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ACC multiple choice

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Question

1. Tina, Terri, and Tricia operate Capstone Fashions an exclusive boutique. Based on advice from Tina’s sister, a CPA, the three form a partnership. Tina owns 50% and Terri and Tricia each own 25%. For the year, Capstone fashions reports the following:

 

 

Sales revenues

 

 

$ 600,000

 

 

Business expenses

 

 

(320,000)

 

 

Investment expenses

 

 

(2,000)

 

 

Short-term capital gains

 

 

6,000

 

 

Long-term capital losses

 

 

(14,000)

 

 

Taxable income

 

 

$ 270,000

 

 

For tax purposes, what amount will Capstone Fashions report to Tina as her ordinary income from the partnership?

 

 

a.

 

 

$135,000

 

 

b.

 

 

$136,000

 

 

c.

 

 

$138,500

 

 

d.

 

 

$139,000

 

 

e.

 

 

$140,000

 

 

2. The legislative grace concept dictates that business expenses are grouped into certain categories that include

 

 

I.

 

 

Personal expenses.

 

 

II.

 

 

Trade or business expenses.

 

 

III.

 

 

Expenses for the production of income.

 

 

a.

 

 

Statements I and II are correct.

 

 

b.

 

 

Statements I and III are correct.

 

 

c.

 

 

Statements I, II, and III are correct.

 

 

d.

 

 

Statements II and III are correct.

 

 

3. Louise, a schoolteacher in Duluth, Minnesota, owns a rental house in Scottsdale, Arizona. She travels to Arizona during spring break to inspect her property and discuss property improvements with the tenant and property manager. Louise’s brother, Brian, lives in Scottsdale. She stays at his house during her week in Arizona and borrows his car to travel across town for her one day of meetings. Her trip accomplishes several objectives: a visit with her brother, a trip away from Minnesota’s winter weather, and a review of her investment property. The expenses of traveling to Scottsdale

 

 

I.

 

 

have a dominant business purpose.

 

 

II.

 

 

are deductible as expenses for the production of income.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

4. Leslie owns 2 rental properties. She hires her 21 year old son, who is a junior at State College, to obtain tenants, negotiate leases, make arrangements for repairs, and pay expenses related to the properties.

 

 

I.

 

 

Leslie’s sale of the properties at a gain will result in a capital gain.

 

 

II.

 

 

Leslie’s sale of the properties at a loss results in a current-year loss deduction of no more than $3,000.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

5. In the current year, Paul acquires a car for $16,000. He uses the car in his advertising business and for personal purposes. His records indicate the car is used 75% for business and that the total operating expenses, including depreciation, are $4,700. Paul expects to use the car for 5 years in his business. What amount can Paul deduct as the operating costs of the car?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$ 3,525

 

 

c.

 

 

$ 2,400

 

 

d.

 

 

$ 4,700

 

 

e.

 

 

$12,000

 

 

6. Which of the following is a currently deductible trade or business expense.

 

 

a.

 

 

$5,000 trustee fees paid to a bank to manage tax-exempt securities.

 

 

b.

 

 

$10,000 fee paid to a marketing firm for a market analysis for a new business.

 

 

c.

 

 

$25,000 fee paid to a TV station to advertise a new product.

 

 

d.

 

 

$120,000 to acquire a new printing press.

 

 

e.

 

 

All of the above are currently deductible expenses.

 

 

7. Which of the following is notdeductible?

 

 

a.

 

 

Expenses related to earning dividends on a portfolio of “blue chip” stocks.

 

 

b.

 

 

Expenses related to interest income from municipal bonds.

 

 

c.

 

 

Legal expenses related to rental real estate property.

 

 

d.

 

 

Medical expenses of the taxpayer’s dependent child.

 

 

8. Which of the following production of income expenses would be deductible:

 

 

I.

 

 

Interest expense to acquire City of Indianapolis bonds.

 

 

II.

 

 

Interest expense to acquire IBM Corporate bonds.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

9. Sandra pays the following expenses for her dependent daughter while the daughter was ill during the current year:

 

 

Real estate taxes on daughter’s house

 

 

$3,000

 

 

Principal on daughter’s home mortgage

 

 

1,000

 

 

Interest on the daughter’s home mortgage

 

 

8,000

 

 

Interest on daughter’s car

 

 

800

 

 

Daughter’s medical expenses

 

 

6,000

 

 

How much of the above expenditures may Sandra use in computing her itemized deductions?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$ 6,000

 

 

c.

