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ACC 547/ACC547 FINAL EXAM

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Question;1);A family with $45,000 in assets and $22,000 of liabilities would have a net;worth of;A. $67,000;B. $45,000;C. $22,000;D. $23,000;2);A budget deficit would result when a person?s or family?s;A. assets exceed liabilities;B. net worth decreases;C. actual expenses are greater than planned expenses;D. actual expenses are less than planned expenses;3);The payment items that should be budgeted first are;A. unplanned living expenses;B. fixed expenses;C. investment funds;D. variable expenses;4);Which of the following statements regarding tax credits is true?;A. None of the answer choices are correct.;B. Tax credits reduce taxable income dollar for dollar.;C. Tax credits reduce taxes payable dollar for dollar.;D. Tax credits provide a greater tax benefit the greater the taxpayer?s;marginal tax rate.;5);The tax base for an individual tax return is;A. adjusted gross income minus from AGI deductions;B. realized income from whatever source derived;C. adjusted gross income;D. gross income;6);Which of the following statements regarding exemptions is correct?;A. Taxpayers subtract exemption deductions from adjusted gross income to;determine taxable income.;B. Personal exemptions are more valuable than dependency exemptions.;C. Exemption amounts are considered to be for AGI deductions.;D. Taxpayers filing a married filing jointly return are limited to two;exemptions on their tax returns.;7);Which of the following has the lowest authoritative weight?;A. Interpretive regulation;B. Legislative regulation;C. Revenue ruling;D. Private letter ruling;8);Which of the following has the highest authoritative weight?;A. Tax article;B. Text book;C. Revenue ruling;D. Private letter ruling;9);Jaime recently found a ?favorable? trial level court opinion directly on point;for her tax question. Which trial level court would he prefer to have issued;the opinion?;A. Divorce Court;B. District Court;C. Tax Court;D. Circuit Court;10);Sam saved diligently for his college education by putting part of his pay into;U.S. Series EE saving bonds. Sam purchased the bonds for $6,500, and this year;he redeemed the bonds for $7,200. He has no other income this year. What amount;must Sam include in his gross income?;A. $700 unless Sam uses the proceeds to pay for his college tuition and fees;B. $6,500;C. $7,200;D. A maximum of $350 if Sam uses the proceeds to pay for his college tuition;and fees;11);Jill currently lives in the suburbs and commutes 25 miles to her office in;downtown Freeport. She is considering quitting her current job to look for new;employment in the downtown. Which of the following statements best describes;how Jill can satisfy the distance test for deducting moving expenses if she;accepts a new job in downtown Freeport?;A. Jill cannot satisfy the distance test if she accepts a job in downtown;Freeport.;B. Jill must move 25 miles east from downtown Freeport.;C. Jill must move at least 25 miles further away from downtown Freeport.;D. Jill need not move her residence because she is starting a new job.;12);Congress allows self-employed taxpayers to deduct the cost of health insurance;above the line (for AGI) because;A. health insurance premiums cannot be deducted otherwise;B. self-employed taxpayers need an alternate mechanism for reducing the cost of;health care;C. employers are allowed to deduct social security (FICA) taxes as a business;expense;D. this deduction provides a measure of equity between employees and the;self-employed;13);Jim was in an auto accident this year. Jim paid $2,450 to repair his car after;the accident, and his insurance only reimbursed him $400. Jim bought his car;several years ago for $15,000. What casualty loss deduction from this accident;can Jim combine with his other casualty losses in computing his itemized;deductions?;A. $12,550;B. $2,050;C. $2,450;D. $1,550;14);Rhianna and Jay are married filing jointly in 2009. They have six children for;whom they may claim the child tax credit. Their AGI was $123,440. What amount;of child tax credit may they claim on their 2009 tax return?;A. $4,000;B. $6,000;C. $5,300;D. $12,000;15);Which of the following is a miscellaneous itemized deduction that is not;subject