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Chapter 11 (Individual) - Accounting Periods and...

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Chapter 11 (Individual) - Accounting Periods and Methods _____ 1) All of the following are acceptable accounting tax years with the exception of A) an S corporation year ending October 31. B) a C corporation (not a personal service corporation) tax year ending on February 15. C) a C corporation (not a personal service corporation) 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. _____ 2) Emma, a single taxpayer, obtains permission to change from a calendar year to a fiscal year ending June 30, 2012. During the six months ending June 30, 2012, she earns $40,000 and has $6,050 of itemized deductions. What is the amount of her annualized income? A) $32,150 B) $30,250 C) $64,100 D) $67,900 _____ 3) Under the cash method of accounting, all of the following are true with the exception of: A) Fixed assets are always expensed as the taxpayer pays for the assets. B) Gross income includes the value of property received. C) To some extent, a taxpayer may control the year in which an expense is deductible by choosing when to make the payment. D) Income is reported in the tax year in which payments are actually or constructively received. _____ 4) For purposes of the accrual method of accounting, the economic performance test is met when A) the property or services are actually provided. B) the amount of the item can be reasonably estimated. C) all events have occurred that establish the fact of a liability. D) all events have occurred that fix the taxpayer's right to receive income. _____ 5) Under UNICAP, all of the following overhead costs are included in inventory except A) factory utilities, rent, insurance and depreciation. B) officers' salaries and factory administration. C) research and experimentation. D) payroll, purchasing and warehouse costs. _____ 6) When accounting for long-term contracts (other than those for services), all of the following accounting methods are sometimes acceptable with the exception of A) the cash method of accounting. B) the completed contract method. C) the percentage of completion method. D) the modified percentage of completion method. _____ 7) 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. _____ 8) This year, Hamilton, a local manufacturer of off-shore drilling platforms, entered into a contract to construct a drilling platform that will be placed in the North Atlantic Ocean. The total contract price is $5,000,000, and Hamilton estimates the total construction cost at $3,000,000. Actual costs incurred this year are $600,000. If Hamilton uses the percentage of completion method, the gross profit for this year is A) $0. B) $400,000. C) $600,000. D) $2,000,000. _____ 9) In year 1 a contractor agrees to build a building for $2,500,000 by the end of year 2. The builder's cost is estimated to be $1,800,000. The actual costs year 1 are $900,000 and year 2's actual costs are $1,300,000. Under the completed contract method the gross profit for year 1 is A) $0. B) $300,000. C) $350,000. D) $700,000. _____10) The look-back interest adjustment involves the A) calculation of interest on an installment sale. B) calculation of gross profit on an installment sale collection. C) calculation of additional tax due if actual cost rather than estimated cost had been used on the percentage of completion method. D) calculation of interest on additional tax that would have been due if actual cost rather than estimated cost had been used on the percentage of completion method. _____ 11) An installment sale is best defined as A) any disposition of property in which at least three payments are received. B) any disposition of property in which the installment method is elected by the taxpayer. C) any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs. D) any disposition of publicly traded property or inventory where at least one payment is received after the close of the taxable year in which disposition occurs. _____12) The installment method may be used for sales of all kinds of property with the exception of A) real property. B) personal property. C) capital assets. D) marketable securities. _____ 13) The installment sale method can be used for all of the following transactions except A) the sale of an antique by a collector. B) the sale of shares of publicly-traded corporate stock. C) the sale of farmland used in a farming business. D) the sale of a boat held for personal use. _____14) Kyle sold land on the installment basis for $100,000. His basis in the land was $70,000. Kyle received a $40,000 down payment and a real estate installment sale contract calling for $60,000 in additional payments in future years. In addition, Kyle paid $6,000 in commissions on the sale. What is the gross profit to be recognized in the current year? A) $0 B) $9,600 C) $12,000 D) $24,000 _____ 15) All of the following transactions are exempt from rules regarding imputed interest with the exception