 

 

$ 7,800

 

 

d.

 

 

$14,800

 

 

e.

 

 

$18,800

 

 

10. Sally and Paul own a cabin near Stowe, Vermont. During the current year the cabin is rented for 31 days for $1,800. Sally and Paul used the cabin a total of 12 days during the year. After making the appropriate allocation of expenses between personal and rental use, the following rental loss was determined:

 

 

Rental income

 

 

$1,800

 

 

Property taxes

 

 

(150)

 

 

Mortgage interest

 

 

(950)

 

 

Repairs and maintenance

 

 

(400)

 

 

Utilities

 

 

(300)

 

 

Depreciation

 

 

(200)

 

 

Rental loss

 

 

$ (200)

 

 

How should Sally and Paul report the rental income and expenses for the current year?

 

 

a.

 

 

Include the $1,800 in gross income, but no deductions are allowed.

 

 

b.

 

 

Report the $200 loss for AGI.

 

 

c.

 

 

Only expenses up to the amount of $1,800 rental income may be deducted in the current year.

 

 

d.

 

 

Report the interest ($950) and taxes ($150) as itemized deductions and the other expenses for AGI.

 

 

e.

 

 

No reporting for the rental activity should be reported.

 

 

11. Marlene is a single taxpayer with an adjusted gross income of $140,000. In addition to her personal residence, Marlene owns a ski cabin in Vail. She uses the cabin for 40 days during the current year and rents it out to unrelated parties for 80 days, receiving rent of $10,000. Marlene’s costs before any allocation related to the cabin are as follows:

 

 

Mortgage interest and property taxes

 

 

$9,000

 

 

Utilities, maintenance, and repairs

 

 

4,500

 

 

Depreciation

 

 

6,000

 

 

Based on the above information, what is her allowable depreciation deduction?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$1,000

 

 

c.

 

 

$3,000

 

 

d.

 

 

$4,000

 

 

e.

 

 

$6,000

 

 

12. Helena is a technical sales consultant for Interactive Systems Corporation (ISC) based in Tacoma. While on business in Boise, she entertains several clients at a cost of $800. When she returns to Tacoma, Helena gives ISC receipts and other information to account for the entertainment expense. ISC reimburses Helena $800. How much can Helena and ISC deduct?

 

 

Helena ISC

 

 

a.

 

 

$- 0 - $- 0 -

 

 

b.

 

 

$- 0 - $400

 

 

c.

 

 

$- 0 - $800

 

 

d.

 

 

$400 $- 0 -

 

 

e.

 

 

$800 $400

 

 

13. Donna is an audit supervisor with the IRS and she uses her car in the following manner.

 

 

Personal residence to her office at the IRS.

 

 

8 miles

 

 

IRS office to X Corp to supervise new audit activities.

 

 

10 miles

 

 

X Corp to Y Corp to supervise ongoing audit activities

 

 

5 miles

 

 

From Y Corp. to personal residence

 

 

7 miles

 

 

What amount of Donna’s mileage for this day is qualified business mileage?

 

 

a.

 

 

10 miles.

 

 

b.

 

 

15 miles.

 

 

c.

 

 

17 miles.

 

 

d.

 

 

22 miles.

 

 

e.

 

 

30 miles.

 

 

14. Walker, an employee of Lakeview Corporation, drives his automobile 18,000 business miles during 2014, 1,500 miles per month. He pays tolls of $145 while traveling on business. What amount can Walker deduct as unreimbursed transportation expenses before considering any limitations on itemized deductions?

 

 

a.

 

 

$ 10,080 for AGI.

 

 

b.

 

 

$ 10,225 for AGI.

 

 

c.

 

 

$ 10,080 from AGI.

 

 

d.

 

 

$ 10,225 from AGI.

 

 

15. Julie travels to Mobile to meet with a client. While in Mobile, she spends 4 days meeting with the client and one-day sightseeing. Her husband Harry goes with her and spends all 5 days sightseeing and playing golf. The cost of the trip is as follows:

 

 

Airfare

 

 

$ 540 for each person.

