convenience ofthe employer. 0. Adam can exclude the reimbursement from his gross income because he eats the meals on the employer’s business premises (the truck). d. Adam may exclude from his gross income the difference between what he paid for the meals and what it would have cost him to eat at home. e None of the above. Agnes is the sole shareholder of Violet, Inc. For 2007, she receives from Violet a salary of $200,000 and dividends of$100,000. Violct’s taxable income for 2007 is $500,000. On audit, the IRS treats $50,000 of Agnes’s salary as unreasonable. Which ofthe following statements is correct? Agnes’s gross income will increase by $50,000 as a result ofthe IRS adjustment. Violet’s taxable income will not be affected by the IRS adjustment. Agnes’s gross income will decrease by $50,000 as a result of the :RS adjustment. Violet’s taxable income will increase by $50,000 as a result of th IRS adjustment. None of the above is correct. 9999‘?“ Name: at 21. A 22. .;é_ 23. ID: A During the first year of operations, Al’s fast food restaurant had cash sales of $200,000. Other relevant information is as follows: Purchases $1) $70,000 Salaries 90 90,000 S’DALU 56-5 Other expenses #2? 10,000 Ending inventory fl 20,00 a. If Al’s business uses the accrual method, the net profit is $50,000. b. If Al’s business uses the accrual method, the net profit is $30,000. c. Al’s business is not eligible to use the cash method. R A; > m war/W7 (1. Only a. and c. 6. Only b. and c. If a vacation home is determined to be a personal/rental use residence, which of the following statements is false? All rental income is included in gross income. A11 rental related expenses are deductible for gross income. Expenses must be allocated between rental and personal use. Some expenses are deductible from AGI. e. None of the above. a. b. C. d. Harry divorced Wanda during the year. He incurred the following legal expenses as itemized on the bill from his attorney: Fees related to property division Fees related to the determination of dependency exemption General legal fees incident to divorce $500 _ lsoe— +dx 900 dpf—P/m;1‘fib' How much can Harry deduct? a. $0. b. $150. c. $650. (1. $1,550. e. None of the above. Jones Corporation incurred a $10,000 bad debt in the current year. Jones Corporation also had a $6,000 long-term capital gain during the current year. How should Jones report the bad debt deduction on the tax return? . ‘ a $0Md®dewmm. Ia’“”“5 é“’/flé&%:d‘/"”W7 Ans b. $3,000 bad debt deduction. c. $4,000 bad debt deduction. (1. $10,000 bad debt deduction. e. None of the above. Name: ‘ ID: A C, 25. On February 20, 2006, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2007, the stock became worthless. During 2007, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 0 r en'er long—term capital gain. How should Bill treat these items on his 2007 tax return? . 713/ _. f [you > a. $4,000 long-term capital loss and $9,000 short—term capital loss. ,Qz’l’ 5—1": ‘ b $4,000 long—term capital loss and $3,000 short—term capital loss. L7 CC” 5 0 a: 0. $8,000 ordinary loss and $3,000 short-term capital loss. 5, F 9 [— ’JJ/qg'“ d. $8,000 ordinary loss and $5,000 short-term capital loss. 40 WU e. $8,000 long—term capital loss and $6,000 short-term capital loss. (y 0 U> _¢,{_ 26 Which of the following events would produce a deductible loss? 4 3,100“) “:7 v" O Erosion of personal use land due to rain or wind. M ax Termite infestation of a personal residence over a several year period. Damages to personal automobile resulting from a taxpayer’s willful negligence. A stolen diamond ring. None of the above. {Dance On June 1 of the current year, Tab converted a machine to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis ofthe machine for cost recovery? a. $70,000. b. $90,000. c. $120,000. (1. $140,000. e. None of the above. 0 28. Tan Company acquires a new machine (ten-year property) on January 15, 2007, at a cost of $200,000. Tan, also acquires another new machine (seven-year property) on November 5, 2007, at a cost of $40,000. No election is made to use the straight-line method. The company does not make the § 179 election. Determine the total deductions in calculating taxable income related to the machines for 2007. E. QCJ/ ‘4‘") X ' ID i 2a; (My c. $102,000. 9,1; 0; I :7 : 21%; d. $132,858. - 9317/11? e. None ofthe above. A 29. Hans purchased a new passenger automobile on August 17, 2007, for $25,000. During the year the car was used 40% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2007. a. bug/P1255" (434 < '7“ [3-1: 7/ “IA: grLyqu/é /Iv:c b. $1,000. , - M c. $1,224. 