of A) taxpayer purchases newly issued bond for $700 (face value of $1,000). B) taxpayer sells land for $135,000 with payment due in 5 years and no stated interest. C) taxpayer sells his home gym equipment for $2,800 with payment due in one year and no stated interest. D) taxpayer purchases sailboat costing $2,500 for week-end boating trips; full price payable in five months and no stated interest. Chapter 12 (Individual) - Property Transactions: Nontaxable Exchanges _____ 16) All of the following qualify as a like-kind exchange except A) an apartment building held for investment for farmland used in a trade or business. B) a printer used in trade or business for a computer used in trade or business. C) improved real estate held for investment for unimproved real estate held for investment. D) an airplane used in trade or business for a general purpose truck used in trade or business. _____ 17) A owns a ranch in Wyoming, which B offers to purchase. A is not willing to sell the ranch but is willing to exchange the ranch for an apartment complex in Louisiana. The complex is available for sale. B purchases the apartment complex in Louisiana from C and transfers it to A in exchange for A's ranch. The ranch and the complex each have a $1,000,000 fair market value. Which of the following is true? A) The transaction qualifies as a like-kind exchange for B but not for A. B) The transaction qualifies as a like-kind exchange for both B and A. C) The transaction qualifies as a like-kind exchange for A but not for B. D) The transaction does not qualify as a like-kind exchange for either B or A. _____18) Daniella exchanges business equipment with a $100,000 adjusted basis for $10,000 cash and business equipment with a $96,000 FMV. What is the amount of gain recognized on the exchange? A) $0 B) $4,000 C) $6,000 D) $10,000 _____ 19) Pamela owns land for investment purposes. The land is worth $300,000 (basis of $260,000 to Pamela). Pamela exchanges the land, plus $20,000 cash, for a warehouse to be used in her business. The FMV of the warehouse is $400,000, but the warehouse is subject to a mortgage of $80,000, which is assumed by Pamela. Pamela must recognize a gain of A) $ -0-. B) $ 40,000. C) $ 120,000. D) $ 140,000. _____20) Bob owns a warehouse that is used in business while Rebecca owns land. Bob exchanges the warehouse for the land, which will be held for investment. The FMV of the warehouse is $440,000 (basis $240,000), but the warehouse is subject to a mortgage of $80,000, which is assumed by Rebecca. Bob receives $40,000 cash and the land, which has a FMV of $320,000. Bob realizes a gain (loss) on the exchange of A) $80,000. B) $120,000. C) $190,000. D) $200,000. _____ 21) Which of the following statements is not true with regard to like-kind exchanges? A) Non-recognition of gains and losses is mandatory if the exchange is a like-kind exchange. B) The holding period of like-kind property received includes the holding period of the property exchanged. C) A loss is always recognized if the taxpayer transfers non-like-kind personal use property in an otherwise like-kind exchange. D) The basis of property received in an exchange is equal to the basis of the property exchanged less the boot received plus the gain recognized and less any loss recognized. _____ 22) Stephanie's building, which was used in her business, was destroyed in a fire. Stephanie's adjusted basis in the building was $175,000, and its FMV was $210,000. Stephanie filed an insurance claim and was reimbursed $200,000. In that same year, Stephanie invested $180,000 of the insurance proceeds in another business building. If the proper election is made, Stephanie will recognize gain of A) $ -0-. B) $15,000. C) $20,000. D) $25,000. _____ 23) Stephanie's building, which was used in her business, was destroyed in a fire. Stephanie's adjusted basis in the building was $175,000, and its FMV was $210,000. Stephanie filed an insurance claim and was reimbursed $200,000. In that same year, Stephanie invested $180,000 of the insurance proceeds in another business building. Assuming the proper election is made to defer gain, Stephanie's basis in the new building will be (Continued) A) $175,000. B) $180,000. C) $200,000. D) $210,000. _____ 24) 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 _____ 25) Each of the following is true of deferral of gain attributable to the involuntary conversion of personal property with the exception of: A) Gain deferral is elective, except for direct conversions. B) The replacement property may be acquired by gift, inheritance, or purchase. C) Qualifying replacement property must be acquired within a specified time period. D) Replacement property must be similar or related in service or use to the converted property. _____ 26) 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. _____ 27) Mitchell and Debbie, both 55 years old and married, sell their personal residence to Sophie. Sophie pays $225,000 and assumes their $70,000 mortgage. To make the sale they pay $4,000 in