 

 

Lodging at hotel

 

 

$ 150/day (Single Occupancy Rate = $125).

 

 

Meals

 

 

$ 75/day for each person.

 

 

Incidental expenses

 

 

$ 20/day for Julie. $15/day for Harry.

 

 

If Julie is self-employed, what is the amount of the deduction she may claim for the trip?

 

 

a.

 

 

$ 730

 

 

b.

 

 

$1,270

 

 

c.

 

 

$1,370

 

 

d.

 

 

$1,420

 

 

e.

 

 

$1,520

 

 

16. Jason travels to Miami to meet with a client. While in Miami, he spends 2 days meeting with his client and 3 days sightseeing. Mary, his wife, goes with him and spends all 5 days sightseeing and shopping. The cost of the trip is as follows:

 

 

Airfare

 

 

$540 for each person.

 

 

Lodging at hotel

 

 

$150 per day (same rate for single and double rooms).

 

 

Meals

 

 

$ 75 per day for each person.

 

 

Incidental expenses

 

 

$ 20 per day for Jason. Mary kept no records.

 

 

If Jason is self-employed, what is the amount of the deduction he may claim for the trip?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$ 415

 

 

c.

 

 

$ 490

 

 

d.

 

 

$ 955

 

 

e.

 

 

$1,765

 

 

17. Juliana operates a wholesale grocery business. To show her appreciation to her 10 best customers, she sends a box of fancy chocolate (costing $55 each) to each of them. How much of the cost of the chocolates can Juliana deduct as a business gift?

 

 

a.

 

 

$- 0 -

 

 

b.

 

 

$125

 

 

c.

 

 

$250

 

 

d.

 

 

$275

 

 

e.

 

 

$550

 

 

18. Which of the following information is not required for substantiation of business entertainment expenditures?

 

 

a.

 

 

Time and place of event.

 

 

b.

 

 

Specific business purpose of the event.

 

 

c.

 

 

Receipt to provide evidence of amount of expenditure.

 

 

d.

 

 

Identity of, and business relationship to, those persons attending the event.

 

 

e.

 

 

All of the above information is required to substantiate business entertainment.

 

 

19. Aaron is a full-time student at Henderson State University majoring in accounting. He works 12 to 20 hours per week at a local CPA firm inputting data for spreadsheets to prepare monthly financial statements for the firm’s clients. Aaron’s tuition, fees, books, and supplies related to his education are $3,000 for the current year.

 

 

I.

 

 

The educational costs are deductible from AGI because they prepare him for a new trade or business.

 

 

II.

 

 

The education costs are deductible because it is part of a program that will qualify Aaron to enter a new profession.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

20. Garcia is a self-employed chiropractor and a cash basis taxpayer. During the most recent tax year, he provides patient services totaling $800,000. Of that total amount, he estimates $20,000 will never be collected. How much can Garcia deduct as a bad debt expense in the current tax year?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$ 6,000

 

 

c.

 

 

$10,000

 

 

d.

 

 

$14,000

 

 

e.

 

 

$20,000

 

 

21. Norman loaned $5,000 to his friend Alan in 2005. They drew up a formal loan agreement that called for a reasonable rate of interest. Alan used the loan proceeds to pay expenses during his last year in college. Norman was recently informed that his friend Alan was struck by lightning and died. Norman will never be able to collect the proceeds of this loan because Alan died with no assets. What tax benefit, if any, will Norman will be able to claim in 2014, the year that the loan became worthless.

 

 

a.

 

 

$5,000 tax credit.

 

 

b.

 

 

$5,000 ordinary loss.

 

 

c.

 

 

$5,000 short-term capital loss.

 

 

d.

 

 

This is a personal non-deductible loss.

 

 

22. Which of the following taxes paid by the Jacob Company can be deducted during 2014?

 

 

I.

 

 

Federal taxes withheld from employees.

 

 

II.

 

 

Jacob’s share of employee’s Social Security taxes.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

23. Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year?

 

 

I.

 

 

Legal fees to resolve a tax dispute with the Internal Revenue Service.

 

 

II.

 

 

Legal fees to purchase land that will be used to expand its warehouse.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

24. In which of the following circumstances will the income of a child be taxed at the marginal

 

 

tax rate of the child’s parent?

 

 

I.

 

 

Martin, age 6, earns $14,000 this year by acting in television commercials.

