Chapter 6 Exam
Identify the choice that best completes the statement or answers the question.
1. Saul is single, under age 65, and has gross income of $50,000. His deductible expenses are as follows:
Contribution to a traditional IRA
Expenses paid on rental property
Interest on home mortgage and property taxes on personal residence
State income tax
What is Saul’s AGI?
None of the above.
2. Agnes is the sole shareholder of Violet, Inc. For 2010, she receives from Violet a salary of $200,000 and
dividends of $100,000. Violet’s taxable income for 2010 is $500,000. On audit, the IRS treats $50,000 of
Agnes’s salary as unreasonable. Which of the following statements is correct?
Agnes’s gross income will increase by $50,000 as a result of the IRS adjustment.
Violet’s taxable income will not be affected by the IRS adjustment.
Agnes’s gross income will decrease by $50,000 as a result of the IRS adjustment.
Violet’s taxable income will increase by $50,000 as a result of the IRS adjustment.
None of the above is correct.
3. Benita incurred a business expense on December 10, 2010, which she charged on her bank credit card. She
paid the credit card statement which included the charge on January 5, 2011. Which of the following is correct?
If Benita is a cash method taxpayer, she cannot deduct the expense until 2011.
If Benita is an accrual method taxpayer, she can deduct the expense in 2010.
If Benita uses the accrual method, she can choose to deduct the expense in either 2010 or
Only b. and c. are correct.
a., b., and c. are correct.