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ACCT 3300 Final Exam (Chap 10-18) - Federal Income Tax for Individuals




Question;ACC;3300 ? Federal Income Tax for Individuals Final Exam (Chap 10-18);Name: ________________________________________ (Questions worth 2% each);Choose the best;answer for each of the following questions;1. Jacob and;Chloe are married and together have AGI of $30,000. They have two dependents and file a joint;return. Each pays $1,200 for;hospitalization insurance. During the;year, they paid the following amounts for medical care: $7,000 in doctor and dentist bills and;hospital expenses, and $1,700 for prescribed medicine and drugs. In December, they received an insurance;reimbursement of $2,700 for hospitalization.;Determine the deduction allowable for medical expenses paid during the;year.;a. $11,100.;b. $9,150.;c. $8,850.;d. $6,150.;e. None;of the above.;2. Samuel and Lopita, married taxpayers, took out a mortgage;on their home for $150,000 in 2004. In;May of 2010, when the home had a fair market value of $175,000 and they owed;$100,000 on the mortgage, they took out a home equity loan for $120,000. They used the funds to purchase a single;engine airplane to be used for recreational travel purposes. What is the maximum amount of debt on which;they can deduct home equity interest?;a. $75,000.;b. $100,000.;c. $120,000.;d. $175,000.;e. None of the above.;3. Which of;the following items would be a miscellaneous itemized deduction on Schedule A;of Form 1040not subject to the 2;percent of AGI floor?;a. Investment expenses under ? 212.;b. Professional dues.;c. Tax return preparation fees.;d. Unreimbursed employee expenses.;e. None of the above.;4. In 2010, Israel, the sole proprietor of a;video rental store, pays a $4,000 premium for medical insurance for himself and;an additional $5,000 for his family.;Emily, one of Israel?s employees, pays a $4,000 premium for a medical;insurance policy for herself. Which of;the following statements is true?;a. Israel may;deduct $9,000 as a deductionfromAGI.;b. Israel may deduct $4,000 as a deductionfor AGI.;c. Emily may deduct $4,000 as a deductionfor AGI.;d. Israel may;deduct $9,000 as a deductionfor AGI.;e. None of the above.;5. Upon the;recommendation of a physician, Joshua has a dust elimination system installed;in his personal residence. He suffers;from severe allergies. In connection;with this system, Joshua incurs and pays the following amounts during the;current year;Dust;elimination system and cost of installation $7,000;Increase;in utility bills due to the system 400;Cost;of certified appraisal 500;The;system has an estimated useful life of 5 years.;The appraisal was to determine the value of Joshua's residence with and;without the system. The appraisal states;that the system increased the value of Joshua's residence by $3,000. Disregarding percentage limitations, how much;of the above expenditures qualify for the medical expense deduction in the;current year?;a. $7,900.;b. $7,400.;c. $4,500.;d. $4,400.;e. None of the above.;6. In 2010;Aaron pays $3,000 to become a charter member of Western University?s Athletic;Council. The membership ensures that;Aaron will receive choice seating at all of Western?s home football games. Also in 2010, Aaron pays $600 (the regular;retail price) for season tickets for himself and his wife. For these items, how much qualifies as a;charitable contribution?;a. $0.;b. $600.;c. $2,400.;d. $3,000.;e. None of the above.;7. Eric owns;five activities. He elects not to group;them together as a single activity under the "appropriate economic;unit" standard. He participates for;100 hours in Activity A, 140 hours in Activity B, 240 hours in Activity C, 99;hours in Activity D, and 120 hours in Activity E. Which of the following statements iscorrect?;a. Eric is a material participant with respect;to Activities A, B, C, D, and E.;b. Eric is a material participant with respect;to Activities B, C, and E only.;c. Activities A, B, C, D and E are all;significant participation activities.;d. Activities B, C and E are all significant;participation activities.;e. None of the above.;8. Wanda owns;four separate activities. She elects not;to group them together as a single activity under the ?appropriate economic;unit? standard. Wanda participates for;111 hours in Activity A, 155 hours in Activity B, 115 hours in Activity C, and;120 hours in Activity D. She has one;employee, who works 400 hours in Activity