 

 

II.

 

 

Allen, age 15, has $4,000 of interest income on bonds that he inherited from his grandfather last year.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

25. Which of the following expenses are not deductible for AGI?

 

 

a.

 

 

Alimony paid.

 

 

b.

 

 

Contributions to an IRA.

 

 

c.

 

 

Moving expenses.

 

 

d.

 

 

Interest on qualified student loans.

 

 

e.

 

 

Interest expense related to an investment.

 

 

26. Aaron is a 34-year-old head of household and a self-employed taxpayer. He contributed the maximum amount to his IRA account during the current year, and his net earnings from his business totaled $29,000. How much can Aaron deduct for AGI this year?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$3,200

 

 

c.

 

 

$3,800

 

 

d.

 

 

$4,000

 

 

e.

 

 

$5,500

 

 

27. Charles is a 54-year-old head of household and a self-employed taxpayer. He contributed the maximum amount to his IRA account during the current year, and his net earnings from his business totaled $29,000. How much can Charles deduct for AGI this year?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$3,200

 

 

c.

 

 

$4,000

 

 

d.

 

 

$5,000

 

 

e.

 

 

$6,500

 

 

28. Max and Michele, both 42, are married with salaries of $45,000 and $44,000, respectively. Their combined AGI is $100,000. Michele is an active participant in her company’s qualified pension plan while Max is not. Determine the maximum combined IRA contribution and deduction amounts?

 

 

Maximum Maximum

 

 

Contribution Deduction

 

 

a.

 

 

$ 5,500 $ 5,500

 

 

b.

 

 

$ 11,000 $ 11,000

 

 

c.

 

 

$ 11,000 $ 5,500

 

 

d.

 

 

$ 11,000 $ 9,900

 

 

e.

 

 

$ 11,000 $ 11,000

 

 

29. David purchased investment realty in 1991 for $20,000. During the current year he contributes it to the American Heart Association to use as the site for its new local headquarters. The realty has a value of $52,000 on the contribution date, and David’s AGI is $100,000. David’s maximum current year contribution deduction is

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$ 20,000

 

 

c.

 

 

$ 30,000

 

 

d.

 

 

$ 50,000

 

 

e.

 

 

$ 52,000

 

 

30. Dan and Kay, 27 and 28 years old, respectively, are married and file a joint return. During the current year, Dan had a salary of $30,000 and Kay had a salary of $36,000. Both Dan and Kay are covered by an employer-sponsored pension plan. Their adjusted gross income for the year is $87,000. Determine the maximum IRA contribution and deduction amounts.

 

 

Maximum Maximum

 

 

Contribution Deduction

 

 

a.

 

 

$ 11,000 $ 11,000

 

 

b.

 

 

$ 11,000 $ - 0 -

 

 

c.

 

 

$ 11,000 $ 5,500

 

 

d.

 

 

$ 5,500 $ -0-

 

 

e.

 

 

$ 8,250 $ 8,250

 

 

31. Certain interest expense can be carried forward if not deductible in the current year. Which of the following interest can be carried forward and deducted in a future year?

 

 

a.

 

 

Credit card interest.

 

 

b.

 

 

Personal car loan interest.

 

 

c.

 

 

Interest on a loan to buy common stock.

 

 

d.

 

 

Home equity loan interest.

 

 

32. Which of the following is (are) correct concerning the time test for deducting moving expenses?

 

 

I.

 

 

Self-employed individuals must work in the new location for 78 weeks during a 2-year period.

 

 

II.

 

 

A transfer of the employee by the employer waives the time requirement.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

33. Kenneth owns all of the stock of Kearney Corporation. Kenneth is also the President of Kearney and works full-time running the corporation. During the current year, Kearney has a loss of $40,000 from its operations.

 

 

I.

 

 

If Kearney is an S Corporation, the corporation may carryback the loss 2 years (and obtain a refund of taxes paid) with any remaining loss carried forward 20 years.

 

 

II.

