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Devry ACCT212 midterm exam Spring 2014




Question;(TCO 9);Which of the following is NOT a characteristic of the audit process?;The IRS can reward informants when the information provided leads to the;collection of additional taxes.;Most taxpayer audits do not involve special;agents.;Self-employed taxpayers are more likely to be;selected for audit than employed taxpayers.;Less important issues are handled by means of;a correspondence audit.;If a taxpayer disagrees with the IRS auditor's;finding, the only resort is to use the courts.;2. Question: (TCO 9) A characteristic of fraud penalties is;Civil fraud can result in a fine and a prison sentence.;When negligence and civil fraud apply to a;deficiency, both penalties are imposed.;The criminal fraud penalty is 75% of the;deficiency attributable to the fraud.;The IRS has a greater burden of proof in the;case of criminal fraud than with civil fraud.;None of the above;3. Question: (TCO 1) The Internal Revenue Code was codified for the;first time in what year?;1913;1923;1939;1954;1986;4. Question: (TCO 1) Subchapter S covers which specific area of tax;law?;Tax rates;Partnerships;Capital gains and losses;Corporations;None of the above;5. Question: (TCO 11) Which of the following taxpayers may file as a;head of household in 2008?;? Ron;provides all of the support for his mother, Betty, who lives by herself in an;apartment in Fort Lauderdale. Ron pays the rent and other expenses for the;apartment and properly claims his mother as a dependent.;? Tammy;provides over one-half of the support for her 18-year-old brother, Dan. Dan;earned $4,200 in 2008 working at a fast-food restaurant and is saving his money;to attend college in 2009. Dan lives in Tammy's home.;? Joe's;wife left him late in December of 2007. No legal action was taken and Joe has;not heard from her in 2008. Joe supported his six-year-old son, who lived with;him throughout 2008.;Ron only;Tammy only;Joe only;Ron and Joe only;Ron, Tammy, and Joe;6. Question: (TCO 11) Arnold is married to Sybil, who abandoned him in;2008. He has NOT seen or communicated with her since April of that year. He;maintains a household in which their son, Evans, lives. Evans is age 25 and;earns over $20,000 each year. For tax year 2010, Arnold's filing status is;married filing jointly.;married filing separately.;head of household.;surviving spouse.;single.;7. Question: (TCO 7) Kathy operates a gym. She sells memberships that;entitle the member to use the facilities at any time. A one-year membership;costs $360 ($360/12 = $30 per month), a two-year membership costs $600 ($600/24;= $25 per month). Cash payment is required at the beginning of the membership;period. On July 1, 2009, Kathy sold a one-year membership and a two-year;membership.;I. If Kathy is a cash basis taxpayer, her 2009 gross income;from the contracts is $960 ($360 + $600).;II. If Kathy is an accrual basis taxpayer, her 2009 gross;income from the contracts is $330 [(6/12 x $360) + (6/24 x $600)].;III. If Kathy is an accrual basis taxpayer, her 2010 gross;income from the contracts is $630 [(6/12) ($360) + $450].;Only I is true.;Only I and II are true.;Only II and III are true.;I, II, and III are true.;None of the above;8. Question: (TCO 7) With respect to income from services, which of the;following is true?;The income is always amortized over the period the services will be rendered by;an accrual basis taxpayer.;A cash basis taxpayer can spread the income;from a 12-month service contract over the contract period.;If an accrual basis taxpayer sells a 24-month;service contract on July 1, 2008 for $2,400, the taxpayer's 2009 gross income;from the contract is $1,800.;If the accrual basis taxpayer sells a 12-month;service contract on July 1, 2008, all of the income is recognized in 2008.;None of the above;9. Question: (TCO 3) Ridge is the manager of a motel. As a condition of;his employment, Ridge is required to live in a room on the premises so that he;would be there in case of emergencies. Ridge considered this a fringe benefit;since he would otherwise be required to pay $600 per month for rent. The room;that Ridge occupied normally rented for $60 per night, or $1,500 per month. On;the average, 90% of the motel rooms were occupied. As a result of this;rent-free use of a room, Ridge is required to include in gross income;$0.;$600 per month.;$1,500 per month.;$1,350 ($1,500 x.90 = $1,350).;None of the above;10. Question: (TCO 3) Adam repairs power lines for the Egret Utilities;Company. He is generally working on a power line during the lunch hour. He must;eat when and where he can and still get his work