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ACC483 Income Tax Accounting




1. Answer _____________ Arthur pays tax of $3,000 on taxable income of $30,000 while taxpayer Barbara pays tax of $6,000 on $60,000. The tax is a;a. progressive tax.;b. Proportional tax.;c. Regressive tax.;d. None of the above.;2. Answer _____________ Helen, who is single, is considering purchasing a residence that will provide a $20,000 tax deduction for property taxes and mortgage interest. If her marginal tax rate is 15% and her effective tax rate is 10%, what is the amount of Helen?s tax savings from purchasing the residence?;a. $2,000;b. $3,000;c. $17,000;d. $18,000;3. Answer _____________ When property is transferred, the gift tax is based on;a. replacement cost of the transferred property.;b. fair market value on the date of transfer.;c. the transferor's original cost of the transferred property.;d. the transferor's depreciated cost of the transferred property.;4. Answer _____________ Paul makes the following property transfers in the current year;$22,000 cash to his wife;$34,000 cash to a qualified charity;$40,000 house to his son;$15,000 computer to an unrelated friend;The total of Paul's taxable gifts, assuming he does not elect gift splitting with his spouse, subject to the unified transfer tax is;a. $31,000.;b. $42,000.;c. $53,000.;d. $64,000.;CHAPTER 2;5. Answer _____________ All of the following items are generally excluded from income except;a. child support payments.;b. interest on corporate bonds.;c. interest on state and local government bonds.;d. life insurance proceeds paid by reason of death.;6. Answer _____________ All of the following items are included in gross income except;a. alimony received.;b. rent income.;c. dividend income.;d. child support payments received.;7. Answer _____________ The standard deduction is unavailable to all of the following taxpayers except;a. resident aliens.;b. nonresident aliens.;c. an individual filing a return for a period of less than 12 months.;d. a married taxpayer filing a separate return when the other spouse itemizes.;8. Answer _____________ Edward, a widower whose wife died in 2004 maintains a household for himself and his daughter who qualifies as his dependent. Edward's most favorable filing status for 2007 is;a. single.;b. surviving spouse.;c. head of household.;d. married filing jointly.;CHAPTER 3;9. Answer _____________ Alex is a calendar year sole proprietor. He began business on December 1, this year. He uses the accrual method of accounting. Alex had the following collections in December.;Collected $7,000 in December, from clients who paid cash for services to be;performed next year.;Collected $5,000 in December, for services performed during December, deposited;in an operating account on December 31, this year.;Collected $9,000 in December, on accounts receivable for services performed in;December, deposited in operating account on January 2, next year.;What is the amount Alex must include in his income for December?;a. $7,000;b. $12,000;c. $14,000;e. $21,000;10. Answer _____________ One of the requirements that must be met in order to defer recognition of income for advance payments for goods is;a. the taxpayer's method of accounting for the sale for tax purposes is the same as the method used for financial reporting purposes.;b. the goods are on the taxpayer's premises on the last day of the tax year.;c. the goods are produced in the United States.;d. the amount received is more than the taxpayer's cost of the goods.;11. Answer _____________ In December 2007, Max, a cash basis taxpayer, rents an apartment to Charlie. Max receives both the first and last months? rent totaling $1,000 plus a security deposit of $400. The amount of income reported as taxable in 2007 is;a. $500.;b. $900.;c. $1,000.;d. $1,400.;CHAPTER 4;12. Answer _____________ Bette is beneficiary of an $80,000 insurance policy on her father's life. Upon his death, she may elect to receive the proceeds in five yearly installments of $17,500 or may take $80,000 lump sum. She elects to take the $80,000 lump sum payment. What are the tax consequences in year one?;a. All $17,500 each year is taxable.;b. $7,500 interest is taxable in the first year.;c. There is no taxable income.;d. $1,500 of the $17,500 payment is taxable each year.;13. Answer _____________ All of the following items are excluded from gross income except;a. life insurance benefits.;b. de minimis benefits.;c. no additional cost benefits for employees.;d. disability income from an employer financed policy.;14. Answer _____________ Carl filed his tax return, properly claiming the head of household filing