D.;Which of the following statements isincorrect?;a. Losses from all of the activities can be;used to offset Wanda?s active income.;b. Wanda is a material participant with respect;to Activities A, B, C, and D.;c. Wanda is a material participant with;respect to only Activity D.;d. Activities A, B, C, and D are all;significant participation activities.;e. None of the above statements is correct.;9. Sally sells a;passive activity with an adjusted basis of $145,000 for $225,000. Suspended losses attributable to this;property total $35,000. The total gain;and the taxable gain are;a. $80,000 total gain, $80,000 taxable;gain.;b. $45,000 total gain, $45,000 taxable;gain.;c. $80,000 total gain, $0 taxable gain.;d. $80,000 total gain, $45,000 taxable;gain.;e. None of the above.;10. Sycamore Corporation, a closely held;nonpersonal service corporation, has $300,000 of passive losses, $240,000 of;active business income, and $40,000 of portfolio income. How much of the passive loss may Sycamore;Corporation deduct?;a. $0.;b. $40,000.;c. $240,000.;d. $300,000.;e. None of the above.;11. Andrew, who is single, has $95,000 of salary;$60,000 of income from a limited partnership, and a $79,000 passive loss from a;real estate rental activity in which he actively participates. His modified adjusted gross income is;$95,000. Of the $79,000 loss, how much;is deductible?;a. $-0-.;b. $19,000.;c. $25,000.;d. $79,000.;e. None of the above.;12. Paul;owns five activities. He elects not to;group them together as a single activity under the "appropriate economic;unit" standard. He participates for;100 hours in Activity A, 145 hours in Activity B, 125 hours in Activity C, 105;hours in Activity D, and 126 hours in Activity E. Which of the following statements iscorrect?;a. Activities;A, B, C, and E are all significant participation activities.;b. Paul is a material participant with respect;to Activities B, C, D, and E only.;Paul;is a material participant with respect to Activities A, B, C, D, and E.;d. Activities A, B, C, D and E are all significant participation;activities.;e. None of the above.;13. Stevie;who is single, owns a personal residence in the city. He also owns a townhouse near the ocean. He;uses the townhouse as a vacation home.;In March 2010 he borrowed $50,000 on a home equity loan and used the;proceeds to acquire a luxury automobile. During 2010, he paid the following;amounts of interest;on;his personal residence $14,000on;the townhouse 7,000on;the home equity loan 5,000on;credit card obligations 4,000 What amount, if any, must Stevie;recognize as an AMT adjustment in 2010?a. $0.b. $4,000.c. $5,000.d. $9,000.e. None of the above.14. In 2010, Tito has a $65,000 loss on a passive activity for;regular income tax purposes. For AMT;purposes, his loss is $55,000. The;amount of the AMT adjustment resulting from the passive activity loss is: a. $0. b. $10,000 negative adjustment. c. $10,000 positive adjustment. d. $55,000. e. None of the above.15. Which of the following;is a positive adjustment for AMT?a. Standard;deduction.b. Real property;taxes.c. Student loan;interest.d. All of the above.e. None of the above.16. Which of;the following is not an itemized deduction allowed for AMT purposes?a. Gambling losses.b. Charitable;contributions.c. Property tax on;realty.d. Medical expenses;in excess of 10 percent of AGI.e. None of the above;are correct.17. Several years ago, Freddie purchased a structure for;$50,000 that was originally placed in service in 1929. In the current year, he incurred qualifying;rehabilitation expenditures of $100,000.;The amount of the tax credit for rehabilitation expenditures, and the;amount by which the building?s basis for cost recovery would increase as a;result of the rehabilitation expenditures are the following amounts: a. $10,000 credit, $90,000 basis. b. $10,000 credit, $100,000 basis. c. $10,000 credit, $150,000 basis. d. $20,000 credit, $8,000 basis. e. None of the above. 