done. He usually purchases;something at a convenience store and eats in his truck. Egret reimburses Adam;for the cost of his meals.;Adam must include the reimbursement in his;gross income.;Adam can exclude the reimbursement from his;gross income since the meals are provided for the convenience of the employer.;Adam can exclude the reimbursement from his;gross income because he eats the meals on the employer's business premises (the;truck).;Adam may exclude from his gross income the;difference between what he paid for the meals and what it would have cost him;to eat at home.;None of the above;11. Question: (TCO 10) Hans purchased a new passenger automobile on;August 17, 2010 for $40,000. During the year, the car was used 40% for business;and 60% for personal use. Determine his cost recovery deduction for the car for;2010.;$500;$1,000;$1,224;$1,500;None of the above;12. Question: (TCO 10) Cory incurred and paid the following expenses;Tax return;preparation fee $600;Moving expenses $2,000;Investment expenses $500;Expenses associated;with rental property $1,500;Interest expense;associated with loan to finance tax-exempt bonds $400;Calculate the amount that Cory can deduct (before any;percentage limitations).;$5,000;$4,600;$3,000;$1,500;None of the above;13. Question: (TCO 10) Sarah incurred the following expenses for her;dependent son during the current year;Payment of principal on son's automobile loan $5,000;Interest on above loan $2,000;Payment of son's property taxes $1,200;Payment of principal on son's personal residence loan $1,500;Payment of interest on son's personal residence loan $8,000;How much may Sarah deduct in computing her itemized;deductions?;$0;$9,200;$11,200;$17,700;None of the above;Points Received: 6 of 6;Comments;14. Question: (TCO 10) Danielle owns a vacation cottage. During the;current year, she rented it for $1,500 for 48 days, and lived in it for 12;days. How would any expenses be accounted for?;The expenses would not be deductible.;The expenses must be allocated between;personal and rental days.;The expenses must be allocated to rental days;only.;The expenses must be allocated to personal;days only.;None of the above;Instructor Explanation: Chapter 6;Points Received: 6 of 6;Comments;15. Question: (TCO 3) During the year, Rick had the following insured;personal casualty losses (arising from one casualty). Rick also had $18,000 AGI;for the year.;Asset Adjusted;Basis Fair Market;Value (Before) Fair;Market;Value (After) Insurance;Recovery;A $500 $700 $300;$150;B 3,000 2,000 -0-;500;C 700 900 -0-;200;Rick's casualty loss deduction is;$400.;$600.;$1,000.;$1,400.;None of the above;16. Question: (TCO 3) John had adjusted gross income of $60,000. During;the year, his personal use summer home was damaged by a fire. Pertinent data;with respect to the home follows;Cost basis $250,000;Value before the fire $400,000;Value after the fire;$100,000;Insurance recovery $270,000;John had an accident with his personal use car. As a result;of the accident, John was cited with reckless driving and willful negligence.;Pertinent data with respect to the car follows;Cost basis $80,000;Value before the accident $6,000;Value after the accident $20,000;Insurance recovery $0;What is John's deductible casualty loss?;$0;$15,800;$15,900;$35,900;None of the above;17. Question: (TCO 3) Hannah makes the following charitable donations in;the current year;Basis Fair Market;Value;Inventory held for resale in Hannah's business;(a sole proprietorship) $8,000;$7,200;Stock in HBM, Inc., held as an investment;(acquired four years ago) $16,000$40,000;Baseball card collection held as an investment;(acquired six years ago)$4,000 $20,000;The HBM stock and the inventory were given to Hannah's;church, and the baseball card collection was given to the United Way. Both;donees promptly sold the property for the stated fair market value.;Disregarding percentage limitations, Hannah's current;charitable contribution deduction is;$28,000.;$51,200.;$52,000.;$67,200.;None of the above;18. Question: (TCO 3) Karen, a calendar year taxpayer, made the;following donations to qualified charitable organizations in the current year;Basis Fair;Market Value;Cash donation to Midwest State University $30,000$;30,000;Unimproved land to the city of Terre Haute, Indiana $70,000$210,000;The land had been held as an investment and was acquired 4;years ago. Shortly after receipt, the city of Terre Haute sold the land for;$210,000. Karen's AGI is $450,000.;The allowable charitable contribution deduction is;$84,000 if the reduced deduction election is not made.;$100,000 if the reduced deduction election is;not made.;$165,000 if the reduced deduction