Question 3
1. (TCOs 2 & 3) During the year, Zander is transferred by his employer from Seattle to San Diego. His moving expenses are not reimbursed and are as follows: Cost of moving household furnishings $9,000 Transportation $1,000 Meals $800 Lodging $1,400 His qualified moving expenses are: (Points : 5) $12,200. $11,800. $11,400. $10,000. None of the above 2. (TCOs 3, 4, 5, & 7) Which of the following is a deduction for AGI? (Points : 5) Casualty losses Charitable contributions Real estate tax on personal residence Qualified tuition expense None of the above 3. (TCOs 3, 4, 5, & 7) Damien, not a dealer in real estate, sold real estate with a basis of $250,000 for $500,000 cash, a note for $250,000, and the buyer assumed Damien's mortgage on the property of $125,000. During the year, the purchaser paid Damien $30,000 principal and $72,000 interest on the note and paid $6,000 principal and $18,000 interest on the mortgage he assumed. The contract price for the above transaction is what amount? (Points : 5) $875,000 $750,000 $625,000 $500,000 None of the above 4. (TCOs 3, 4, 5, & 7) Casey owned stock in Jupiter Corporation that he donated to a university (a qualified charitable organization) on December 30, 2009. What is the amount of Casey's deduction, assuming that he had purchased the stock for $10,000 on January 3, 2009, and the stock had a fair market value of $32,000 when he made the donation? Casey's AGI is $400,000. (Points : 5) $0 $10,000 $21,000 $32,000 None of the above 5. (TCOs 3, 4, 5, & 7) In 2010, Colin, the sole proprietor of a video rental store, pays a $4,000 premium for medical insurance for himself and his family. Lynette, one of Colin's employees, pays a $2,000 premium for a medical insurance policy for herself. Which of the following statements is TRUE? (Points : 5) Colin may deduct $4,000 as a deduction from AGI. Colin may deduct $4,000 as a deduction for AGI. Lynette may deduct $1,400 as a deduction for AGI. Lynette may deduct $2,000 as a deduction for AGI. None of the above 6. (TCOs 3, 4, 5, & 7) Benjamin is considering making a $50,000 investment in a venture which its promoter promises will generate immediate tax benefits for him. Benjamin, who does not anticipate itemizing his deductions, is in the 30% marginal tax bracket. If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure, by how much will Benjamin's tax liability decline because of the investment? (Points : 5) $0 $15,000 $20,000 $50,000 None of the above 7. (TCOs 3, 4, 5, & 7) Which of the following types of allowable deductions can be claimed as a deduction from AGI? (Points : 5) Moving expenses Alimony expense Home mortgage interest expense Student loan interest expense All of the above 8. (TCOs 3, 4, 5, & 7) Robert's AGI is $140,000. He contributed $80,000 in cash to a public charity. What is Robert's charitable contribution deduction for AMT purposes? (Points : 5) $0 $42,000 $70,000 $80,000 None of the above 9. (TCOs 7, 8, & 9) Orlando and Katelyn were divorced. Their only marital property was a personal residence with a value of $250,000 and cost of $100,000. Under the terms of the divorce agreement, Katelyn would receive the house and Katelyn would pay Orlando $25,000 each year for 5 years, or until Orlando's death, whichever should occur first. Orlando and Katelyn lived apart when the payments were made to Orlando. The divorce agreement did not contain the word alimony. Katelyn paid the $125,000 to Orlando over the five-year period. Then, Katelyn sold the residence for $300,000. Katelyn's recognized gain is: (Points : 5) $0. $50,000 ($300,000 - $250,000). $125,000 ($300,000 - $125,000 - $50,000). $200,000 ($300,000 - $100,000). None of the above 10. (TCOs 2, 8, & 9) Victoria, whose husband died in December 2008, maintained a household in which her dependent son lives. What is Victoria's filing status for the tax year 2010? (Points : 5) Surviving spouse Single Married, filing separately Head of household None of the above 11. (TCOs 2, 8, & 9) Shaquille operates a drug-running operation and incurred the following expenses: Salaries $200,000 Illegal kickbacks $32,000 Bribes to border guards $24,000 Cost of goods sold $300,000 Rent $12,000 Interest $18,000 Which of the above amounts reduces his taxable income? (Points : 5) $230,000 $300,000 $386,000 $586,000 None of the above 