status. Carl's employer paid or provided the following to Carl;Wages $65,000;Fair market value of qualified dependent care services 4,000;Premiums for $50,000 qualified group term life insurance 500;Medical insurance premiums 600;How much of this income should Carl report?;a. $65,000;b. $69,000;c. $69,500;d. $70,100;CHAPTER 5;15. Answer _____________ Antonio owns land held for investment with a basis of $28,000. The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000. What is Antonio?s realized gain?;a. $0;b. $20,000;c. $28,000;d. $48,000;16. Answer _____________ If a nontaxable stock dividend is received and is the same type of stock as that owned before the dividend, the original stock?s basis is allocated to all shares;a. based on relative fair market values at the time of the stock dividend.;b. equally to all shares owned after the stock dividend.;c. based on the par value of the stock.;d. none of the above.;17. Answer _____________ All of the following are capital assets with the exception of;a. personal residence.;b. corporate stock held for investment.;c. equipment used in a trade or business.;d. a Rembrandt painting held in a private collection.;18. Answer _____________ To be considered a Section 1202 gain, the stock being sold must meet all of the following characteristics except;a. the stock must be issued after August 10, 1993.;b. the stock must be held more than five years.;c. the corporation which issued the stock must be a C corporation.;d. at least 50% of the value of the corporation?s assets must be used in the active conduct of one or more qualified trades or businesses.;CHAPTER 6;19. Answer _____________ Generally, deductions for adjusted gross income on an individual's tax return include all the following types of expenses except those;a. incurred in gambling activities.;b. incurred in a trade or business.;c. incurred in the production of rent income.;d. incurred in the production of royalty income.;20. Answer _____________ Self-employed individuals may claim, as a deduction for adjusted gross income, 50 percent of their;a. traditional IRA contributions.;b. disability insurance premiums.;c. health insurance premiums.;d. self-employment tax.;21. Answer _____________ To be tax deductible, an expense must be all of the following except;a. ordinary and necessary.;b. paid in cash.;c. reasonable in amount.;d. an expense of the taxpayer.;22. Answer _____________ Anthony owns a trucking business. During the current year he incurred the following;Gasoline and Oil $ 90,000;Maintenance $ 15,000;Fines for Speeding and Illegal parking &&nb sp;$ 8,000;Bribes to Government Inspection Officials $ 11,000;What is the total amount of deductible expenses?;a. $105,000;b. $113,000;c. $116,000;d. $124,000;CHAPTER 7;23. Answer _____________ All of the following are deductible as medical expenses except;a. vitamins and health foods that improve a taxpayer?s general health.;b. payments to Christian Science practitioners for treatment of a specific medical condition.;c. payments to a hospital for laboratory fees and X-rays for diagnosis of a medical problem.;d. cosmetic surgery necessary to correct a deformity arising from a congenital abnormality.;24. Answer _____________ All of the following payments for medical items are deductible with the exception of the payment for;a. insulin.;b. general appointment for teeth cleaning. ? may be Teeth Whitening/Bleaching ??;c. acupuncture for specific medical purposes;d. nonprescription medicine for treatment of a specific medical condition.;25. Answer _____________ Alan, who is a security officer, is shot while on the job. As a result, Alan suffers from a leg injury and must spend most of his time in a wheelchair until his recovery. Alan's physician recommends that he install a whirlpool bath in his home for therapy. During the year, Alan makes the following expenditures;Wheelchair $ 800;Whirlpool bath 2,000;Maintenance of the whirlpool 250;Increased utility bills associated with whirlpool 450;Entrance ramp, various home modifications 4,200;A professional appraiser tells Alan that the whirlpool has increased the value of his home by $1,000. Alan's deductible medical expenses (before considering limitations based on AGI) will be;a. $6,000.;b. $6,700.;c. $7,000.;d. $7,700.;26. Answer _____________ The following items are deductible as taxes under Section 164 with the exception of;a. sales taxes.;b. federal income taxes.;c. foreign real property taxes.;d. local personal property taxes.;27. Answer _____________ Jamie sells investment real estate for $60,000, resulting in a $15,000 loss. Jamie's loss is;a. an ordinary loss.;b. a capital loss.;c. a Sec. 