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# (TCO 3) Cornelia incurred the following expenses for her dependent son during the current year:

2. (TCO 3) Cornelia incurred the following expenses for her dependent son during the current year:

Payment of principal on son's mortgage loan
\$5,500
Interest on son's mortgage loan
\$4,500
Payment of son's medical expenses
\$2,500
Payment of son's property taxes
\$2,750

How much may Cornelia consider in computing her itemized deductions?
\$2,750
\$2,500
\$4,500
\$9,750
\$15,250

3. (TCO 3) Candice, who holds a bachelor of education degree, is a middle school teacher in Birmingham, Alabama. The school board recently changed its minimum education requirement by prescribing five years of college training. Existing teachers, such as Candice, are allowed 5 years in which to acquire the additional year of education. Pursuant to this requirement, Candice spends her 2010 summer break attending University of Alabama taking education courses. Her expenses are as follows:

Books and tuition
\$3,500
Meals
\$800
Lodging
\$900
Laundry while in travel status
\$350
Transportation
\$950

Her education expense deduction is:
\$6,500
\$6,100
\$5,750
\$3,500
None of the above.

4. (TCO 3) During 2010, Doris paid the following interest charges:

Home mortgage
\$6,000
On loan to purchase a new car
\$1,500
On student loan
\$800

If Doris itemizes her deductions for 2010, the amount deductible for interest expense as an itemized deduction is:
\$1,500
\$6,000
\$7,500
\$8,300
None of the above.

5. (TCO 4) During 2009, Eleanor earns \$146,000 in wages as an employee of an accounting firm. She also earns \$26,000 in gross income from an outside consulting service she operates. Deductible expenses paid in connection with the consulting service amount to \$6,000. Eleanor also has a recognized long-term capital gain of \$1,000 from the sale of a stock investment. She must pay a self-employment tax on:
\$0.
\$20,000.
\$26,000.
\$27,000.
None of the above.

6. (TCO 5) Which of the following is not an itemized deduction allowed for AMT purposes?
Casualty losses.
Gambling losses.
State income taxes.
Medical expenses in excess of 10 percent of AGI.
None of the above are correct.

7. (TCO 5) Which of the following is a positive adjustment for AMT?
Medical expenses.
Miscellaneous itemized deductions.
Property tax on personality.
All of the above.
None of the above.
8. (TCO 7) Kobe, age 19, is a full-time student at State College and a candidate for a bachelor's degree. During 2009, he received the following payments:
Wages
\$3,000
State scholarship for ten months (tuition and books)
\$5,000
Loan from college financial aid office
\$2,750
Cash support from parents
\$2,500
Cash dividends
\$1,500
Cash prize awarded in contest
\$1,250
\$16,000

What is Kobe's adjusted gross income for 2009? (Points: 5)
\$5,500.
\$5,750.
\$7,000.
\$9,750.
None of the above.

9. (TCO 7) Daisy is the manager of a motel. The employer gives Daisy the option of cash of \$800 per month or rent-free housing. Daisy elects the rent-free housing and considers this a fringe benefit, since she would otherwise be required to pay \$750 per month rent. The room that Daisy occupied normally rented for \$50 per night, or \$1,500 per month. On the average, 90% of the motel rooms were occupied. As a result of this rent-free use of a room, Daisy is required to include in gross income:
\$0
\$800 per month
\$1,350 (\$1,500 X .90 = \$1,350) per month
\$1,500 per month
None of the above.

10. (TCO 7) On August 1, 2009, Moore leases and places in service a passenger automobile. The lease will run for five years and the payments are \$600 per month. During 2009, he uses his car 80% for business and 20% for personal activities. Assuming the dollar amount from the IRS table is \$160, determine Moore's inclusion amount. (Points: 5)
\$160
\$128
\$107
\$53
None of the above.

11. (TCO 8, 9) Victoria, whose husband died in December 2008, maintains a household in which her dependent son lives. What is Victoria's filing status for the tax year 2010?
Surviving spouse.
Single.
Married, filing separately.
None of the above.

12. (TCO 2) In 2009, Jose pays \$5,000 to become a charter member of Private University's Athletic Council. The membership ensures that Jose will receive choice seating at all of Private's home football games. Also in 2009, Jose pays \$1,000 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution?
\$0
\$1,000
\$4,000
\$6,000
None of the above.

13. (TCO 2, 11) Judy, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in North Carolina, and wants to expand into the TV rental business in South Carolina and Georgia. During 2009, she spends \$30,000 to investigate TV rental businesses in South Carolina and \$15,000 to investigate TV rental businesses in Georgia. She acquires the South Carolina operations, but not the outlets in Georgia. As to these expenses, Judy should:
Amortize \$30,000 over 60 months and capitalize \$15,000.
Expense \$45,000 for 2005.
Expense \$15,000 for 2005 and capitalize \$30,000.
Capitalize \$45,000.
None of the above.