 

 

If Kearney is a regular corporation, Kenneth may deduct the loss for AGI on his personal tax return because the corporation is a flow through entity.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

34. Joe, Tom, and Eric are partners in New Communications Partnership. Joe owns a 50% interest, Tom owns a 35% interest, and Eric owns a 15% interest. During the current year (the first year of operation for the enterprise), the business has a loss. Although the partnership is established as a general partnership, Joe functions as the manager and performs all of the day-to-day duties of a chief operating officer. Tom and Eric are merely investors who receive monthly reports about the business. At the close of the current tax year, each partner will receive a share of the partnership loss. Which of the partners will be able to deduct his (their) share of the partnership loss?

 

 

I.

 

 

Joe

 

 

II.

 

 

Tom

 

 

III.

 

 

Eric

 

 

a.

 

 

Tom

 

 

b.

 

 

Joe, Tom, and Eric

 

 

c.

 

 

Joe

 

 

d.

 

 

Joe and Tom

 

 

e.

 

 

Tom and Eric

 

 

35. During 2014, Marci worked two “jobs.” She performed financial consulting activities for 1,000 hours and real estate development and rental activities for 1,200 hours. Her real estate activities produced a loss of $35,000. Her financial consulting generated a net business income of $40,000. How much of the loss can Marci deduct against her financial consulting income?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$17,500

 

 

c.

 

 

$25,000

 

 

d.

 

 

$35,000

 

 

e.

 

 

$40,000

 

 

36. Karen and Ross equally own rental real estate. The rental property generated a loss of $20,000. Karen is also employed as a part-time Tupperware salesperson and full time as a real estate agent. For her share of the loss to be fully deductible, she must:

 

 

I.

 

 

Not have an adjusted gross income in excess of $100,000.

 

 

II.

 

 

Spend more than 750 hours, in total, in real property trades or businesses.

 

 

III.

 

 

Spend more than 100 hours managing the rental activity, and spend more time then Ross.

 

 

IV.

 

 

She must spend more than 50% of her time in real property trades or businesses and must own more than 5% of the real estate agency.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Statements I and II are correct.

 

 

d.

 

 

Statements II, III, and IV are correct.

 

 

e.

 

 

Statements I, II, III, and IV are correct.

 

 

37. Thomas is a 30% owner of 3 rental houses. He spends 625 hours a year managing the properties. In addition, he owns a 20% interest in a real estate business to which he devotes 1,800 hours a year. The rental units generate a total loss of $22,000, and Thomas’ adjusted gross income in the current year, before considering the rental properties, is $120,000. How much of the loss can Thomas deduct?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$ 4,500

 

 

c.

 

 

$ 6,600

 

 

d.

 

 

$15,000

 

 

e.

 

 

$22,000

 

 

38. A passive activity

 

 

I.

 

 

includes an interest in a limited partnership held by a limited partner investor.

 

 

II.

 

 

includes a working interest in an oil and gas deposit.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

39. A passive activity

 

 

I.

 

 

includes any trade or business in which a taxpayer does not materially participate.

 

 

II.

 

 

includes rentals of apartment buildings, rental houses, etc., where no significant personal services are involved.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

40. Which of the following must be classified as “portfolio income?”

 

 

I.

 

 

Dividend income from an investment in Wilmington Corp. common stock.

 

 

II.

 

 

Royalty income from the ownership of the mineral rights on land. The taxpayer does not share the expenses with the extraction company.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

41. Which of the following must be classified as “portfolio income?”

 

 

I.

 

 

Interest income on CDs from First National Bank.

 

 

II.

 

 

Loss realized from the sale of one-half of his stock shares in Lockleed Corp. Lockleed is qualified small business stock.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

42. A taxpayer had the following for the current year:

 

 

Active

 

 

Portfolio

 

 

Passive

 

 

Income

 

 

Income

 

 

Income

 

 

Income

 

 

$75,000

 

 

$22,000

 

 

$ 55,000

 

 

Deductions

 

 

(45,000)

 

 

(16,000)

 

 

(110,000)

 

 

Income(Loss)

 

 

$30,000

 

 

$ 6,000

 

 

$(55,000)

 

 

I.

 

 

If the taxpayer is a closely held corporation, taxable income from the three activities is a loss of $19,000.

 

 

II.

 

 

If the taxpayer is an individual and the passive income is not related to a rental real estate activity, taxable income is $36,000.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

43. Cisco owns a passive activity that has a basis of $44,000 and a suspended loss of $18,000. Cisco’s taxable income from active and portfolio income is $55,000. If Cisco’s sells the passive activity for $56,000 how will he report the transaction on his tax return?