1231 loss.;d. a Sec. 1244 loss.;28. Answer _____________ All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of;a. the stock must be owned by an individual or a partnership.;b. the stock must have been issued by a domestic corporation.;c. the stock must have been issued for cash or property other than stock or securities.;d. a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.;CHAPTER 9;29. Answer _____________ During 2007, Marcia, who is single and is covered under a pension plan at work, contributes $4,000 into a Roth IRA. If her AGI is $56,000, which of the following is true?;a. All of the contribution is deductible.;b. None of the contribution is deductible.;c. She must withdraw all of the contribution immediately since she is covered under a plan at work.;d. Only 60% of the contribution is deductible since her AGI exceeds $52,000 by $4,000 and her maximum contribution is phased out by 40%.;30. Answer _____________ Louise travels on a U.S. cruise ship to attend a business meeting in Grand Cayman. The round-trip cost of the cruise is $3,500 and the travel is for a period of 4 days. Assuming the daily per diem rate is $200 for a government employee, what is the amount of Louise?s travel deduction?;a. $0;b. $1,600 - Expenses are limited to twice the federal per diem amount or $200 x 2 x 4 days.;c. $2,000;d. $3,500;31. Answer _____________ Which of the following is true about future qualified distributions from a Roth IRA by a person who will be 65 years old at the time the distributions begin?;a. The entire amount of the distributions will be tax-free.;b. Only the accumulated earnings will be tax-free.;c. Only the previous contributions will be tax-free.;d. The entire amount of the distribution will be taxable.;CHAPTER 10;32. Answer _____________ For real property placed in service after 1986, depreciation under the MACRS system is calculated using the;a. straight line method and a half year convention in the year of acquisition and in the year 1m., of disposition.;b. straight line method and a mid month convention in the year of acquisition and in the year of disposition.;c. 200% DB method and a mid month convention in the year of acquisition and in the year of disposition.;d. 200% DB method and a half year convention in the year of acquisition and in the year of disposition.;33. Answer _____________ In May of 2007, Eric acquired a computer system (5 year property) for $10,000 and used the computer 80% for business and 20% for personal purposes. No election was made regarding Sec. 179. The maximum depreciation deduction for 2007 is;a. $800.;b. $1,000.;c. $1,600.;d. $2,000.;34. Answer _____________ Joan bought a business machine for $10,000 on January 1, 2000, and later sold the machine for $7,800 when the total allowable depreciation is $3,500. The depreciation actually taken on the tax returns totaled $3,000. Joan must recognize a gain (or loss) of;a. no gain or loss.;b. (3,200).;c. $800.;d. $1,300.;CHAPTER 11;35. Answer _____________ All of the following are acceptable accounting tax years with the exception of;a. an S corporation year ending October 31.;b. a corporate tax year ending on February 15.;c. a corporate tax year ending on April 30.;d. a partnership tax year ending on October 31 with three equal partners whose tax years end on September 30, October 31, and November 30.;36. Answer _____________ Inventory may be valued on the tax return at the lower of cost or market unless;a. replacement cost is higher than historical cost.;b. the taxpayer determines inventory cost using the LIFO method. - Taxpayers who use the LIFO inventory valuation method may not use the lower of cost or market method.;c. the taxpayer determines inventory cost using the FIFO method.;d. the cash method of accounting is used by the taxpayer.;37. Answer _____________ Under the percentage of completion method, gross income is reported;a. when the contract is completed.;b. using a percentage that is determined by dividing current year costs by the expected total revenue.;c. based on the portion of work that is incomplete.;d. based on the portion of work that has been completed.;38. Answer _____________ Bergeron is a local manufacturer of off shore drilling platforms. This year, Bergeron entered into a contract to construct a drilling platform, which will be placed in the North Atlantic Ocean. The total contract price is $5,000,000, and Bergeron estimates the total construction cost at $2,000,000. Actual costs incurred this year are $600,000. If Bergeron uses the completed contract method, the gross profit for this year is;a. $0. - Under the completed contract method, revenues and costs are not