ACCT 553 Week 8 Final Exam Set 1

1. (TCO E) Which of the following is not a passive activity? (Points : 5)

2. (TCO D) Tom Tanner traded in a printing press with an adjusted basis of $20,000 for a smaller press valued at $12,000. In addition to the smaller press, Tom received $3,000 in cash and was relieved of the existing liability of $5,000 on the old press. What is Tom's recognized gain? (Points : 5)

3. (TCO H) Bob and Susan file a joint return for the 2010 tax year. Their adjusted gross income is $80,000. They had a net investment income of $9,000. In 2010, they had the following interest expenses.

Personal credit card interest: $5,000
Home mortgage interest: $10,000
Investment interest (on loans used to buy stocks): $10,000

What is the interest deduction for Bob and Susan for the 2010 tax year? (Points : 5)

4. (TCO B) Mike and Mindy Miller paid the following medical expenses during the year (all in excess of reimbursement).

Hospital and doctor bills: $840
Medicine and drugs: $730
Hospitalization insurance premiums: $6,200
Medicine and drugs (for dependent mother, age 71): $1,060

Assuming that the Millers' adjusted gross income was $50,000, how much of a medical expense deduction may the Millers claim on their joint return? (Points : 5)

5. (TCO A) The following taxes were paid by Adam Smith.

Real estate taxes on his home: $3,000
State income taxes: $900
Cigarette taxes: $500
State gasoline tax (personal use of automobile): $150
Social security tax (withheld from wages): $5,500
Penalty on tax underpayment: $800

In itemizing his deductions, what is the amount that Adam may claim as a deduction for taxes? (Points : 5)

6. (TCO E) Josh sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Josh received $60,000 cash and a painting with a fair market value of $20,000 from the buyer. The buyer also assumed Josh's $25,000 loan on the equipment. Josh paid $5,000 in selling expenses. What is the amount of Josh's gain on the sale? (Points : 5)

7. (TCO I) In October of 2011, David and Betty Bennett sold their residence for $400,000. They purchased it in 2000 for $200,000. They made major capital improvements during their 10-year ownership, which totaled $80,000.
What is their recognized gain? (Points : 5)

8. (TCO I) Which of the following entities may select any tax period (calendar or fiscal)? (Points : 5)

9. (TCO D) For 2011, Greg Grammer had a short-term capital loss of $4,000, a short-term capital gain of $1,900, a short-term capital loss carryover from 2010 of $700, a long-term capital gain of $800, and a long-term capital loss of $1,000. What is Greg's deductible loss in 2011? (Points : 5)

10. (TCO A) The term "Practice before the IRS" refers to _____. (Points : 5)

11. (TCO F) To be deductible for tax purposes, a trade or business expenditure must be _____.

12. (TCO A) The art of using existing tax laws to pay the least amount of tax legally possible is known as _____. (Points : 5)

13. (TCO C) Which of the following items is not subject to federal income tax? (Points : 5)

14. (TCO B) Sam owes Bob $8,000. Bob cancels (forgives) the debt. The cancellation is not a gift, and Sam is bankrupt. Which of the following statements is correct concerning the impact of this transaction? (Points : 5)

15. (TCO G) All of the following income items are includible in an employee's gross income except _____. (Points : 5)

16. (TCO F) Which of the following types of taxes is not deductible? (Points : 5)

1. (TCO E) Zelda Zayer has been a widow for over 3 years and files a return as a single taxpayer. Items of income received by Zelda in 2011 were as follows.

Interest on savings account with Bank of America: $50
Interest on state income tax refund: $25
Gambling winnings: $2,400
Dividends from mutual life insurance company on life insurance policy: $500
Dividends from Better Auto Co. received on January 2, 2011: $875
The total dividends received on the life insurance policy do not exceed the aggregate of the premiums paid to the company.

(a) How much should Zelda include in her 2011 taxable income as interest?
(b) How much should Zelda report as dividend income for 2011?
(c) How much should Zelda include in taxable “Other Income” for her state lottery winnings?

(Points : 17)

2. (TCO E) Distinguish between realized gains and losses and recognized gains and losses. (Points : 17)

3. (TCO F) Describe how the exclusion on a sale of residence can be prorated. (Points : 17)

4. (TCO G) Differentiate between the following: active income, passive income, and portfolio income. (Points : 17)

5. (TCO I) Rick, a single individual with a salary of $45,000, incurred and paid the following expenses during the year.

Student loan interest: $800
Medical expenses: $5,000
Alimony: $11,000
Mortgage interest on personal residence: $3,000
State income taxes: $4,000
Moving expenses: $1,500
Contribution to a traditional IRA: $2,000

Analyze the above expenses and determine which ones are deductible for AGI. Please support your position. (Points : 17)

6. (TCO I) A review of Bearing's Year 2 records disclosed the following tax information:

Wages	$ 20,000
Taxable interest and qualifying dividends	4,000
Schedule C trucking business net income	32,000
Rental (loss) from residential property	(35,000)
Limited partnership (loss)	(5,000)

Bearing actively participated in the rental property and was a limited partner in the partnership. Bearing had sufficient amounts at risk for the rental property and the partnership. What is Bearing's Year 2 adjusted gross income?

(Points : 17)

7. (TCO F) (Becker CPA Review Course, Reg. 1) Smith has an adjusted gross income (AGI) of $120,000 without taking into consideration $40,000 of losses from rental real estate activities. Smith actively participates in the rental real estate activities. What amount of the rental losses may Smith deduct in determining taxable income? (Points : 17)

8. (TCO B) (Becker CPA Review Course Reg. 3) For the year ended December 31, Year 6, Taylor Corp. had a net operating loss of $200,000. Taxable income for the earlier years of corporate existence, computed without reference to the net operating loss, was as follows:

Taxable Income:

Year 1 $ 5,000
Year 2 10,000
Year 3 20,000
Year 4 50,000
Year 5 50,000

What amount of net operating loss will be available to Taylor for the year ended December 31, Year 7? (Points : 17)

9. (TCO F) (Becker CPA Review Exam Reg. 1) Randolph is a single individual who always claims the standard deduction. Randolph received the following in the current year:

Wages	$ 22,000
Unemployment compensation	6,000
Pension distribution (100% taxable)	4,000
A state tax refund from the previous year	425

What is Randolph’s gross income? (Points : 17)

10. (TCO H) On May 18, 2011, Sara Douglas purchased 30 shares of WXY stock for $210, and on October 29, 2011, she purchased 90 additional shares for $900. On November 28, 2011, she sold 48 shares, which could not be specifically identified, for $480, and on December 8, 2011, she sold another 25 shares for $150. What is her recognized gain or loss? (Points : 17)