12. (TCOs 2 & 11) Upon the recommendation of a physician, Roberto has a therapeutic pool installed in his personal residence. He suffers from severe muscular degeneration disease. If Roberto does not use the pool on a regular basis, his muscles will deteriorate to the point that he will be unable to walk. In connection with this pool, Roberto incurs and pays the following amounts during the current year: Therapeutic pool and cost of installation $11,000 Increase in utility bills due to the pool $400 Cost of certified appraisal $500 The pool has an estimated useful life of 5 years. The appraisal was to determine the value of Roberto's residence with and without the pool. The appraisal states that the pool increased the value of Roberto's residence by $4,000. Disregarding percentage limitations, how much of the above expenditures qualify for the medical expense deduction in the current year? (Points : 5) $11,900 $11,400 $7,500 $7,400 None of the above 13. (TCOs 2 & 11) In 2009, Jose pays $5,000 to become a charter member of Private University's Athletic Council. The membership ensures that Jose will receive choice seating at all of Private's home football games. Also in 2009, Jose pays $1,000 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution? (Points : 5) $0 $1,000 $4,000 $6,000 None of the above 14. (TCOs 2 & 11) In December 2009, Mitch died. His wife was the beneficiary of his $650,000 life insurance policy. Mitch had paid $25,000 in premiums. His wife elected to collect the proceeds in 10 equal installments of $75,000 ($65,000 on the face amount of the policy and $10,000 interest). Of the $75,000 she collected in 2009, the taxable amount is: (Points : 5) $0. $10,000. $65,000. $75,000. None of the above 15. (TCOs 2 & 11) Nicholas loaned Lyle (a friend) $30,000 in 2008 with the agreement that the loan would be repaid in two years. In 2009, Lyle filed for bankruptcy and Nicholas learned that he could expect to receive $0.50 on the dollar. In 2010, final settlement was made and Nicholas received $16,000. Assuming the loan is a nonbusiness bad debt, how should Nicholas account for the bad debt? (Points : 5) $14,000 ordinary loss in 2010 $15,000 ordinary loss in 2009, and $9,000 ordinary loss in 2010 $14,000 short-term capital loss in 2010 $15,000 short-term capital loss in 2009, and $9,000 short-term capital loss in 2010 None of the above 1. (TCO 1) A characteristic of the statute of limitations is: (Points : 5) A three-year statute of limitations applies to all tax returns. The same statute of limitations applies to tax refunds and deficiencies. A six-year statute of limitations applies if gross income is understated by more than 25%. There is a six-year statute of limitations on assessments of tax if a fraudulent return is filed. None of the above 2. (TCOs 2, 3, 6, 8, 9, & 10) During the current year, Carlos had securities stolen from his home. Carlos had paid $30,000 for the securities, but they were worth $75,000 at the time of the theft. Carlos had $75,000 of adjusted gross income for the year (before considering the loss) and no other itemized deductions. Determine Carlos' deduction with respect to the theft. (Points : 5) $30,000 $29,900 $28,500 $22,400 None of the above 3. (TCOs 2, 3, 6, 8, 9, & 10) Kiara, a married taxpayer filing a joint return, had the following items for 2010: Salary of $65,000 Loss of $45,000 on the sale of stock acquired two years ago from Mac, an investor Gain of $40,000 on the sale of ? 1244 stock acquired three years ago Stock acquired on January 15, 2010 for $5,000 became worthless on July 1, 2010 Determine Kiara's AGI for 2010. (Points : 5) $65,000 $62,000 $55,000 $50,000 None of the above 4. (TCOs 2, 3, 6, 8, 9, & 10) Which of the following states does not impose an income tax on individuals? (Points : 5) Montana Wyoming North Carolina New York All of the above 5. (TCOs 2, 3, 6, 8, 9, & 10) Georgia has carried over a $10,000 long-term capital loss from 2008 to 2009. During 2009, she sells investments held for 22 months, which yield a $70,000 long-term capital gain. She also receives word that a $20,000 nonbusiness debt she was owed has been extinguished by the debtor's bankruptcy. For 2009, Georgia has: (Points : 5) a $70,000 net capital gain. a $60,000 net capital gain and a $20,000 ordinary loss. a $40,000 net capital gain. a $60,000 net capital gain. None of the above 6. (TCOs 2, 3, 6, 8, 9, & 10) Paris is a cash basis landlord. An earthquake destroyed one of his residential rental buildings. Even though the lease required the tenants (all cash basis) to continue to pay rent, Paris accepts a payment of $2,000 in full cancellation of the lease. As a result of these events: (Points : 5) Paris has $2,000 of ordinary income. Paris has $2,000 of capital gain. Paris's tenants have $2,000 of ordinary income. Paris has a $2,000 capital loss. None of the above 7. (TCO 6 ) Which, if any, of the following property is subject to ? 