to the 2 percent of AGI floor?;A. Tax preparation fees;B. Fees for investment advice;C. Gambling losses to the extent of gambling winnings;D. Employee business expenses;16);Beth?s business purchased only one asset during the current year. It placed in;service machinery (7-year property) on December 1 with a basis of $50,000.;Calculate the maximum depreciation expense (ignoring Section 179 or bonus expensing);A. $10,000;B. $2,500;C. $1,785;D. $7,145;17);Bateman Corporation sold an office building that it used in its business for;$800,000. Bateman bought the building ten years ago for $600,000 and has;claimed $200,000 of depreciation expense. What is the amount and character of;Bateman?s gain or loss?;A. $400,000 capital gain;B. $200,000 ordinary and $200,000 Section 1231 gain;C. $40,000 ordinary and $360,000 Section 1231 gain;D. $400,000 ordinary gain;18);Foreaker LLC sold a piece of land that it uses in its business for $52,000.;Foreaker bought the land two years ago for $42,500. What is the character of;Foreaker?s gain?;A. $9,500 Section 1250;B. $9,500 Section 1231;C. $9,500 Section 1221;D. $9,500 Section 1245;19);Which of the following would be considered passive income?;A. Capital gains from sale of mutual funds;B. Salary for part-time job;C. Rental real estate income;D. Dividends;20);Generally, which of the following does not correctly categorize the type of;income?;A. Capital losses ? passive income/loss;B. Dividends ? portfolio income/loss;C. Rental real estate ? passive income/loss;D. Salary ? active income/loss;21);A taxpayer would not be considered a material participant if he met which one;of these tests?;A. Participates in the activity for at least 500 hours a year;B. Participates more than 50 hours a year and participation is not less than;any other participants for the year;C. Materially participates in the activity for any five of the preceding ten;years;D. Participates on a regular, continuous, and substantial basis;22);What is the correct order of the loss limitation rules?;A. Tax basis, passive loss limits, at-risk amount;B. Passive loss limits, at-risk amount, tax basis;C. Tax basis, at-risk amount, passive loss limits;D. at-risk amount, tax basis, passive loss limits;23);Dan recently purchased a partnership interest in XYZ, Limited Partnership for;$6,000. His share of debt in the partnership is $2,500, but he is not;personally responsible for paying back the debt if the partnership cannot pay.;Dan?s share of XYZ, LP?s loss for the year is $3,000. In addition, Dan reported;$5,000 in long-term capital gains from the sale of a stock and $3,000 of income;from another real estate partnership. What is Dan?s tax basis in XYZ, LP?;A. $16,500;B. $11,500;C. $6,000;D. $8,500;24);What happens when a taxpayer experiences a net loss from a rental home?;A. If the taxpayer is not allowed to deduct the loss due to the passive;activity limitations, the loss is suspended and carried forward until the;taxpayer generates passive income or until the taxpayer sells the property.;B. If the taxpayer is not an active participant in the rental, the taxpayer may;be allowed to deduct the loss even if the taxpayer does not have any sources of;passive income.;C. The taxpayer will not be allowed to deduct the loss under any circumstance;if the taxpayer does not have passive income from other sources.;D. The loss is fully deductible against the taxpayer?s ordinary income, no;matter the circumstances.;25);What document must LLCs file with the state to organize their business?;A. Partnership agreement;B. Articles of organization;C. Articles of incorporation;D. Certificate of LLC;26);What tax year-end must unincorporated entities with only one owner adopt?;A. The entity may adopt any year-end except for a calendar year-end.;B. The entity must adopt a calendar year-end.;C. The entity is free to adopt any tax year-end.;D. The entity must adopt the same year-end as its owner.;27);Which legal entity provides the least flexible legal arrangement for owners?;A. Sole Proprietorship;B. Partnership;C. Corporation;D. LLC;28);Which of the following requirements do not have to be met in a Section 351;transaction?;A. All transfers of property to a corporation must be made simultaneously to qualify;for deferral.;B. Only property transferred to a corporation is eligible