Practice_Questions_Exam_1_Summer_2010 - TAX 4001 Taxation...

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1 TAX 4001, Taxation of Business Entities Practice Questions for Exam #1 Solutions begin on page 5 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 2008, the company collected the following amounts applicable to future services: January 2009-December 2010 services (two-year contracts), $270,000 January 2009 – December 2009 services (one-year contracts), $1,120,000 January 2009 services (monthly contracts), $350,000 December 2008 services (monthly contracts), $100,000 How much of the above income must be reported as gross income in 2008, 2009, and 2010 , 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. Green Company purchased a $1 million life insurance policy on the company’s chief executive officer, Howard. After the company had paid $300,000 in premiums, Howard died and the company collected the $1 million face amount of the policy. The company also purchased group-term life insurance on all its employees. Howard’s widow, Agnes, received the $150,000 proceeds from the group-term life insurance policy. How much income should Green Company and Agnes include in their gross income?
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2 6. Nell is in the 15% income tax bracket. During 2009 , 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)
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This note was uploaded on 08/25/2010 for the course TAX 4001 taught by Professor Hampton,m during the Fall '08 term at University of Central Florida.

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Practice_Questions_Exam_1_Summer_2010 - TAX 4001 Taxation...

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