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final - 1T BUS 168A Final Exam Winter 2010 3 X 2 t Zfph 7...

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1 ANS F Earnings on 9 401 k plans are tax deferred until distributions are received 1 T 3 X 2 t jrJ c ZV I Iff Zf ph tfd6 1 3 7 31 33 12 2 o l ftS 2Kft IJ In BUS 168A Final Exam Winter 2010 Answer Section TRUEIFALSE PTS I OBJ 4 MSC 2 min 2 ANS F A suspended passive loss may be deducted when the activity is sold even if the sale of the activity results in a loss The suspended loss can offset Kelly s active income from her job DlF I REF p 9 26 1 Example 43 NAT AICPA FN Measurement 1 AACSB Analytic PTS I OBJ 3 MSC 5 min 3 ANS T The 25 000 offset generally phases out at the rate of 0 50 for each dollar by which a taxpayer s modified AGI exceeds 100 000 Therefore once modified AGI reaches 150 000 the deduction is phased out completely In this case the phase out does not apply DIF 1 REF p 11 7Ip II 8 NAT AICPA FN Measurement 1 AACSB Analytic PTS I DIF 1 REF p 11 22 NAT AICPA FN Measurement 1 AACSB Analytic OBJ 8 MSC 5 min MULTIPLE CHOICE 4 ANS A Jed is a cash basis taxpayer and therefore has no basis in the 5 000 not collected PTS I DlF I REF p 7 3 OBJ I NAT AICPA FN Measurement 1 AACSB Analytic MSC 5 min 5 ANS D This is a business bad debt and therefore the whole 12 000 was written off as an ordinary loss The collection of 5 000 represents 5 000 of income under the tax benefit rule PTS 1 OBJ I MSC 5 min 6 ANS B The amount collected is 5 000 85 000 80 000 in excess of Lucy s basis in the receivable DlF 1 REF p 7 41 p 7 5 NA T AICPA FN Measurement 1 AACSB Analytic PTS I DIF I REF p 7 3 NAT AICPA FN Measurement 1 AACSB Analytic OBJ 1 MSC 5 min
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ID A 7 ANS C Income should be reported based on the tax benefit rule The tax benefit was 8 000 5 000 offsets capital gains and 3 000 offsets ordinary income PTS 1 DIF 2 REF p 7 5 NAT AICPA FN Measurement 1 AACSB Analytic 8 ANS B Salary S 1244 ordinary loss Long term capital gain Long term capital loss Excess S 1244 loss 75 000 50 000 Worthless security Net long term capital loss limited to 3 000 Adjusted gross income OBJ 1 MSC 10min 90 000 50 000 30 000 25 000 7 000 32 000 2 000 38 000 DIF 2 REF p 7 61 p 7 7 NAT AICPA FN Measurement I AACSB Analytic PTS 1 OBJ 2 MSC 10 min 9 ANS C Independent contractors are also subject to the cutback adjustment choice a The tax benefit provided by the deduction does not offset the increased amount that must be paid under the self employment tax choice b Because all work related expenses are deductions for AGI the 2 of AGl reduction is avoided choice c Work related expenses will have to be reported on Schedule C choice d DIF 1 REF p 9 31 p 9 191 p 9 37 NA T AICPA FN Reporting 1 AACSB Analytic PTS 1 OBJ 1 III MSC 2 min 10 ANS A The self employment tax is twice the Social Security equivalent imposed on employees choice a Most unreimbursed employee expenses are deductions from AGI choice b and will be subject to the 2 of AGl adjustment choice d Unreimbursed entertainment expenses will be subject to the cutback adjustment choice c DIF 1 REF p 9 31 p 9 191 p 9 37 NA T AICP A FN Reporting 1 AACSB Analytic PTS 1 OBJ 1 III MSC 2 min 11 ANS B Choices a c and d would be allowed under the
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