Question1.1.(TCO E) For federal tax purposes, the gain from the sale of stocks and bonds is classified as: (Points : 5)

       active income.

       portfolio income.

       passive income.

       None of the above

Question 2.2. (TCO D) Which of the following is an example of a nontaxable like-kind exchange? (Points : 5)

       An ice cream making machine for inventory of Rocky Road ice cream

       Land for an office building

       Office equipment for a computer

       All of the above

Question 3.3. (TCO H) Bob filed a single return for the 2012 tax year. His adjusted gross income is $80,000. He had net investment income of $9,000. In 2012, he had the following interest expenses: 

Personal credit card interest: $4,000

Home mortgage interest: $8,000

Qualified mortgage insurance premiums: $1,500

Investment interest (on loans used to buy stocks): $10,000

What is the interest deduction for Bob for the 2012 tax year? (Points : 5)

       $17,000

       $18,500

       $12,000

       $18,000

Question 4.4. (TCO B) Unreimbursed expenses of employees are considered to be deductions: (Points : 5)

       for AGI.

       from AGI.

       for or from AGI, depending on the type of expense.

       None of the above

Question 5.5. (TCO A) Frank Fox won $10,000 in a state lottery. He also lost $3,000 at the horse races. On his income tax return, he should report: (Points : 5)

       $10,000 gross income.

       $7,000 gross income.

       $10,000 gross income and $3,000 deduction for adjusted gross income.

       $10,000 gross income and $3,000 itemized deduction.

Question 6.6. (TCO E) Josh sold a piece of business property that had an adjusted basis to him of $50,000. In return for the property, Josh received $90,000 cash and a truck with a fair market value of $10,000 from     the buyer. The buyer also assumed Josh’s $25,000 loan on the property. Josh paid $5,000 in selling expenses. What is the amount of Josh’s gain on the sale? (Points : 5)

       $90,000

       $135,000

       $70,000

       $80,000

Question 7.7. (TCO I) Which of the following statements concerning property qualifying for like-kind exchange treatment is incorrect? (Points : 5)

       The property must be held for productive use in a trade or business or for investment.

       The transfer of partnership interests qualify for like-kind exchange treatment.

       The exchange of inventory for a business automobile does not qualify for like-kind exchange treatment.

       The exchange of unimproved property for improved property qualifies for like-kind exchange treatment.

Question 8.8. (TCO I) Under the accrual method of accounting, income is generally recorded when: (Points : 5)

       the liability arises.

       payment is received.

       the expense is actually incurred.

       revenue is earned.

Question 9.9. (TCO D) Steve, a calendar year taxpayer, purchased stock on November 18, 2011 for $17,000. The stock became worthless on January 4, 2012. What is Steve’s loss in 2012? (Points : 5)

       $17,000 short-term capital loss

       No loss

       $17,000 itemized deduction for investments

       $17,000 long-term capital loss

Question 10.10. (TCO A) Which of the following is a primary source of tax authority? (Points : 5)

       Revenue ruling

       Tax Court case

       Temporary regulation

       All of the above

Question 11.11. (TCO F) A deduction for salaries and wages can include: (Points : 5)

       bonus payments.

       payments for services performed in prior years.

       advance payments for services to be performed in future years.

       both bonus payments and payments for services performed in prior years.

Question 12.12. (TCO A) The IRS levies penalties for which of the following? (Points : 5)

       Bouncing checks

       Fraud

       Late filing

       All of the above

Question 13.13. (TCO C) During 2012, Milton Hanover was granted a divorce from his wife. The divorce decree stipulated that he was to pay both alimony and child support for a specified period of time. In examining his records for 2012, the following information is available:

Salary: $50,000

Interest received on bank deposits: $2,000

Interest received on municipal obligations: $1,000

Alimony paid: $3,600

Child support: $4,800

What is Hanover’s adjusted gross income for 2012? (Points : 5)

       $44,600

       $48,400

       $49,400

       $52,000

Question 14.14. (TCO B) Under the terms of their divorce agreement executed in October 2011, Keith transferred Corporation M stock to his former wife, Karen, as a property settlement. At the time of the transfer, the stock had a basis to Keith of $20,000 and a fair market value of $50,000. What is the tax consequence of this transaction to Keith, and what is Karen’s basis in the Corporation M stock? (Points : 5)

       Keith has a gain of $30,000; Karen’s basis is $20,000.

       Keith has a gain of $30,000; Karen’s basis is $50,000.