18. Sidney is in the process this year of;constructing a new office building for her business and has learned that;current Federal Regulations require the structure to be accessible to;handicapped individuals. Therefore, she;incurs an additional $16,250 for various features, such as ramps and widened;doorways, to make her office building more accessible. The $16,250 incurred will produce a disabled;access credit of what amount? a. $0. b. $1,000. c. $5,000. d. $8,000. e. None of the above.19. During the year, Panther Corporation (a U.S.;corporation) has U.S. source income of $6,000,000 and foreign source income of;$2,000,000. The foreign source income;generates foreign income taxes of $1,000,000.;The U.S. income tax before the foreign tax credit is $2,800,000. Panther Corporation's foreign tax credit is;a. $250,000.;b. $700,000.;c. $933,333.;d. $1,000,000.;e. None of the above.;20. Nick and Bethany are married and file a joint;tax return claiming their two children, ages 12 and 9 as dependents. Their AGI for 2010 is $112,000. Nick and Bethany?s child tax credit for 2010;is;a. $0.;b. $1,800.;c. $1,900.;d. $2,000.;e. None of the above.;21. Bryce and Shay are married, file a joint tax;return, have AGI of $145,000, and have two children. McKenzie is beginning her freshman year at;Public University during Fall 2010, and Cindy is beginning her senior year at;Southwestern University during Fall 2010 after having completed her junior year;during the spring of that year. Both;McKenzie and Cindy are claimed as dependents on their parents? tax return. McKenzie?s qualifying tuition expenses and;fees total $7,500 for the fall semester, while Cindy?s qualifying tuition;expenses and fees total $9,250 for each semester during 2010. Full payment is made for the tuition and;related expenses for both children during each semester. What amount of education tax credit should be;taken for these higher education costs?;a. $-0-;b. $2,500;c. $4,000;d. $5,000;e. None of the above.;22. In describing FICA taxes for self-employed;taxpayers, which (if any) of the following statements is correct?;a. Self-employed taxpayers are allowed an;income tax deduction for all of the self-employment tax paid.;b. Self-employed taxpayers are allowed a;deduction from net earnings from self-employment at the full self-employment;rate in determining the self-employment tax.;c. Individuals with net earnings of $400 or;more from self-employment are subject to the tax.;d. Self-employed taxpayers pay only the;employer?s one-half portion of the tax.;e. None of the above.;23. Samuel;purchased a tract of land for $150,000 in 2008 when he heard that a new highway;was going to be constructed through the property and that the land would soon;be worth $250,000. Highway engineers;surveyed the property and indicated that he would probably get $200,000. The highway project was abandoned in 2010 and;the value of the land fell to $100,000.;What is the amount of loss Samuel can claim in 2010?;a. $0.;b. $50,000.;c. $100,000.;d. $150,000.;e.None of the above.;24. Robin purchases land for $110,000. He incurs legal fees of $1,000 associated;with the purchase. He subsequently;incurs additional legal fees of $4,000 in having the land rezoned from;agricultural to residential. He;subdivides the land and installs streets and sewers at a cost of $150,000. What is Robin's basis for the land and the;improve?ments?;a. $110,000.;b. $260,000.;c. $261,000.;d. $265,000.;e. None of the above.;25. Ricardo purchases a business for;$1,000,000. The fair market value of the;assets of the business is as follows;Equipment $;500,000;Building 400,000;What;is Ricardo's cost basis in each asset?;a. $500,000 equipment, $400,000 building, $0;goodwill.;b. $550,000 equipment, $250,000 building, $0;goodwill.;c. $500,000 equipment, $400,000 building;$100,000 goodwill.;d. $571,428 equipment, $428,572 building, $0;goodwill.;e. None of the above.;26. Miriam received nontaxable stock rights on;June 4, 2010. She allocated $12,000 of;the $60,000 basis for the associated stock to the stock rights. The stock rights expire on August 14;2010. What is Miriam's recognized loss;on the expiration of the stock rights?;a. $0.;b. $12,000.;c. $60,000.;d. $72,000;e. None of the above.;27. Harlow owned the following lots of Pansy;Corporation stock.;Purchase date;No. of shares;Basis;October 1, 2007;50;$ 4,500;February 8, 2008;50;5,500;September 5, 2008;100;12,000;On October 12, 2010, 100 shares of stock were sold for;$14,000. Harlow did not specifically;identify the shares of stock sold. What;is the recognized gain or loss?;a. $0.;b. $2,000.;c. $3,000.;d. $4,000.;e. None of the above.;28. Lucy;gives her sister a machine to use in her business with a fair market value of;$10,500 and a basis in Lucy?s hands of $9,500.;What is the sister?s basis for depreciation (cost recovery)?;a. $0.;b. $1,000.;c. $9,500.;d. $10,500.;e. None of the above.;29. Joyce;exchanges a machine used in her trade or business for another machine. In