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Unformatted text preview: Becker CPA Review, PassMaster Questions Lecture: Regulation 2 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. CPA PassMaster Questions–Regulation 2 Export Date: 10/30/08 Becker CPA Review, PassMaster Questions Lecture: Regulation 2 2 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Adjustments and Itemized Deductions CPA-01921 Type1 M/C A-D Corr Ans: B PM#1 R 2-01 1. CPA-01921 ARE R03 #2 Page 24 Smith, a single individual, made the following charitable contributions during the current year. Smith’s adjusted gross income is $60,000. • Donation to Smith’s church $5,000 • Art work donated to the local art museum (Smith purchased it for $2,000 four months ago and a local art dealer appraised it for) 3,000 • Contribution to a needy family 1,000 What amount should Smith deduct as a charitable contribution? a. $5,000 b. $7,000 c. $8,000 d. $9,000 CPA-01921 Explanation Choice "b" is correct. This question is asking for the actual deduction and requires the candidate to determine which items are deductible charitable contributions. The $5,000 donation to the church is allowable. The artwork donated to the local art museum is deductible to its basis, $2,000. Although it is appreciated property, Smith held the property for only four months, making it short-term capital gain property. Donations of short-term capital gain property are deductible to the donor to the extent of his/her adjusted basis. The contribution to a needy family is not a deductible contribution, as it was not made to a qualifying organization. Choice "a" is incorrect. This choice excludes the donation of the artwork to the art museum. Choice "c" is incorrect. This choice erroneously includes the donation of the artwork at the art's fair market value. Choice "d" is incorrect. This choice includes all three contributions. It erroneously includes the artwork at its fair market value as well as including the donation to the needy family, which is not a deductible donation. CPA-01928 Type1 M/C A-D Corr Ans: D PM#4 R 2-01 2. CPA-01928 ARE R99 #3 Page 28 Easel Co. has elected to reimburse employees for business expenses under a nonaccountable plan. Easel does not require employees to provide proof of expenses and allows employees to keep any amount not spent. Under the plan, Mel, an Easel employee for a full year, gets $400 per month for business automobile expenses. At the end of the year Mel informs Easel that the only business expense incurred was for business mileage of 12,000 at a rate of 30 cents per mile, the IRS standard mileage rate at the time. Mel encloses a check for $1,200 to refund the overpayment to Easel. What amount should be reported in Mel's gross income for the year?...
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