election is;not made.;$170,000 if the reduced deduction election is;made.;None of the above;19. Question: (TCO 3) Josh has investments in two passive activities.;Activity A, acquired three years ago, produces income in the current year of;$60,000. Activity B, acquired last year, produces a loss of $100,000 in the;current year. At the beginning of this year, Josh's at-risk amounts in;Activities A and B are $10,000 and $100,000, respectively. What is the amount;of Josh's suspended passive loss with respect to these activities at the end of;the current year?;$0;$36,000;$40,000;$100,000;None of the above;20. Question: (TCO 3) Sandra acquired a passive activity three years;ago. Until last year, the activity was profitable and her at-risk amount was;$300,000. Last year, the activity produced a loss of $100,000, and in the;current year, the loss is $50,000. Assuming Sandra has received no passive;income in the current or prior years, her suspended passive loss from the;activity is;$90,000 from last year and $50,000 from the current year.;$100,000 from last year and $50,000 from the;current year.;$0 from last year and $0 from the current;year.;$50,000 from the current year.;None of the above;21. Question: (TCO 3) Vic's at-risk amount in a passive activity is;$200,000 at the beginning of the current year. His current loss from the;activity is $80,000. Vic had no passive activity income during the year. At the;end of the current year;Vic has an at-risk amount in the activity of;$120,000 and a suspended passive loss of $80,000.;Vic has an at-risk amount in the activity of;$200,000 and a suspended passive loss of $80,000.;Vic has an at-risk amount in the activity of;$120,000 and no suspended passive loss.;Vic has an at-risk amount in the activity of;$200,000 and no suspended passive loss.;None of the above;Points Received: 6 of 6;Comments;22. Question: (TCO 2) The installment method applies to which of the;following sales with payments being made in the year following the year of;sale?;An automobile dealer's sale of an SUV;A cash basis individual's sale of General;Electric common stock;A manufacturer's sale of fully depreciated;equipment;All of the above;None of the above;23. Question: (TCO 2) In 2009, Helen sold property and reported her gain;by the installment method. Her basis in the property was $150,000 ($250,000;cost less $100,000 of depreciation). Helen sold the property for $375,000, with;$75,000 due on the date of the sale and $300,000 (plus interest at the federal;rate) due in 2010. Helen's recognized installment sale gain in 2010 is;$0.;$45,000.;$75,000.;$100,000.;None of the above;24. Question: (TCO 2) Pedro, NOT a dealer, sold real property that he;owned with an adjusted basis of $60,000 and encumbered by a mortgage for;$28,000 to Pat in 2008. The terms of the sale required Pat to pay $14,000 cash;assume the $28,000 mortgage, and give Pedro eleven notes for $6,000 each (plus;interest at the federal rate). The first note was payable two years from the;date of sale, and each succeeding note became due at two-year intervals. Pedro;did NOT elect out of the installment method for reporting the transaction. If;Pat pays the 2011 note as promised, what is the recognized gain to Pedro in;2010 (exclusive of interest)?;$6,000;$3,600;$2,400;$0;None of the above;25. Question: (TCO 2) Both economic and social considerations can be used;to justify;various tax credits, deductions, and;exclusions that are designed to encourage taxpayers to obtain additional;education.;disallowance of any deduction for expenditures;deemed to be contrary to public policy (e.g., fines, penalties, illegal;kickbacks, bribes to government officials).;favorable tax treatment for accident and;health plans provided for employees and financed by employers.;allowance of a deduction for state and local;income taxes paid.;None of the above;Instructor Explanation: Chapter 1;(TCO 3);Marge's auto, which is used for business purposes only, is totally destroyed by;a fire. The fair market value of the auto was $8,000 at the time of the fire;and the adjusted basis was $10,000. Calculate the loss, and determine whether;it is a deduction for or a deduction from AGI.;2. Question;(TCO 1) In 2010, David had the;following transactions;Salary $75,000;Capital loss from a stock investment ($6,000);Moving expense to change jobs ($12,500);Received repayment of $9,000 loan he made to a friend in;2007 (also interest of $900) $9,900;Property taxes on personal residence $1,500;Based on the information given above, determine David's AGI.;Be sure to show your work.


Paper#40689 | Written in 18-Jul-2015

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