55.61? x v, a 2. air.) x .L/ r /1 0w d. $1,500. 5 e. None of the above. 3,9016.) t” . if :- gf 9" a 30. Orange Corporation begins business on April 2, 2007. The corporation has start-up expenditures of $54,000. If Orange Corporation elects § 195, determine the total amount that Orange may deduct in 2007. $1,000. a. F, )— ow) m) 44, ‘—/ a/L) ) (7, c b. 2 650. ~ I /7 U ’_ "317, 1.);"J_ 1,.7'7 ’ k l W” C- > - ,,./:T" , /, a"? - 53,0212 ' 7 2 3 (1. $5,000. 11434:“ a u 2' a 3», g\ Mr“ , J, {2 e. None of the above. m / 3 5< (31 Ill. Harold conducts a business with the following results for the year: Revenue $20,000 Depreciation on car 3,960 Operating expenses of car 3,100 Rent 6,000 Wages 8,200 Harold estimates that due to a depressed real estate market, the value of land owned by the business declined by $5,200. a. Calculate the effect of Harold’s business on his AGI. b. How would your answer in part (a) change if the activity is a hobby? 5‘? V ‘ I L, ,, , 3) ("1; v1” c 4k. r I . ,' if/ ; _t~(,;.‘fn:r\ e); [7570 «\I j! /0U ‘X‘ Car / H Hem-L 5/! Wu C7 ,5 94:20 . / M/Qxfife J I >_ 2/ )0? «5‘0 ' .. _— _._‘ _‘____W m_-_«N_I~ a j] j by} \ i c ‘ , W _., 7— 1/0..» - f / 3 a a I '{J t * “my—N [/jL// r11,” [/{(6 /H l 1/ —-—~/ , 1 b X sir/Jim, ' / / wry 675.2, fle L7 ,"__.__’-——/r~-# j “(x l r M] you /)l)-€O/ ) 1 ' z, .. M... I/ , . d (an/1r / Exktlylrn’fl'; r_; J I H / 5? (06,“? fig 4;; x/jé’wJG. S. X _ if (I. j . flvflrvfic V), yaw v /InH 6* (9‘5/ [fog/Q7 /Mcomeu "W (M) V I 3 / .2 ,2” 1 I I w ’0 . f fiar >< /" 02M / . [/44 'yar‘V‘ We» ’L a, j : Jim’s/c- ) /" f,“ ),—‘Q r (Q [rd/L.) lit/"ja— _,..J:' és m(‘§C€//g”4pdt/5 X “J _ / 81/4,: (an ‘ / /_€ [11 IE5 IV. During the current year, J acob’s personal residence and some of the contents were damaged by Q a fire. Information with respect to the home and contents is as follows: Insurance Asset Adjusted Basis FMV Before FMV After Recovery Home $200,000 $600,000 $300,000 $150,000 Contents 100,000 80,000 50,000 10,000 In a separate incident, Jacob had a car accident. The car had originally cost Jacob $25,000. At the time of the accident, the car was worth $50,000. After the accident, the car was worth only $5,000. Because the car was a collector’s item, Jacob paid $40,000 to have it restored. The car was not insured at the time of the accident. If Jacob’s AGI is $90,000 before considering the above events, determine the amount of his deductible loss. {awry/(9 _ _ “flaw”...— r""" , J, ,1 Savor-’61? It'v. (Jud f0. 000 .3) Mr,»— 0, 06" M ,U. or 0 70,000 ( ’ / . (77?. war) /< I 0” V. Janice Morgan, age 32, is single and has no dependents. She is a freelance writer. In January / 0 2007, Janice opened her own office. Janice is a cash basis taxpayer. During 2007, Janice had the following income and expense items connected with her business: Income from sale of articles $118,000 Rent 16,500 Utilities 7,900 Supplies 1,800 Insurance 5,000 Travel (including meals of $1,200) 3,500 Janice purchased and placed in service the following fixed assets for her business: * Furniture and fixtures (new) costing $17,000 on January 10, 2007 * Computer equipment (new) costing $40,000 on July 28, 2007 Janice would like to deduct these costs as soon. as possible. J anice’s itemized deductions are as follows: State income tax ' $3,000 Home mortgage interest paid to First Bank 6,000 Property taxes on home 1,500 Charitable contributions 1,200 ,2. “77,709 Janice has interest income of $7,000 on certificates of deposit at Second Bank. Janice makes estimated federal tax payments of $10,500 for 2007. Compute Janice Morgan’s 2007 adjusted gross income and taxable income (ignore self- employment taxes). Clearly show your work. . . 1 SJ flfsj )vx (Eye 1.; -» // 3’ we "Ii fl {Mia {/ .4, p x? 71 t! /V£iv‘ <\ 77‘ a u/ ‘ {7; 2 M M J < A 0900 50/].2/122; (I M f / T K, pm}, JFI- x/‘E 7 Mg //1/VW if? 3’50) 7/1 / t J t, u, - /“, l > x \ Vic"? v i / J K L lav!) , g ’ 5 x , fl x,» f/ ) hr") WI’M “mm-“w- — '- / t’ r? b S 5; (7750 ,1 FL}; ,5: W7, LU.) 3 )l i; Sac #74 3/42. we, L/J all/J ‘ l V M?“ w” L” m "f: :7. . ’V .ly,L/‘ 7l 1 1 .2) v! fl/flgjfli. 1% m / i r1 71W 4 S / —v 2’ 1,] h,de ? I ' ' I 7 01)) A ’4 1-(9’7/[f' /Ié‘l 4 (I 2) L y I Iflfl/Hz-fi - I /0Q‘> “- -' C: )1 PM. f at _/ ‘3 igyfly ...
View Full Document

Page1 / 7

FedIncTaxFall2007Test2 - ‘I A, Name: - Ker Class: Date:...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online