       Keith has no gain or loss; Karen’s basis is $20,000.

       Keith has no gain or loss; Karen’s basis is $50,000.

Question 15.15. (TCO G) During 2012, Edward East had wages of $10,000 and received unemployment compensation of $6,200 from the state. Edward is single and 45 years old. What is the amount of unemployment compensation to be included in his gross income? (Points : 5)

       $0

       $2,100

       $4,200

       $6,200

Question 16.16. (TCO F) For individual taxpayers, deductible losses for tax purposes do not include: (Points : 5)

       business losses.

       investment losses.

       personal losses.

       personal casualty or theft losses.

 Question 1.1.(TCO E) Art Aubrey owns and operates an apartment building. During 2012, he received the following:

·  Payment on 6/1/12 for 12 months of advance rent: $4,800

·  Monthly rent payments: $43,200

·  Security deposits to be returned to tenants at end of lease: $3,000

·  Payments for cancelling a lease: $400

·  Deductible maintenance rental expenses paid by tenants: $600

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

Question 2.2. (TCO G) Are any of the following items deductible on an individual’s income tax return? If so, is the item deductible for or from AGI? Explain each item.

(a) Payment of a $100 speeding fine related to a trade or business

(b) A cost of $145 for having a federal income tax return prepared by an accountant

(c) Interest of $8,000 on money borrowed to purchase tax-exempt securities (Points : 17)

Question 3.3. (TCO F) Mathew Murphy, single, sold his home that he had owned for 20 years for $670,000. He purchased it for $110,000 and made $40,000 of capital improvements on the home during his time of ownership.

(a) How much gain is excluded? How much is recognized?

(b) If Mathew purchased another home for $420,000, how much is excluded and recognized? (Points : 17)

Question 4.4. (TCO G) Bob Smith, a professional basketball player, raises Black Angus cattle under circumstances that would indicate that the activity is a hobby. His adjusted gross income for the year is $80,000, and he has $1,000 of other miscellaneous itemized deductions, all of which are subject to the two-percent floor. During the taxable year, the feed for the cattle cost $3,000. The income from the sale of cattle was $2,800.

(a) Under the hobby loss rule, to what extent is the expense of $3,000 deductible?

(b) Under the two-percent-of-adjusted-gross-income limitation, how much is the overall deductible amount of his itemized deductions? (Points : 17)

Question 5.5. (TCO I) Jake, a single individual with a salary of $40,000, paid the following expenses during the year:

Alimony: $8,000

Charitable contributions: $2,000

Casualty loss (after $100 floor): $1,000

Mortgage interest on personal residence: $3,000

Moving expenses: $1,500 

Student loan interest: $1,000

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)

Question 6.6. (TCO I) Tom had the following transactions for 2012:

Salary: $62,000

Damage award (compensatory) for city bus accident: $30,000

Loss on sale of stock investment: $3,500

Loan from father to purchase auto: $8,000

Alimony paid to ex-wife: $9,000 

What is Tom’s AGI for 2012? (Points : 17)

Question 7.7. (TCO F) Sara owns a sole proprietorship, and Phil is the sole shareholder of a C (regular) corporation. Each business sustained a $9,000 operating loss and a $2,000 capital loss for the year. Evaluate how these losses will affect the taxable income of the two owners? (Points : 17)

Question 8.8. (TCO B) Kyle forms a corporation and transfers property having a basis to him of $20,000 and a fair market value of $30,000 to the corporation for 1,000 shares of $9 par stock. One year later, Bob transfers property having a basis to him of $2,000 and a fair market value of $4,000 for 100 shares of the stock. Bob is not related to Kyle. The corporation issued no other stock.

(a) How much gain does Kyle recognize on his exchange? What is the basis to Kyle of his 1,000 shares?

(b) How much gain does Bob recognize on his exchange? What is the basis to Bob of his 100 shares?

(c) What gain or loss is recognized by the corporation when it issues its shares to Kyle? What is the basis to the corporation of the property it received from Kyle? (Points : 17)

Question 9.9. (TCO F) XYZ Company had a net loss of $90,000 from operations in 2012. 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)

Question 10.10. (TCO H) On May 18, 2012, Sara purchased 30 shares of ABC stock for $210, and on October 29, 2012, she purchased 90 additional shares for $900. On November 28, 2012, she sold 48 shares, which could not be specifically identified, for $576, and on December 8, 2012, she sold another 25 shares for $150. What is her recognized gain or loss? (Points : 17)