Week 8 : Final Week – Final Exam
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Question 1.1. (TCOs 2 & 3) Evelyn sold her personal residence to Drew on March 1 for $300,000. Before the sale, Evelyn paid the real estate taxes of $3,000 for the calendar year. For income tax purposes, the real estate tax deduction is apportioned as follows: $750 to Evelyn and $2,250 to Drew. Drew’s basis in the residence is: (Points : 5)
$297,750.
$299,250.
$300,750.
$302,250.
None of the above
Question 2.2. (TCOs 3, 4, 5, & 7) In the current year, Galaxy Corporation, a closely held C corporation that is not a personal service corporation, has $80,000 of passive losses, $60,000 of active business income, and $10,000 of portfolio income. How much of the passive loss may Galaxy deduct in the current year? (Points : 5)
$0
$10,000
$60,000
$70,000
None of the above
Question 3.3. (TCOs 3, 4, 5, & 7) Dorothy holds two jobs. Her main job is with Eggplant Corporation, and her part-time job is with Carrot Company. On a typical workday, she drives her car as follows: home to Eggplant, Eggplant to Carrot, and Carrot to home. Applicable mileage is as follows:
Miles
Home to Eggplant 4
Eggplant to Carrot 10
Carrot to home 14
On a typical day, Dorothy’s deductible mileage is: (Points : 5)
10.
20.
24.
28.
None of the above
Question 4.4. (TCOs 3, 4, 5, & 7) Carrie owns a mineral property that had a basis of $15,000 at the beginning of the year. The property qualifies for a 22% depletion rate. Gross income from the property was $150,000, and net income before the percentage depletion deduction was $100,000. What is Carrie’s tax preference for excess depletion? (Points : 5)
$0
$15,000
$18,000
$33,000
None of the above
Question 5.5. (TCOs 3, 4, 5, & 7) During the past two years, through extensive advertising and improved customer relations, Beech Corporation estimated that it had developed customer goodwill worth $100,000. For the current year, determine the amount of goodwill Beech Corporation may amortize. (Points : 5)
$3,334
$5,000
$6,667
$20,000
None of the above
Question 6.6. (TCOs 3, 4, 5, & 7) Damien, not a dealer in real estate, sold real estate with a basis of $250,000 for $500,000 cash, a note for $250,000, and the buyer assumed Damien’s mortgage on the property of $125,000. During the year, the purchaser paid Damien $30,000 principal and $72,000 interest on the note and paid $6,000 principal and $18,000 interest on the mortgage he assumed. The contract price for the above transaction is what amount? (Points : 5)
$875,000
$750,000
$625,000
$500,000
None of the above
Question 7.7. (TCOs 3, 4, 5, & 7) Which of the following is not an itemized deduction allowed for AMT purposes? (Points : 5)
Casualty losses
Gambling losses
State income taxes
Medical expenses in excess of 10% of AGI
None of the above
Question 8.8. (TCOs 3, 4, 5, & 7) Alex works as an auditor for a major CPA firm. During the months of August and September of each year, he is permanently assigned to the team auditing of Hummingbird Corporation. As a result, every day he drives from his home to Hummingbird and returns home after work. Mileage is as follows:
Miles
Home to office 15
Home to Hummingbird 22
Office to Hummingbird 6
For the period of August and September, Alex’s deductible mileage for each workday is: (Points : 5)
12.
15.
30.
44.
None of the above
Question 9.9. (TCOs 7, 8, & 9) Matt and Shanekwa, ages 45 and 44, respectively, file a joint tax return for 2012. They provided all of the support for their 24-year-old son, who had $2,500 of gross income. Their 23-year-old daughter, a full-time student until her graduation on June 14, 2012, earned $6,000, which was 45% of her total support during 2012. Her parents provided the remaining support. Matt and Shanekwa also provided total support for Shanekwa’s father who is a citizen and life-long resident of Portugal. How many personal and dependency exemptions can Matt and Shanekwa claim on their 2012 income tax return? (Points : 5)
Five
Four
Three
Two
None of the above
Question 10.10. (TCOs 2, 8, & 9) Shaquille operates a drug-running operation and incurred the following expenses:
Salaries $200,000
Illegal kickbacks $32,000
Bribes to border guards $24,000
Cost of goods sold $300,000
Rent $12,000
Interest $18,000
Which of the above amounts reduces his taxable income? (Points : 5)
$230,000
$300,000
$386,000
$586,000
None of the above
Question 11.11. (TCOs 2, 8, & 9) During 2012, Robin sold the following assets: business equipment for a $6,000 loss, stock investment for a $15,000 loss, and her principal residence for a $14,000 loss. Presuming adequate income, how much of these losses may Robin claim on her 2012 return? (Points : 5)
$3,000
$9,000
$21,000
$35,000
None of the above
Question 12.12. (TCOs 2 & 11) Nicholas loaned Lyle (a friend) $30,000 in 2011 with the agreement that the loan would be repaid in two years. In 2012, Lyle filed for bankruptcy and Nicholas learned that he could expect to receive $0.50 on the dollar. In 2012, final settlement was made and Nicholas received $16,000. Assuming the loan is a nonbusiness bad debt, how should Nicholas account for the bad debt? (Points : 5)
$14,000 ordinary loss in 2012
$15,000 ordinary loss in 2010, and $9,000 ordinary loss in 2012
$14,000 short-term capital loss in 2012
275 $15,000 short-term capital loss in 2010, and $9,000 short-term capital loss in 2012
None of the above
Question 13.13. (TCOs 2 & 11) Kelsey, a stock broker, owns a separate business in which he participates in the current year. He has one employee who works part-time in the business. Which of the following statements is correct? (Points : 5)
If Kelsey participates for 300 hours and the employee participates for 300 hours during the year, then Kelsey does not qualify as a material participant.
