Exam 2 - 1 Which of the following expenses is/are...

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1. Which of the following expenses is/are deductible? I. Transportation and lodging expenses of $3,000 incurred to monitor state legislation that may affect the taxpayer’s business. II. Lobby expenses of $300 during the year to influence local town legislators to support pro- business legislation. a. Only statement I is correct b. Only statement II is correct. c. Both statements are correct d. Neither is correct. 2. Tom and Rosemary own a cabin near Stowe, Vermont. During the current year the cabin is rented for 31 days for $1,800. Tom and Rosemary used the cabin a total of 12 days during the year. After making the appropriate allocation of expenses between personal and rental use, the following rental loss was determined: Rental income $1,800 Property taxes (150) Mortgage interest (950) Repairs and maintenance (400) Utilities (300) Depreciation (200) Rental loss $(200) How should Tom and Rosemary report the rental income and expenses for the current year? a. Include the $1,800 in gross income, but no deductions are allowed. b. Report the $200 loss for AGI c. Only expenses up to the amount of $1,800 rental income may be deducted in the current year d. Report the interest ($950) and taxes ($150) as itemized deductions and the other expenses for AGI e. No reporting for the rental activity should be reported 3. Dunbar’s employer has a qualified pension plan to which it contributes 6% of his gross salary. Dunbar’s current annual salary is $50,000. The pension plan also earns $2,500 during the current year on contributions made to the plan on behalf of Dunbar. What is Dunbar’s gross income from these transactions for the current year? a. $50,000 b. $52,500 c. $53,000 d. $55,500 4. William purchases equipment classified as 7-year property on Jan. 5, 2010, at a cost of $80,000. Section 179 was not elected. He sells the equipment on Feb. 12, 2012. What is William’s 2012 depreciation deduction? a. $-0- b. $3,498 c. $6,996 d. $9,794 e. $13,992 5. Mary runs a brothel in Two Harbors (illegal under state law. Yes, even in Two Harbors.) and has the following items of income and expense. What is the amount that she must include in taxable income from this operation? Income $200,000 Expenses: Rent 8,000 Utilities 2,000 Bribes to police 10,000 Illegal kickbacks to local government officials 15,000
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a. Zero – it’s an illegal business b. $200,000 c. $190,000 d. $165,000 6. Sphinx, Inc., purchases a group-term life insurance plan for all its employees. Harold receives $250,000 of insurance for the current year at a cost to the company of $3,500. The IRS table of Premium values indicates that premiums are $1.08 annually per $1,000 of protection. How much
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This note was uploaded on 04/27/2011 for the course ACCT 3401 taught by Professor Adam during the Spring '11 term at Minnesota.

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Exam 2 - 1 Which of the following expenses is/are...

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