addition, she gives 200 shares of Alpha;Corporation stock which have a fair market value of $38,000 and a basis of;$29,000. The old machine has an adjusted;basis of $36,000 and the new machine has a fair market value of $100,000. What is the recognized gain or loss and the;basis of the new machine?;a. $26,000 and $74,000.;b. $9,000 and $74,000.;c. $26,000 and $100,000.;d. $9,000 and $100,000.;e. None of the above.;30. In order to qualify for like-kind exchange;treatment;a. The form of the transaction must be an;exchange.;b. Both the property transferred and the;property given must be held for productive use in a trade or business or for;investment.;c. The property must be like kind.;d. All of the above.;e. None of the above.;31. In regard to nontaxable exchanges which, if;any, of the following iscorrect?;a. Neither realized gains or losses are;recognized.;b. Realized gains are not recognized but;realized losses are recognized.;c. Realized gains and losses are recognized.;d. Realized losses are not recognized but;realized gains are recognized.;e. None of the above.;32. Taxpayer receives;stock as a gift from his nephew. The;adjusted basis of the stock is $15,000 and the fair market value is;$37,000. Taxpayer trades the stock for;bonds with a fair market value of $35,000 and $2,000 cash. What is his recognized gain and the basis for;the bonds?;a. $2,000, $17,000.;b. $0, $15,000.;c. $2,000, $15,000.;d. $22,000, $35,000.;e. None of the above.;33. On October 1, Tabitha exchanged an apartment;building (adjusted basis of $675,000 and subject to a mortgage of $325,000) for;another apartment building owned by Edwin (fair market value of $950,000 and;subject to a mortgage of $325,000). The;property transfers were made subject to the outstanding mortgages. What amount of gain should Tabitha recognize?;a. $0.;b. $50,000.;c. $225,000.;d. $275,000.;e. None of the above.;34. Cedar, Inc., owns a;delivery truck which initially cost $30,000.;After depreciation of $25,000 had been deducted, the truck was traded-in;on a new truck that cost $50,000. Cedar;was required to pay the car dealer $20,000 in cash. What is Cedar?s basis for the new truck?;a. $0.;b. $25,000.;c. $50,000.;d. $75,000.;e. None of the above.;35. A nonbusiness bad debt held for 18 months is;treated;a. As an ordinary loss.;As;a short-term capital loss.As;a 25% long-term capital loss.d. As a long-term capital loss.;None;of the above.;36. Walnut Company;signs a 15-year franchise agreement with Cookie Company. Cookie Company retained significant powers;rights, and a continuing interest.;Walnut (the franchisee) makes noncontingent payments of $25,000 per year;for the first five years of the franchise.;Walnut Company also pays a contingent fee of 2% of gross sales every;month. Which of the following statements;is correct?;a. Walnut Company may deduct the $25,000 per year noncontingent;payments in full as they are made.;b. Walnut;Company may deduct the monthly contingent fee as it is paid.;c. Walnut;Company may deduct both the noncontingent annual fee and the contingent;monthly fees as they are paid.;d. Walnut Company may not deduct either the;noncontingent annual fee or the contingent monthly fees as they are paid.;e. None of the above.;37. On September 10, 2010, an investor purchased;1,000 shares of Melon Corporation for $10,000.;On July 2, 2011, the stock became worthless. What is the recognized gain or loss and how;is it classified?;a. $3,000;STCL.;b. $10,000;STCL.;c. $3,000;LTCL.;d. $10,000;LTCL.;e. None of the above.;38. Sophia purchased for $8,700 a $10,000 bond;when it was issued two years ago. Sophia;amortized $300 of the original issue discount and then sold the bond for;$9,500. Which of the following statements;is correct?;a. Sophia has $1,100 of long-term capital gain.;b. Sophia has $800 of long-term capital gain.;c. Sophia has $500 of long-term capital gain.;d. Sophia has $800 long-term capital loss.;e. None of the above.;39. Anthony lives in an apartment building and;has a two-year lease that began eleven months ago. His landlord is willing to pay Anthony $3,000;to vacate the apartment immediately. The;landlord wants to sell the building to a buyer who will convert the building;into condominiums. Anthony?s lease on;the apartment is a capital asset, but has no tax basis. The $3,000 Anthony will receive if he accepts;the landlord?s offer will be;a. A long-term capital gain.;b. A short-term capital gain.;c. An ordinary gain.;d. A short-term capital loss.;e. Excludible from gross income.;40. Gerard has a NLTCG of $20,000 and a NSTCL of;$30,000. What is Gerard's 2010 capital;loss deduction if Gerard's adjusted gross income for 2010 (before considering;capital asset transactions) is $60,000?;a. $30,000.;b. $20,000.;c. $10,000.;d. $3,000.;e. None of the above.;41. Jamie elects to treat the cutting of timber;as a sale or exchange under ? 