for deferral.;C. Each transferor of property must receive stock equal to at least 80 percent;of the fair market value of the property transferred.;D. In the aggregate, the transferors of property to the corporation must;collectively control the corporation immediately after the transfers.;29);Inez transfers property with a tax basis of $200 and a fair market value of;$300 to a corporation in exchange for stock with a fair market value of $250 in;a transaction that qualifies for deferral under Section 351. The corporation;assumed a liability of $50 on the property transferred. What is the;corporation?s tax basis in the property received in the exchange?;A. $300;B. $150;C. $200;D. $250;30);Camille transfers property with a tax basis of $800 and a fair market value of;$1,200 to a corporation in exchange for stock with a fair market value of $850;and $350 in a transaction that qualifies for deferral under Section 351.;Camille also incurred selling expenses of $100. What is the amount realized by;Camille in the exchange?;A. $750;B. $1,200;C. $1,100;D. $850;31);BTW Corporation has taxable income in the current year that can be offset with;an NOL from a previous year. What is the nature of the book-tax difference;created by the net operating loss deduction in the current year?;A. Temporary, unfavorable;B. Permanent, favorable;C. Permanent, unfavorable;D. Temporary, favorable;32);A calendar-year corporation has negative current E&P of $(500) and;accumulated positive E&P of $1,000. The corporation makes a $600;distribution to its sole shareholder. Which of the following statements is;true?;A. Up to $600 of the distribution could be a dividend depending on the balance;in accumulated earnings and profits on the date of the distribution.;B. $500 of the distribution will be a dividend because total earnings and;profits is $500.;C. $0 of the distribution will be a dividend because current earnings and;profits is negative.;D. $600 of the distribution will be a dividend because accumulated earnings and;profits is $1,000.;33);Studios reported a net capital loss of $30,000 in year 5. It reported net;capital gains of $14,000 in year 4 and $27,000 in year 6. What is the amount;and nature of the book-tax difference in year 6 related to the net capital;carryover?;A. $16,000 favorable;B. $11,000 unfavorable;C. $11,000 favorable;D. $16,000 unfavorable;34);Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are;owned by her husband Tommy. Which of the following statements is true?;A. A stock redemption that completely terminates Tammy?s direct interest in a;corporation will be treated as a dividend if Tammy waives the family;attribution rules and files a ?triple i? agreement with the IRS.;B. A stock redemption that completely terminates Tammy?s direct interest in a;corporation will be treated as an exchange for tax purposes.;C. A stock redemption that completely terminates Tammy?s direct interest in a;corporation will be treated as a dividend for tax purposes.;D. A stock redemption that completely terminates Tammy?s direct interest in a;corporation will be treated as an exchange if Tammy waives the family;attribution rules and files a ?triple i? agreement with the IRS.;35);El Toro Corporation declared a common stock dividend to all shareholders of;record on June 30, 2010. Shareholders will receive 1 share of El Toro stock for;each 2 shares of stock they already own. Raoul owns 300 shares of El Toro stock;with a tax basis of $60 per share. The fair market value of the El Toro stock;was $100 per share on June 30, 2010. What are the tax consequences of the stock;dividend to Raoul?;A. $15,000 dividend and a tax basis in the new stock of $100 per share;B. $0 dividend income and a tax basis in the new stock of $100 per share;C. $0 dividend income and a tax basis in the new stock of $60 per share;D. $0 dividend income and a tax basis in the new stock of $20 per share;36);Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100;shares in the company. Pam wants to reduce her ownership in the company, and it;was decided that the company will redeem 50 of her shares for $1,000 per share;on December 31, 2010. Pam?s income tax basis in each share is $500. Comet has;total E&P of $250,000. What are the tax consequences to Pam as a result of;the stock redemption?;A. $50,000 