 

 

I.

 

 

Cisco will report an ordinary loss of $18,000.

 

 

II.

 

 

Cisco will report a capital gain of $12,000.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

44. Karl has the following income (loss) during the current year:

 

 

Net business income

 

 

$45,500

 

 

Dividends and interest

 

 

12,000

 

 

Actively managed rental property

 

 

(34,000)

 

 

What is Karl’s adjusted gross income for this year?

 

 

a.

 

 

$23,500

 

 

b.

 

 

$31,400

 

 

c.

 

 

$32,500

 

 

d.

 

 

$45,500

 

 

e.

 

 

$57,500

 

 

45. Nora is the owner of an apartment complex. She actively participates in the management of the building. During the current year, it generates a taxable loss of $33,000. Nora’s other sources of income are salary of $104,000 and interest of $16,000. What is Nora’s allowable loss from the apartment in the current year?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$15,000

 

 

c.

 

 

$16,000

 

 

d.

 

 

$25,000

 

 

e.

 

 

$33,000

 

 

46. Tim owns 3 passive investments. During the current year, he has the following income and loss from each activity:

 

 

Activity 1

 

 

$(7,000)

 

 

Activity 2

 

 

(3,000)

 

 

Activity 3

 

 

4,000

 

 

What is the amount of suspended loss allocated to Activity 2?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$1,800

 

 

c.

 

 

$3,000

 

 

d.

 

 

$4,200

 

 

e.

 

 

$6,000

 

 

47. Ling owns 3 passive investments. During the last two years, she has the following income and loss from each activity:

 

 

2013

 

 

2014

 

 

Activity 1

 

 

$(14,000)

 

 

$(6,000)

 

 

Activity 2

 

 

(6,000)

 

 

(1,000)

 

 

Activity 3

 

 

8,000

 

 

12,000

 

 

At the end of 2014 what is the amount of suspended loss allocated to Activity 2 (rounded)?

 

 

a.

 

 

$1,695

 

 

b.

 

 

$1,815

 

 

c.

 

 

$5,185

 

 

d.

 

 

$5,305

 

 

e.

 

 

$7,000

 

 

48. “Active participation” and “real estate professional” are both exceptions to the general rule for passive activity losses with rental real estate.

 

 

I.

 

 

One of the tests that an individual must meet to qualify as a real estate professional is that the taxpayer spends more than 50% of his/her time in real property trades or businesses.

 

 

II.

 

 

A taxpayer with an AGI of $190,000 qualifying under the real estate professional exception may deduct an unlimited amount of rental real estate losses.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

49. Sarah owns a passive activity that has a suspended loss of $18,000. The activity has a fair market value of $35,000 and her adjusted basis in the activity is $20,000.

 

 

I.

 

 

If Sarah sells the activity, she is allowed to deduct the $18,000 suspended loss.

 

 

II.

 

 

If Sarah gifts the activity, she is only allowed to deduct $15,000 of the suspended loss.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

50. During the current year, Tim has a short-term capital loss of $9,000 and a long-term capital gain of $1,500. Due to these transactions Tim reports

 

 

a.

 

 

A capital loss deduction of $3,000 and a loss carryforward of $4,500.

 

 

b.

 

 

A capital loss deduction of $3,000 and a loss carryforward of $6,000.

 

 

c.

 

 

A capital loss deduction of $9,000.

 

 

d.

 

 

A capital loss deduction of $3,000 and a loss carryforward of $7,500.

 

 

e.

 

 

A capital loss deduction of $7,500

 

 

51. Edith, a single taxpayer, owns 2,000 shares of qualifying small business stock that she purchased for $225,000. During the current year, she sells 800 of the shares for $32,000. If this is the only stock Edith sells during the year, what can she deduct as an ordinary and capital loss?

 

 

Ordinary loss Capital loss

 

 

a.

 

 

$58,000 $ - 0 -

 

 

b.

 

 

$50,000 $ 3,000

 

 

c.

 

 

$50,000 $ 8,000

 

 

d.

 

 

$ - 0 - $ 3,000

 

 

e.

 

 

$ - 0 - $58,000

 

 

52. The wash sale provisions apply to which of the following?

 

 

I.

