Unformatted text preview: 1. Quiz 2 Total Points
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3. Score ACCT 403
QUIZ 2 FALL 2011 28
NAME____________________________________ Directions – There are three questions worth a total of 28 points. The value of each question is
indicated at the end of each question. For questions 2 and 3, you must show your work to receive
1. Indicate True or False for the following statements based on a 2011 taxable year: (2 points each). F
________ a. T
________b. Justin is a cash basis taxpayer. He purchases office supplies for his business on November
15, 2011 with his credit card for $300. He pays $100 on his credit card bill which includes
the office supplies on December 15th, 2011 and the remaining balance on January 15th, 2012.
He may only deduct $100 as a trade or business expense in 2011.
Cash basis taxpayer = deduct when cc charged.
A taxpayer in the 28% MTR receives a qualified cash dividend of $1,000, The tax on the
dividend income is $150. $1,000 x .15 = $150. F
________c. Marty owns a trucking company. He makes a political contribution to Joe Black’s campaign
as Joe supports decreasing trucking regulations. Marty can deduct the contribution as a
ordinary and necessary business expense.
Campaign contributions are not deductible.
________d. Emily, who is in the 28% MTR sells a building for which she has used straight-line
depreciation. The total amount of depreciation taken was $10,000. The gain on the sale was
$20,000. The tax she will pay as a result of the sale is $4,000.
($10k x .25 (1250 unrecaptured) = $2,500) + (10k x .15 (1231 LTCG) = $1,500) = $4,000
________e. Laura had the following §1231 losses: 2005 ($14,000), 2008 ($5,000), 2009 ($8,000). In
2011 she had a §1231 gain of $30,000; therefore, she will report ordinary income of $13,000.
5 yr lookback; $5,000 + $8,000 = $13,000
________f. A is a cash basis individual who owns 60% of AB corporation. AB reports on the accrual
basis for tax & financial reporting. Both have 12/31 year ends. AB rents its office building
from A. At the end of 2011 AB owes A $6,000 in back rent which it is unable to pay until
February 1, 2012. AB can accrue and deduct the $6,000 on its 2010 tax return.
________h. Related party is cash-basis. Must wait until actually paid in 2012. An accountant incurs $200 for his subscription to an investment journal in order to assist
himself in investing his money. The $200 is deductible as a trade or business expense.
Misc. itemized deduction During the year, a taxpayer rents out his beach home for 60 days and he uses it for personal
reasons for 15 days. The beach home is considered a vacation home.
Greater of 14 days or 2. Assume Martha’s marginal tax rate is 33.0%. Calculate (1) the increase or decrease in tax and (2)
any capital loss carryover, if applicable, that would result from the following three independent
scenarios during 2011. Assume the stock sales do not qualify as small business stock.
a. Martha recognizes a $6,000 LTCG and a $1,000 LTCL from the sale of stock, a $3,000
LTCG from the sale of her coin collection, and a $2,000 STCL from the sale of stock. (3
($1,000) Collectibles Gain $3,000
($2,000) Net LTCG $5,000 x .15 = $ 750 (1) Net Collectibles Gain $1,000 x .28 = $ 280 (1)
Total Increase in Tax = $ 1,030 (1) Problem # 2 continued
b. Martha recognizes a $1,000 LTCG, and a $6,000 STCL all from the sale of stock. (2 points)
STCL ($6,000) Net STCL = ($5,000)
Current year tax savings = ($3,000) x .33 = $990 (1)
Carryover ($2,000) STCL (1) c. Martha sells an antique desk used in her business for $40,000 (no other capital or trade or
business assets sold this year). It was purchased for $25,000 and allowed tax depreciation
prior to the sale is $12,000. (3 points)
Sales price $40,000
Basis 3. 25,000
13,000 Sales price $ 40,000
27,000 (B) (1) (lesser)
1245 Ord. Inc.= (12,000) x .33 = $3,960 (1)
15,000 x .15 = 2,250 (1) John works part time as a tax preparer and works out of his home. This year he billed and received
$14,500 of revenue. He incurred $9,500 of business expenses (advertising, liability insurance,
supplies, license renewal, etc.). His home office is 20% of the square feet of his home. The
following home-related expenses were incurred during the year:
Interest on his principal residence
Utilities, repairs & homeowners insurance
Real estate taxes
Depreciation (if 100% of the home was
used for business) $12,500
5,000 Compute the amount of the business expenses and each home-related expense that is deductible as
a trade or business expense.(4 points)
Bus exp ( 9,500) (1)
Int & prop. tax $15,500 x .20 = 3,100
Util & ins. 5,500 x .20 = 1,100
Dep. exp 5,000 x .20 = (1,000) ltd to
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- Fall '11
- Depreciation, Taxation in the United States, business expense, LTCG, cash basis taxpayer