dividend and a tax basis in each of her remaining shares of $50;B. $25,000 capital gain and a tax basis in each of her remaining shares of $500;C. $25,000 capital gain and a tax basis in each of her remaining shares of $100;D. $50,000 dividend and a tax basis in each of her remaining shares of $100;37);Under which of the following circumstances will a partner recognize a loss from;an operating distribution?;A. A partner will recognize a loss from an operating distribution when the;partnership distributes money in an amount that is greater than the partner?s;basis in the partnership interest.;B. A partner will never recognize a loss from an operating distribution.;C. A partner will recognize a loss from an operating distribution when the;partnership distributes property other than money with an inside basis greater;than the partner?s basis in the partnership interest.;D. A partner will recognize a loss from an operating distribution when the;partnership distributes money in an amount that is less than the partner?s;basis in the partnership interest.;38);Which of the following statements regarding disproportionate distributions is;false?;A. Disproportionate distributions will only occur in liquidating distributions.;B. A disproportionate distribution occurs when a partner receives more than his;or her proportionate share of the partnership?s hot assets.;C. A disproportionate distribution occurs when a partner receives less than his;or her proportionate share of the partnership?s hot assets.;D. The tax provisions related to disproportionate distributions attempt to;preserve the partners? share of ordinary income potential.;39);Tone Loc and 89 of his biggest fans formed an S corporation, 2hit, Inc., as the;original ninety shareholders. Tone then transferred some of his stock to his;grandfather, four of Tone?s cousins, five of Tone?s children, three of Tone?s;grandchildren, and 2 close friends. For the S corporation shareholder limit rules;how many shareholders does 2hit, Inc. have?;A. 97;B. 90;C. 92;D. 95;40);Clampett, Inc. (an S corporation) previously operated as a C corporation.;Distributions from Clampett, Inc. are deemed to be paid in the following order;A. Shareholder?s remaining stock basis, prior C corporation earnings and;profit, the AAA account;B. Prior C corporation earnings and profit, the AAA account, shareholder?s;remaining stock basis;C. Shareholder?s remaining stock basis, the AAA account, prior C corporation;earnings and profit;D. The AAA account, prior C corporation earnings and profit, shareholder?s;remaining stock basis;41);Clampett, Inc. has been an S corporation since its inception. On July 15, 2011;Clampett, Inc. distributed $50,000 to J.D. His basis in his Clampett, Inc.;stock on January 1, 2011, was $45,000. For 2011, J.D. was allocated $10,000 of;ordinary income from Clampett, Inc. and no separately stated items. What is the;amount of income J.D. recognizes related to Clampett, Inc. in 2011?;A. $60,000;B. $20,000;C. $50,000;D. $10,000;42);Clampett, Inc. has been an S corporation since its inception. On July 15, 2011;Clampett, Inc. distributed $50,000 to J.D. His basis in his Clampett, Inc.;stock on January 1, 2011, was $45,000. For 2011, J.D. was allocated $10,000 of;ordinary income from Clampett, Inc. and no separately stated items. What is;J.D.?s basis in his Clampett, Inc. stock after all transactions in 2011?;A. $40,000;B. $20,000;C. $30,000;D. $5,000;43);Erica and Brett decide to form their new motorcycle business as an LLC. Each;will receive an equal profits (loss) interest by contributing cash, property;or both. In addition to the members? contributions, their LLC will obtain a;$50,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes;cash of $5,000 and a building he bought as a storefront for the motorcycles.;The building has an FMV of $45,000, an adjusted basis of $30,000, and is;secured by a $35,000 nonrecourse mortgage that the business LLC will assume.;What is Brett?s outside tax basis in his LLC interest?;A. $37,500;B. $42,000;C. $40,000;D. $45,000;44);Gerald received a 33% capital and profit (loss) interest in XYZ Limited;Partnership (LP). In exchange for this interest, Gerald contributed a building;with an FMV of $30,000. His adjusted basis in the building was $15,000. In;addition, the building was