Exam_1_Practice_Fall_2008

Exam_1_Practice_Fall_2008 - Tax 4001 Fall 2008 Practice...

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Tax 4001 Fall 2008 Practice Questions for Exam 1 Solutions are on last page 1. The constructive receipt doctrine: a. Does not apply to accrual basis taxpayers. b. Does not apply to cash basis taxpayers. c. Is used to distinguish unearned income from earned income. d. Means that a taxpayer cannot plan transactions to defer the recognition of income e. Provides an opportunity for a cash method taxpayer to delay the reporting of cash received. 2. Home Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the month ($25 each month), by the year ($280 per year), or two years in advance ($540). In December 2006, the company collected the following amounts applicable to future services: January 2007-December 2008 services (two-year contracts) $ 270,000 January 2007 – December 2007 services (one-year contracts) 1,120,000 January 2007 services (monthly contracts) 350,000 December 2006 services (monthly contracts) 100,000 How much of the above income must be reported as gross income in 2006, and 2007 respectively? 3. Answer #2 again, assuming Home Cable TV Company uses the cash-method of accounting? 4. Assume your marginal tax rate is 40% (combined Federal and state rates). Which would you prefer? a. $1.40 taxable income rather than $1.00 tax-exempt income. b. $.60 tax-exempt income rather than $1.00 taxable income. c. $1.50 taxable income rather than $1.00 tax-exempt income. d. $1.70 taxable income rather than $1.00 tax exempt income. e. Two of the above. Which two? ______________________. 5. Carol, a widow, elected to receive the proceeds of a $100,000 life insurance policy on the life of her deceased husband in 10 installments of $15,000 each. Her husband had paid premiums of $40,000 on the policy. How much income must Carol include in gross income over the life of the contract?
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6. Nell is in the 15% income tax bracket. During 2007 , she had the following capital transactions: Gain from sale of stock in Cardinal Corporation (held for 10 months) $1,000 Gain from sale of stock in Wren Corporation (held for 20 months) 2,000 Gain from sale of stock in Duck Corporation (held for 36 months) 3,000 a) Compute Nell’s tax on these transactions. b) If Nell was in the 28% income tax bracket, instead, how much tax would she pay on these gains? c) If Nell was in the 15% income tax bracket and she recognized these gains in 2008, instead of 2007, how much tax would she pay on these gains? 7.
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This note was uploaded on 06/28/2010 for the course ACCT 185 taught by Professor Bass during the Spring '10 term at Institute for Advanced Study.

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Exam_1_Practice_Fall_2008 - Tax 4001 Fall 2008 Practice...

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