If Kelsey participates for 50 hours and the employee participates for 2 hours during the year, then Kelsey probably does not qualify as a material participant.
If Kelsey participates for 501 hours and the employee participates for 2,000 hours during the year, then Kelsey does not qualify as a material participant.
Kelsey will automatically be a material participant in an activity in the current year if he was a material participant in a personal service activity for the three prior years.
All of the above
Question 14.14. (TCOs 2 & 11) During the year, Clara took a trip from Chicago to Rome. She was away from home for 20 days. She spent 6 days vacationing and 14 days on business (including the 3 travel days). Her expenses are as follows:
Airfare $1,600
Lodging (20 days x $70) $1,400
Meals (20 days x $120) $2,400
Valet service (cleaning of laundry) $160
Chris’s deduction is: (Points : 5)
$3,100.
$4,360.
$5,080.
$5,560.
None of the above
Question 15.15. (TCOs 2 & 11) In January, Charlie sold stock with a cost basis of $40,000 to his brother Allen for $30,000, the fair market value of the stock on the date of sale. Five months later, Allen sold the same stock through his broker for $45,000. What is the tax effect of these transactions? (Points : 5)
Disallowed loss to Allen of $10,000; recognized gain to Charlie of $5,000
Disallowed loss to Charlie of $10,000; recognized gain to Allen of $15,000
Deductible loss to Charlie of $10,000; recognized gain to Allen of $15,000
Disallowed loss to Charlie of $10,000; recognized gain to Allen of $5,000
None of the above
Week 8 : Final Week – Final Exam
Question 1.1. (TCO 1) Which of the following is a judicial source of the tax law? (Points : 5)
Revenue Procedure 99-12
108 T.C. 384 (1997)
§ 61 of the Internal Revenue Code
All of the above
None of the above
Question 2.2. (TCOs 2, 3, 6, 8, 9, & 10) Which, if any, of the following is a deduction from AGI? (Points : 5)
Individual retirement account contributions
Moving expenses
Investment interest expense
One-half of self-employment tax paid
All of the above
Question 3.3. (TCOs 2, 3, 6, 8, 9, & 10) Sergio lives in an apartment building and has a 2-year lease that began 13 months ago. His landlord is willing to pay Sergio $2,000 to vacate the apartment immediately. The landlord wants to sell the building to a buyer who will convert the building into condominiums. Sergio’s lease on the apartment is a capital asset, but has no tax basis. The $2,000 Sergio will receive if he accepts the landlord’s offer will be: (Points : 5)
an ordinary gain.
a short-term capital loss.
a long-term capital gain.
a short-term capital gain.
excludible from gross income.
Question 4.4. (TCOs 2, 3, 6, 8, 9, & 10) Rockwell purchased a tract of land for $125,000 in 2004 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $300,000. Highway engineers surveyed the property and indicated that he would probably get $200,000. The highway project was abandoned in 2012, and the value of the land fell to $80,000. What is the amount of loss Rockwell can claim in 2012? (Points : 5)
$0
$100,000
$175,000
None of the above
Question 5.5. (TCOs 2, 3, 6, 8, 9, & 10) Donald has a $20,000 disallowed loss from a sale of property to a related taxpayer. The property was sold for $70,000. Donald uses the $70,000 to purchase different property than the property that was sold. Which of the statements below is correct concerning the property Donald purchased? (Points : 5)
The basis of the property purchased is $50,000 ($70,000-$20,000).
The holding period of the property sold carries over to the property purchased.
Donald will be able to offset his $20,000 disallowed loss against any realized gain he has when he sells the property purchased.