 

 

Jim bought 500 additional shares of Alfa Gamma stock for $4,000 on December 2, 2012. Jim owned 2,500 shares after that purchase. On December 26, 2012, Jim realizes a loss of $1,500 on the sale of 250 shares of Alfa Gamma stock.

 

 

II.

 

 

Calvin realizes a $8,000 loss on the December 29, 2012, sale of Sloan corporate bonds. Each bond has a face value of $1,000. He replaces the Sloan corporate bonds with the same number of Jackson corporate bonds, each with a face value of $1,000 on January 16, 2013. The Jackson bonds have a different interest rate and maturity date then the Sloan bonds but have the same bond rating (AAA).

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

53. To be a qualifying relative,an individual must meet certain tests. These tests include,

 

 

I.

 

 

the joint return test.

 

 

II.

 

 

the gross income test.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

54. Allen and Louise are both 49 years of age and file a joint return. They provide all of the support for their son, Dylan, who is 20 years old and is at home until he gets called into the army. His income at part-time jobs is $4,000. Their daughter, Phyllis, is a 23-year-old full-time student at State University. She lived at school 9 months and provided two thirds of her own support with a summer job. How many personal and dependency exemptions can Allen and Louise claim on their income tax return?

 

 

a.

 

 

1

 

 

b.

 

 

2

 

 

c.

 

 

3

 

 

d.

 

 

4

 

 

55. For purposes of the relationship test for dependents, which of the following does not qualify as a relative?

 

 

a.

 

 

Mother.

 

 

b.

 

 

Nephew.

 

 

c.

 

 

Cousin.

 

 

d.

 

 

Grandfather.

 

 

e.

 

 

Stepbrother.

 

 

56. Thomas has adjusted gross income of $228,000, total itemized deductions of $39,000 and correctly claims 2 personal and 2 dependency exemptions. Which filing status should he use?

 

 

a.

 

 

Single.

 

 

b.

 

 

Head of household.

 

 

c.

 

 

Married filing a joint return.

 

 

d.

 

 

Married filing separately.

 

 

57. Fred’s wife died in 2013. He has not remarried and maintains a home for himself and his dependent daughter. What is Fred’s filing status for 2014?

 

 

a.

 

 

Single.

 

 

b.

 

 

Head of household.

 

 

c.

 

 

Married, filing separately.

 

 

d.

 

 

Surviving spouse.

 

 

58. Which of the following qualify for the medical expense deduction?

 

 

I.

 

 

Insulin.

 

 

II.

 

 

Medicare insurance premiums.

 

 

a.

 

 

Only statement I is correct.

 

 

b.

 

 

Only statement II is correct.

 

 

c.

 

 

Both statements are correct.

 

 

d.

 

 

Neither statement is correct.

 

 

59. Anita receives a state income tax refund of $550 in May 2014. When she filed her 2013 federal income tax return, she used the standard deduction amount. Although the all-inclusive income concept would require Anita to report the $550 in her federal gross income for 2014, she may exclude it. What tax concept explains why the exclusion is permitted in this case?

 

 

a.

 

 

Wherewithal to pay.

 

 

b.

 

 

Tax benefit rule.

 

 

c.

 

 

Ability to pay.

 

 

d.

 

 

Arm’s-length transaction.

 

 

e.

 

 

Administrative convenience.

 

 

60. Gerald purchases a new home on June 30, 2013. During January 2014, he receives his real estate tax statement for calendar year 2013 showing $1,800 payable. Gerald pays the $1,800 on March 1, 2014. The seller of the residence had credited Gerald with half of the 2013 taxes on the closing statement. What is the amount of real estate taxes that Gerald may claim as an itemized deduction in 2014?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$ 450

 

 

c.

 

 

$ 900

 

 

d.

 

 

$1,800

 

 

e.

 

 

$2,700

 

 

61. Wayne purchases a new home during the year, borrowing $725,000 from Century National Bank to finance the purchase. He also pays $7,250 in points and $4,500 in loan origination fees. During the year he pays interest of $71,000 on the loan. What is Wayne’s allowable interest deduction?

 

 

a.

 

 

$ - 0 -

 

 

b.

 

 

$ 7,250

 

 

c.

 

 

$71,000

 

 

d.

 

 

$78,250

 

 

e.

 

 

$82,750

 

Paper#39194 | Written in 31-Oct-2015

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