14. (TCO 6) Vivian and Leonard exchange real estate in a like-kind exchange. Vivian's basis in the real estate, subject to a \$150,000 mortgage, is \$220,000 and the fair market value is \$300,000. She receives real estate with a fair market value of \$150,000 and Leonard assumes the mortgage. What is Vivian's recognized gain and adjusted basis for the real estate received?
\$0, \$240,000
\$80,000, \$150,000
\$80,000, \$300,000
\$150,000, \$300,000
None of the above.

15. (TCO 6) During 2009, taxpayers decided to sell their residence, which had a basis of \$350,000. They had owned and occupied the residence for 8 years. To make it more attractive to prospective buyers, they had it painted in April at a cost of \$5,000 and paid for the work immediately. They sold the house in May for \$500,000. Broker's commissions and other selling expenses amounted to \$30,000. They purchased a new residence in June for \$250,000. What is the realized gain? (Points: 5)
\$150,000
\$120,000
\$115,000
\$0
None of the above.

16. (TCO 6) On August 10, 2009, an investor purchased 1,000 shares of Planet Corporation for \$12,000. On January 2, 2010, the stock became worthless. What is the recognized gain or loss and how is it classified?
\$3,000 STCL.
\$12,000 STCL.
\$3,000 LTCL.
\$12,000 LTCL.
None of the above.

17. (TCO 8) During the current year, Carolyn is supported as follows:
Percent of Support
Torie (a son)
24%
10%
Rosemary (a daughter)
27%
Jerome (unrelated but a good
friend of the family)
15%
Self support
24%

During the year, Caroly lives with Torie in his home for 10 months and for 2 months in her own home. Under a multiple support agreement, who could qualify for the dependency deduction for Carolyn?
Torie or Rosemary.
None of the above.

18. (TCO 9) A taxpayer who loses in the U.S. Court of Federal Claims may appeal directly to the:
U.S. Court of Appeals (Regional Circuit).
U.S. Court of Appeals (Federal Circuit).
U.S. District Court.
U.S. Supreme Court.
None of the above.

19. (TCO 9) Which of the following is considered a primary source of the tax law?
Article in the Journal of Taxation, February 2004.
U.S. Tax Court decision.
General Counsel Memoranda.
None of the above.

20. (TCO 2, 3, 10) Sanford is in the farming business. During the year, a tornado destroyed one of his barns. The adjusted basis of the barn was \$90,000. The amount of the damage was complete destruction. The barn was not insured. If Sanford has adjusted gross income for the year of \$100,000 (before considering the \$90,000 loss), determine the amount of loss he can deduct on his income tax return for the current year.
\$-0-
\$90,000
\$89,900
\$79,900
None of the above.

21. (TCO 1) The Federal income tax applicable to corporations:
Requires the determination of adjusted gross income.
Allows a deduction for dependency exemptions.
Allows a deduction for personal exemptions.
Allows a deduction for the standard deduction.
None of the above.

(TCO 3, 11) Oliver deducts expenses when accrued and recognizes income when received. On what basis might the IRS question this procedure?

(TCO 1, 2, 11) Individuals who receive substantial Social Security benefits are usually not eligible for the tax credit for the elderly or disabled because these benefits effectively eliminate the base upon which the credit is computed. Explain.

(TCO 1, 5) Chris spends \$800,000 to build a qualified low-income housing project, which is placed in service on January 1, 2005. He financed the project using his personal funds. What is the amount of the low-income housing credit that Chris may claim in 2005 (assuming a rate of 7.96%)? What is the total amount of the credit that Chris may claim as a result of the \$800,000 expenditure?

(TCO 9, 12) Explain the ethical implications where a tax preparer knowingly prepares a return with false information.

(TCO 1, 3, 10) In 2009, Walter had the following transactions:
Salary
\$80,000
Capital loss from a stock investment
(4,000)
Moving expense to change jobs
(10,000)
Received repayment of \$10,000 loan he made to his brother in 2005 (includes interest of \$1,000)
11,000
Property taxes on personal residence
2,000
Based on the information given above, determine Walter's AGI. Be sure to show your work.

(TCO 1, 6, 11) Hubert purchases Fran's jewelry store for \$975,000. The identifiable assets of the business are as follows:

Basis
FMV
Inventory
\$125,000
\$150,000
Accounts receivable
55,000
50,000
Building
200,000
275,000
Land
280,000
300,000
Hubert and Fran agree to assign \$125,000 to a five-year covenant not to compete. How should Hubert allocate the \$975,000 purchase price to the assets?

## This question was asked on Dec 17, 2010.

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