1231.;Jamie purchased the land for $100,000 and the timber for $125,000;several years ago. On the first day of;2010, the timber was appraised at $220,000 and in September 2010 it was cut and;sold for $275,000. What is Jamie's ordinary income from this;transaction?;a. $0.;b. $55,000.;c. $95,000.;d. $150,000.;e. None of the above.;42. Which of the following is ? 1231 property?;a. Property where casualty losses exceed casualty gains for the;taxable year.;b. Property not held for the long-term holding period.;c. Property held for sale to customers.;d. Purchased intangibles.;e. None of the above.;43. An individual has a $40,000 ? 1245 gain, a;$65,000 ? 1231 gain, a $45,000 ? 1231 loss, a $30,000 ? 1231 lookback loss, and;a $90,000 long-term capital gain. The;net long-term capital gain is;a. $155,000.;b. $125,000.;c. $100,000.;d. $90,000.;e. None of the above.;44. Which, if any, of the following is correct;regarding ? 1245 recapture?;a. It applies to the total amount of;depreciation allowed or allowable regardless of the depreciation method used.;b. It applies to gains but not losses.;c. It applies regardless of the holding period;of the property.;d. All of the above.;e. None of the above.;45. A retail building used in the trucking;business of a sole proprietor is sold on February 10, 2010 for $300,000. It had been acquired in 1992 for;$275,000. Straight-line depreciation of;$175,000 had been taken on the property.;What is themaximum;unrecaptured ? 1250 gain from this dispositionafter considering depreciation recapture?;a. $0.;b. $100,000.;c. $175,000.;d. $275,000.;e. None of the above.;46. The HAT Partnership has three corporate;partners with taxable years and ownership interests in the venture as follows;Tax Year Interest in;Partner Ending;Partnership;H Inc. April 30 30%;A Inc. October 31 40%;T Inc. November 30 30%;a. A partnership must use the calendar;year to report its income.;b. The partnership can elect to use a;November year end.;c. Under the least aggregate deferral;calculations, using a fiscal year ending October 31 will result in an aggregate;deferral of.30 (1 X.30) with respect to T and 1.8 (6 X.30) with respect to;H.;d. The partnership must use an October 31st;year end since A Inc. has the largest ownership interest.;None;of the above.;47. Which of the following isnot an exception to the accrual method;of reporting requirement for corporations?;a. A;corporation with average annual gross receipts for the most recent three-year;period of $5 million or less.;b. A tax;shelter.;c. A;farming business.;d. A;qualified personal service corporation.;e. None;of the above.;48. Justin sold land;for $200,000 plus a note for $400,000.;The interest rate on the note was equal to the Federal rate. The fair market value of the note was;$400,000. His basis in the land was;$75,000.;a. If;Justin is an accrual basis taxpayer and does not use the installment;method to report the gain, his gain in the year of sale is $525,000 ($200,000 +;$400,000 ? $75,000).;b. If;Justin is a cash basis taxpayer, he cannot use the installment method to report;the gain.;c. If;Justin is a cash basis taxpayer and uses the installment method, the contract;price is $400,000.;d. If;Justin is a cash basis taxpayer, his gain in the year of the sale is $125,000;($200,000 ? $75,000).;e. None of;the above.;49. In 2010, Jackie sold land to her son Horatio;for $100,000 cash and an installment note for $400,000. Jackie's adjusted basis was $200,000. In 2011, after paying $10,000 interest but;nothing on the principal, Horatio sold the land for $625,000 cash. As a result of the second disposition, what;gain must Jackie recognize in 2011?;a. $400,000.;b. $200,000.;c. $240,000.;d. $60,000.;e. None;of the above.;50. Which, if any, of the following transactions;will accelerate the gain on an installment note?;a. Contributions;of capital to a partnership.;b. Transfers;by gift.;c. Transfers;due to taxpayer?s death.;d. Transfers;pursuant to tax-free incorporations.;e. None;of the above.


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