recognized until the contract is completed.;b. $400,000.;c. $600,000.;d. $2,000,000.;CHAPTER 12;39. Answer _____________ Which of the following statements with respect to a like kind exchange is false?;a. Property of one class must be exchanged for property of the same class.;b. An exchange of inventory does not qualify as a like kind exchange.;c. Personal property must be exchanged for personal property.;d. Sale of property and subsequent purchase of like kind property will always qualify as a like kind exchange.;40. Answer _____________ Which of the following statements is false regarding involuntary conversions?;a. Deferral of gain is mandatory if conversion is directly into similar property.;b. A taxpayer may elect to defer recognition of a loss resulting from an involuntary conversion.;c. If deferral of gain is elected, the holding period of the converted property carries over to the replacement property.;d. Gain may be deferred if the property is involuntarily converted into property that is similar or related in service or use to the converted prop;41. Answer _____________ According to Sec. 121, individuals who sell or exchange their personal residence after May 6, 1997, may exclude part or all of the gain if the house was owned and occupied as a principal residence for;a. at least five years immediately before the sale date.;b. at least one year of the three-year period before the sale date.;c. at least two years of the five-year period before the sale date.;d. at least five years of the ten-year period before the sale date.;42. Answer _____________ If there is a like kind exchange of property between related parties, how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange?;a. 6 months;b. 1 year;c. 2 years;d. no waiting period;CHAPTER 13;43. Answer _____________ Why did Congress establish favorable treatment for 1231 assets?;a. To encourage the mobility of capital.;b. To allow a larger deduction for losses.;c. To help business owners replace assets which had declined in value.;d. All of the above.;44. Answer _____________ For a manufacturer, Sec. 1231 property does not include;a. timber, coal, or domestic iron ore.;b. inventory purchased 24 months ago.;c. an office building purchased five years ago.;d. land used in the business that was purchased two years ago.;45. Answer _____________ A corporation owns many acres of timber, which it acquired three years ago, and which has a $150,000 basis for depletion. The timber is cut during the current year for use in the corporation's business. The FMV of the timber on the first day of the current year is $280,000. If the corporation makes the appropriate election, the tax result is;a. recognition of a Sec. 1231 gain of $130,000.;b. no recognition of gain or loss since the timber is used in the business.;c. recognition of a gain at the time of sale if the timber is later sold with the gain equal to the sales price less the basis in the timber.;d. recognition of a gain if the timber is later sold with the gain equal to the sales price less $280,000 (FMV on the first day of the year of the cutting.);46. Answer _____________ For a manufacturer, Sec. 1231 property does not include ? same question as 44;a. timber, coal, or domestic iron ore.;b. inventory purchased 24 months ago.;c. an office building purchased five years ago.;d. land used in the business that was purchased two years ago.;CHAPTER 14;47. Answer _____________ In computing the alternative minimum taxable income, no deduction is allowed for;a. alimony.;b. moving expenses.;c. personal exemptions.;d. individual retirement accounts.;48. Answer _____________ If an individual is liable for self employment tax, one half of the self employment tax is;a. a For AGI deduction.;b. an itemized deduction.;c. a Schedule C business expense.;d. self-employment tax is nondeductible.;49. Answer _____________ All of the following statements regarding self-employment income/tax are true except;a. The self-employment tax is imposed on net earnings from self-employment over $400.;b. Self-employment tax is computed separately for married individuals filing joint returns.;c. Independent contractors are subject to self-employment tax on the amount of net earnings from the self-employment activity.;d. Employees who have a business in addition to their regular employment are not subject to the self-employment tax since FICA is withheld on their wages.;50. Answer _____________ Which one of the following is a refundable credit?;a. earned income credit;b. child and dependent care credit;c. lifetime learning credit;d. credit for the elderly and disabled


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