Mid Term #2 Exam with solutions

Mid Term #2 Exam with solutions - FEDERAL INCOME TAXATION...

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FEDERAL INCOME TAXATION ACCT4331 MID-TERM #2 Spring 2008 Name:________________________________ Signature:______________________________ 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 T/F questions each with a value of 1%, 5 MC questions each with a value of 2%, and 7 problems each worth 10%, 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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True (A) or False (B) – worth 1 point each ___ 1. In regard to the statutory scheme for determining deductibility, a taxpayer may deduct an expense only if it is ‘‘specifically’’ identified (e.g., interest) as deductible in the Code. For example, advertising expense of a business would not be deductible unless a code provision specifically indicated that advertising expense is deductible. False. The expense is deductible if it meets the general criteria in §§ 162 and 212 and is not disallowed by some other section of the Code. (See p. 7-3.) ___ 2. An ‘‘ordinary’’ business expense need not be recurring. True. The expense only needs to be one that is customarily incurred under the given set of circumstances. (See p. 7-7.) ___ 3. A cash basis taxpayer may deduct all prepaid interest in the year it is paid. False. Except for ‘‘points,’’ interest may only be deducted over the period it accrues. (See p. 7-13.) ___ 4. Any expense that is reimbursed by the taxpayer’s employer is deductible for A.G.I. (e.g., reimbursement of a parking ticket incurred by a salesperson when calling on a customer). False. If an expense is reimbursed by the employer, the expense will be classified as a deduction for A.G.I., but only if it is otherwise deductible under some section of the Code. (See pp. 7-20 and 7-21.) ___ 5. According to the Cohan rule, taxpayers may deduct reasonable estimates of expenses where they have no evidence, such as a receipt, to substantiate the actual amount. True. A taxpayer may deduct with certain exceptions such as entertainment expenses,
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Mid Term #2 Exam with solutions - FEDERAL INCOME TAXATION...

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