Mid Term #1 Exam with solutions - FEDERAL INCOME TAXATION...

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FEDERAL INCOME TAXATION ACCT4331 MID-TERM #1 Spring 2008 SOLUTIONS Instructions : This exam is open-book only . No other papers, notes, etc., may be on the desk in front of you or referred to. You may use an approved calculator (4-function or math). All phones, pagers and other communication devices must be turned off and put away. Clearly mark your answers on BOTH the scantron AND on your test , and do so with a #2 pencil. SHOW ALL WORK to receive credit . Guesses on problems that show no work will be given a zero. All answers must reflect current tax law which we have been referring to this semester. Extra paper is available if you need any. Both this exam, any extra sheets given out AND your scantron must be turned in. There are 20 MC questions, each with a value of 2%, and 10 problems worth 60%, for a total of 100%. Signing this page indicates that you have not cheated and will not cheat in any way including discussing this exam with anyone else in class prior to turning in all corrections. This includes discussing any part of this exam with individuals who have not yet taken the exam. Good luck! 1
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1) Which of the following statements are false? a) Tax-exempt income would cause the taxpayer’s average tax rate to increase. b) Tax-exempt income would cause the taxpayer’s marginal tax rate to decrease. c) Tax-exempt income would cause the taxpayer’s effective tax rate to decrease. d) Tax-exempt income would increase the taxpayer’s taxable income. a) a and b b) b and c c) a, b and d d) All of the above are false e) None of the above are false 2) Which of the following statements are true as a function of economic income ? a) a and c b) b and d c) a, b and d d) All of the above are true e) None of the above are true 3) Excess capital losses of individuals may be offset against gains for other years. Specify the carry-over and/or carry-back period and the annual limit of the deductible capital loss that may be used as a deduction for AGI by an individual. 4) Which of the following items of income (for Federal tax purposes) is fully includible in gross income (i.e., is neither fully excludable from gross income, nor partially includible and partially excludable): a) Alimony received from a former spouse b) Interest from state and local governments c) Money and other property inherited from a relative d) Social security benefits e) Tips and gratuities f) Proceeds of life insurance received upon the death of one’s spouse a) e only b) b, c and f c) a and e d) a, d and e e) None of the above are fully includible in gross income 2
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