commissions and $1,000 in legal costs. They have owned and lived in the house for seven years and their tax basis is $125,000. What is the amount of gain recognized on the sale? A) $-0- B) $100,000 C) $165,000 D) $170,000 _____ 28) Under what circumstances can a taxpayer obtain a partial exclusion if a home is sold before the use and ownership tests are satisfied? A) change in employment that meets the requirement for a moving expense deduction B) increased traffic due to widening of a road C) birth of one child D) death of a child Chapter 13 (Individual) - Property Transactions: Section 1231 and Recapture _____ 29) Jeremy has $18,000 of Section 1231 gains and $23,000 of Section 1231 losses. The gains and losses are characterized as: A) Capital Gain Capital Loss Ordinary Income Ordinary Loss $18,000 $23,000 B) Capital Gain Capital Loss Ordinary Income Ordinary Loss $18,000 $23,000 C) Capital Gain Capital Loss Ordinary Income Ordinary Loss $18,000 $23,000 D) Capital Gain Capital Loss Ordinary Income Ordinary Loss $18,000 $3,000 $20,000 _____ 30) Pierce has a $16,000 Section 1231 loss, a $12,000 Section 1231 gain, and a salary of $50,000. What is the treatment of these items in Pierce's AGI? A) Pierce has a LTCG of $12,000 and a net ordinary income of $34,000. B) The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000. C) Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000. He also has a $1,000 LTCL carryover. D) Pierce has net LTCG of $9,000 and $37,000 of net ordinary income. _____ 31) During the current year, George recognizes a $30,000 Section 1231 gain on sale of land and a $18,000 Section 1231 loss on the sale of land. Prior to this, George's only Section 1231 item was a $14,000 loss six years ago. George must report a A) $12,000 net LTCG. B) $12,000 ordinary income. C) $14,000 ordinary income. D) $10,000 ordinary income and $2,000 net LTCG. 1231 gain is $12,000 ($30,000 - $18,000) to be treated as long-term capital gain. _____ 32) Blair, whose tax rate is 35%, sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000. Both tracts of land are Sec. 1231 property. She has never had any other Sec. 1231 transactions. How are the gains taxed? A) ordinary income of $40,000 taxed at 35% B) a net capital gain of $40,000 which is not taxed C) a net capital gain of $40,000 taxed at 15% D) ordinary income of $40,000 taxed at 25% _____ 33) Which of the following assets is 1231 property? A) a machine used in the company's manufacturing operations B) an investment in corporate stock C) land held for investment D) items held for resale by a retailer _____ 34) Section 1231 property will generally have all the following characteristics except A) real or depreciable property. B) used in trade or business. C) held for sale to customers. D) held for more than one year. _____ 35) Terry has sold equipment used in her business. She acquired three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use. In order to recognize any Sec. 1231 gain, she must sell the equipment for more than A) $-0-. B) $20,000. C) $30,000. D) $50,000. _____ 36) During the current year, Hugo sells equipment for $150,000. The equipment cost $175,000 when placed in service two years ago, and $55,000 of depreciation deductions were allowed. The results of the sale are A) LTCG of $30,000. B) Sec. 1231 gain of $30,000. C) Sec. 1245 ordinary income $30,000. D) Sec. 1250 ordinary income of $30,000. _____ 37) Section 1245 recapture applies to all the following except A) depreciable personal property. B) assets sold or exchanged at a loss. C) total depreciation or amortization allowed or allowable. D) amortizable intangible personal property. _____ 38) All of the following statements are true regarding Sec. 1245 are true except A) Sec. 1245 does not apply to any buildings placed in service after 1986. B) Sec. 1245 applies to assets sold or exchanged at a gain or at a loss. C) Sec. 1245 property includes nonresidential real estate that qualified as recovery property under the ACRS rules unless the taxpayer elected to use the straight-line method of cost recovery. D) Sec. 1245 ordinary applies to total depreciation or amortization allowed or allowable but not more than the realized gain. _____ 39) A building used in a business for more than a year is sold. Sec. 1250 will not cause depreciation recapture if A) the building is fully depreciated. B) the building was placed in service after 1986. C) straight-line depreciation was used. D) all of the above. _____ 40) With regard to noncorporate taxpayers, all of the following statements are true regarding Sec. 1250 recapture except A) Sec. 1250 affects the character of the gain, not the amount of the gain. B) Sec. 1250 applies to assets sold or exchanged at either a gain or a loss. C) Sec. 1250 ordinary income does not exist if the straight-line method of depreciation is used. D) Sec. 1250 ordinary income is never more than the additional depreciation allowed.

 

Paper#6474 | Written in 18-Jul-2015

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