encumbered with a $9,000 nonrecourse mortgage that;XYZ, LP assumed at the time the property was contributed. What is Gerald?s;outside basis immediately after his contribution?;A. $6,000;B. $21,000;C. $9,000;D. $24,000;45);Sue and Andrew form SA general partnership. Each person receives an equal;interest in the newly created partnership. Sue contributes $10,000 of cash and;land with a FMV of $55,000. Her basis in the land is $20,000. Andrew;contributes equipment with a FMV of $12,000 and a building with a FMV of;$33,000. His basis in the equipment is $8,000, and his basis in the building is;$20,000. How much gain must the SA general partnership recognize on the;transfer of these assets from Sue and Andrew?;A. $0;B. $48,000;C. $4,000;D. $52,000;46);Vanessa contributed $20,000 of cash and land with a fair market value of;$100,000 and an adjusted basis of $40,000 to Cook, Inc. (an S corporation) when;it was formed. The land was encumbered by a $30,000 mortgage executed two years;before. What is Vanessa?s tax basis in Cook, Inc. after formation?;A. $20,000;B. $60,000;C. $30,000;D. $80,000;47);Frank and Bob are equal members in Soxy Socks, LLC. When forming the LLC, Frank;contributed $50,000 in cash and $50,000 worth of equipment. Frank?s adjusted;basis in the equipment was $35,000. Bob contributed $50,000 in cash and $50,000;worth of land. Bob?s adjusted basis in the land was $30,000. On 3/15/04, Soxy;Socks sells the land Bob contributed for $60,000. How much gain (loss) related;to this transaction will Bob report on his X4 return?;A. $10,000;B. $25,000;C. $15,000;D. $35,000;48);What form does a partnership use when filing an annual informational return?;A. Form 1040;B. Form 1065;C. Form 1041;D. Form 1120;49);At his death, Trevor had a probate estate consisting of $4 million of property.;Which of the following is a true statement about Trevor?s estate or estate tax?;A. Trevor must have a taxable estate of at least $4 million.;B. Trevor must have a gross estate of at least $4 million.;C. Trevor must have estate tax base (cumulative taxable transfers) of at least;$4 million.;D. Trevor must have an adjusted gross estate of at least $4 million.;50);The estate and gift taxes share several common features. Which of the following;characteristics are common to both the estate and gift taxes?;A. A unified credit and a marital deduction;B. A charitable deduction and the amount of the exemption equivalent;C. A gift-skipping election and a deduction for income taxes paid by the;fiduciary;D. A charitable deduction and an annual exclusion;51);The estate and gift taxes share several common features. Which of the following;characteristics are common to both the estate and gift taxes?;A. The same amount of unified credit;B. A charitable deduction and a marital deduction;C. A gift-skipping election and a charitable deduction;D. An annual exclusion;52);Which of the following is a completed taxable gift?;A. $20,000 in cash contributed to the committee to reelect Senator Cone.;B. $55,000 in cash transferred to a former spouse under a written property;settlement shortly after a divorce.;C. $18,000 in cash given to a needy student to pay for college tuition.;D. $15,000 in cash given to Valley Hospital for the care of a neighbor who was;in an auto accident.;53);Jonathan transferred $90,000 of cash to a trust this year for the benefit of;Hannah, age 10. The trustee has the discretion to distribute income or corpus;(principal) for Hannah?s benefit and is required to distribute all assets to;Hannah (or her estate) not later than Hannah?s 21st birthday. What is the;amount of the taxable gift?;A. $90,000;B. Zero ? There is no completed gift until the trustee makes a distribution;from the trust.;C. $64,000;D. $77,000;54);This year Don and his son purchased real estate for an investment. The price of;the property was $500,000, and the title named Don and his son as joint tenants;with the right of survivorship. Don provided $320,000 of the purchase price;and his son provided the remaining $180,000. Has Don made a taxable gift and;if so, in what amount?;A. Don has made a taxable gift of $237,000.;B. Don has made a taxable gift of $57,000.;C. Don has made a taxable gift of $22,000.;D. Don has made a taxable gift of $70,000.

 

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