The related taxpayer will be able to offset as much of this $20,000 disallowed loss as is necessary to reduce his realized gain to $0 when he sells the property.
None of the above
Question 6.6. (TCOs 2, 3, 6, 8, 9, & 10) A taxpayer who loses in the U.S. Court of Federal Claims may appeal directly to the: (Points : 5)
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
Question 7.7. (TCO 6) Eighteen-year residential real property owned by an individual has accumulated accelerated depreciation of $275,000 at January 1, 2012. If depreciation had been computed under the straight-line method, accumulated depreciation would be $200,000. The property is sold on January 1, 2012 with a recognized gain of $300,000. What is the amount of depreciation recapture? (Points : 5)
$75,000
$200,000
$275,000
$300,000
None of the above
Question 8.8. (TCO 6) Opal, Inc. owns a delivery truck that initially cost $40,000. After a depreciation of $15,000 had been deducted, the truck was traded-in on a new truck that cost $50,000. Opal was required to pay the car dealer $10,000 in cash. What is Opal’s basis for the new truck? (Points : 5)
$0
$35,000
$50,000
$65,000
None of the above
Question 9.9. (TCO 6) Judy exchanges a rental house at the beach with an adjusted basis of $165,000 and a fair market value of $150,000 for a rental house at the mountains with a fair market value of $100,000 and cash of $50,000. What is the recognized gain or loss? (Points : 5)
$0
$100,000
$50,000
($15,000)
None of the above
Question 10.10. (TCO 6) Terron gives her son stock with a basis in her hands of $225,000 and a fair market value of $180,000. No gift tax is paid. Her son subsequently sells the stock for $190,000. What is his recognized gain or loss? (Points : 5)
$0
($45,000)
($35,000)
$10,000
None of the above
Question 11.11. (TCOs 2, 6, & 11) Juaquin owns five activities. He elects not to group them together as a single activity under the appropriate economic unit standard. He participates for 140 hours in Activity A, 165 hours in Activity B, 196 hours in Activity C, 100 hours in Activity D, and 85 hours in Activity E. Which of the following statements is CORRECT? (Points : 5)
Activities A, B, C, D, and E are all significant participation activities.
Activities A, B, C, and D are all significant participation activities.
Juaquin is a material participant with respect to Activities A, B, and C only.
Juaquin is a material participant with respect to Activities A, B, C, D, and E.
None of the above
Week 8 : Final Week – Final Exam
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Question 1.1. (TCOs 1, 2, 4, & 7) Dabney and Nancy are married, both gainfully employed, and have two children who are 3 and 6 years old. Dabney’s salary is $35,000 while Nancy’s salary is $40,000. During the year, they spend $7,000 for child care expenses that are required so both of them can work outside of the home. Calculate the credit for child and dependent care expenses. (Points : 15)
Question 2.2. (TCOs 1, 3, & 10) In 2012, 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 2007 (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. (Points : 15)
Question 3.3. (TCOs 9 & 12) In connection with facilitating the function of the IRS in the administration of the tax laws, comment on the utility of the following: I) the power to make adjustments to properly reflect a taxpayer’s income, and II) the availability of interest and penalties for taxpayer noncompliance. (Points : 15)
Question 4.4. (TCOs 1 & 5) Steve has a tentative general business credit of $85,000 for the current year. His net regular tax liability before the general business credit is $95,000, and his tentative minimum tax is $90,000. Compute Steve’s allowable general business credit for the year. (Points : 20)
Week 8 : Final Week – Final Exam
Question 1.1. (TCOs 1, 6, 8, & 11) Faith inherited an undivided interest in a parcel of land from her father on February 15, 2012. Her father had purchased the land on August 25,1965, and his basis for the land was $325,000. The fair market value of the land is $1,250,000 on the date of her father’s death and is $1,100,000 six months later. The executor elects the alternate valuation date. Faith has nine brothers and sisters and each inherited a one-tenth interest.
I) What is Faith’s adjusted basis for her one-tenth undivided interest?
II) What is her holding period for the land? (Points : 20)
Question 2.2. (TCOs 2, 3, & 11) Discuss the computation of percentage depletion. (Points : 15)
Question 3.3. (TCOs 1, 2, 3, & 11) Travel status requires that the taxpayer be away from home overnight. I) What does away from home overnight mean? II) What tax advantages result from being in travel status? (Points : 10)
Question 4.4. (TCOs 1, 2, 3, & 11) Rachel owns rental properties. When Rachel rents to a new tenant, she usually requires the tenant to pay an amount in addition to the first month’s rent. The additional amount serves as security for damages to the property and the tenant’s failure to pay future rents. How should the payments be characterized (e.g., on lease documents) to minimize Rachel’s current tax liability? (Points : 10)
