ACCT 553 Week 8 Final Exam Set 2

1. (TCO E) Interest, dividends, and annuities income are classified as _____. (Points : 5)

2. (TCO D) Which of the following is an example of a nontaxable; like-kind exchange? (Points : 5)

3. (TCO H) Alex files a tax return for the 2010 tax year. His adjusted gross income is $50,000. He had a net investment income of $9,000. In 2010, he had the following interest expenses.

Personal credit card interest: $4,000
Home mortgage interest: $8,000
Investment interest (on loans used to buy stocks): $15,000

What is the interest deduction for Alex for the 2010 tax year? (Points : 5)

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

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

Assuming that Mark's adjusted gross income was $60,000, how much of a medical-expense deduction may Mark claim on his 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 $90,000 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) Tom Smith had a short-term capital loss of $3,000 in 2010, a short-term capital gain of $1,900, a short-term capital loss carryover from 2010 of $700, a long-term capital gain of $1,800, and a long-term capital loss of $1,000. What is Tom's deductible loss in 2010? (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 _____.(Points : 5)

12. (TCO A) Which of the following does not constitute tax evasion? (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) Fines and penalties paid to the government for the violation of a law are _____. (Points : 5)

1. 1.(TCO E) Betty Jones files a return as a single taxpayer. Items of income received by

Betty in 2011 were as follows.

Interest on savings account with Bank of America: $100
Interest on state income tax refund: $50
Gambling winnings: $4,800
Dividends from mutual life insurance company on life insurance policy: $1,000
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 Betty include in her 2011 taxable income as interest?
(b) How much should Betty report as dividend income for 2011?
(c) How much should Betty 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) When might a taxpayer prefer a sale over a like-kind exchange that would result in the nonrecognition of gain under Section 1031?(Points : 17)

4. (TCO G) What is "significant participation," and why is it noteworthy?(Points : 17)

5. (TCO I) Amos, a single individual with a salary of $50,000, incurred and paid the following expenses during the year.

Medical expenses: $5,000
Alimony: $14,000
Casualty loss (after $100 floor): $1,000
State income taxes: $4,000
Moving expenses: $1,500
Contribution to a traditional IRA: $2,000
Student loan interest: $1,200

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

6. (TCO I) Kim had the following transactions for 2010.

Salary: $48,000
Damage award (compensatory) for city bus accident: $18,000
Loss on sale of stock investment: $5,600
Loan from father to purchase auto: $14,000
Alimony paid to former husband: $8,000

What is Kim's AGI for 2010? (Points : 17)

7. (TCO F) Pam owns a sole proprietorship, and Kevin is the sole shareholder of a C (regular) corporation. Each business sustained a $16,000 operating loss and a $2,500 capital loss for the year. Evaluate how these losses will affect the taxable income of the two owners. (Points : 17)

8. (TCO B) Dave forms a corporation and transfers property having a basis to him of $22,000 and a fair market value of $29,000 to the corporation for 1,000 shares of $11 par stock. One year later, Hank transfers property having a basis to him of $3,500 and a fair market value of $4,500 for 100 shares of the stock. Hank is not related to Dave. The corporation issued no other stock.

(a) How much gain does Dave recognize on his exchange? What is the basis to Dave of his 1,000 shares?
(b) What gain or loss is recognized by the corporation when it issues its shares to Dave? What is the basis to the corporation of the property it received from Dave?
(c) What is the gain or loss that Hank recognizes on this transaction, and what is his basis in his 100 shares?(Points : 17)

9. (TCO F) XYZ Company had a net loss of $90,000 from operations in 2007. Tina owns XYZ and works 20 hours a week in the business. She has a large amount of income from other sources and is in the 33% marginal tax bracket. Would Tina's tax situation be better if XYZ were a proprietorship or a C corporation? Explain why. (Points : 17)

10. (TCO H) Alex Smith purchased 30 shares of XYZ stock on April 30, 2010 for $210, and on September 1, 2010, he purchased 90 additional shares for $900. On November 8, 2010, he sold 48 shares, which could not be specifically identified, for $528, and on December 15, 2010, he sold another 25 shares for $50. What is his recognized gain or loss? (Points : 17)