1245 recapture? (Points : 5) Land Residential real estate Goodwill subject to amortization Nonresidential real estate for which straight-line depreciation is used that is placed in service after 1980 and before 1987 None of the above 8. (TCO 6) Tiffany gives her niece a machine to use in her business with a fair market value of $100,000 and a basis in Tiffany's hands of $150,000. What is the niece's basis for depreciation (cost recovery)? (Points : 5) $0 $100,000 $125,000 $150,000 None of the above 9. (TCO 6) Opal, Inc. owns a delivery truck that initially cost $40,000. After a depreciation of $15,000 had been deducted, the truck was traded-in on a new truck that cost $50,000. Opal was required to pay the car dealer $10,000 in cash. What is Opal's basis for the new truck? (Points : 5) $0 $35,000 $50,000 $65,000 None of the above 10. (TCO 6) Vivian and Leonard exchange real estate in a like-kind exchange. Vivian's basis in the real estate, subject to a $150,000 mortgage, is $220,000 and the fair market value is $300,000. She receives real estate with a fair market value of $150,000, and Leonard assumes the mortgage. What is Vivian's recognized gain and adjusted basis for the real estate received? (Points : 5) $0; $240,000 $80,000; $150,000 $80,000; $300,000 $150,000; $300,000 None of the above 11. (TCOs 2, 6, & 11) Juaquin owns five activities. He elects not to group them together as a single activity under the appropriate economic unit standard. He participates for 140 hours in Activity A, 165 hours in Activity B, 196 hours in Activity C, 100 hours in Activity D, and 85 hours in Activity E. Which of the following statements is CORRECT? (Points : 5) Activities A, B, C, D, and E are all significant participation activities. Activities A, B, C, and D are all significant participation activities. Juaquin is a material participant with respect to Activities A, B, and C only. Juaquin is a material participant with respect to Activities A, B, C, D, and E. None of the above 1. (TCOs 1, 2, 4, & 7) Dabney and Nancy are married, both gainfully employed, and have two children who are three- and six-years old. Dabney's salary is $35,000 while Nancy's salary is $40,000. During the year, they spend $7,000 for child care expenses that are required so both of them can work outside of the home. Calculate the credit for child and dependent care expenses. (Points : 15) 2. (TCOs 1, 3, & 10) Margaret is trying to decide whether or not to place funds in a qualified tuition program. Her son will be attending college in four years. She is in the 35% marginal tax bracket and she believes she can earn 7% before tax return on alternative investments. Thus, $10,000 will accumulate to $11,948 (after-tax) in four years. Margaret expects tuition to increase at the rate of 5% each year to $12,155 in four years. Her son will be in the 15% marginal tax bracket in all relevant years. Given these assumptions, should Margaret participate in the qualified tuition program? (Points : 15) 3. (TCOs 9 &12) Explain the ethical implications where a tax preparer knowingly prepares a return with false information. (Points : 15) 4. (TCOs 1 & 5) Steve has a tentative general business credit of $85,000 for the current year. His net regular tax liability before the general business credit is $95,000, and his tentative minimum tax is $90,000. Compute Steve's allowable general business credit for the year. (Points : 20) 1. (TCOs 1, 6, 8, & 11) Due to the population change, the Goose Creek School District has decided to close one of its high schools. Since it has no further need of the property, the school is listed for sale. The two bids it receives are as follows: United Methodist Church $1,700,000 Planet GMC Motors $1,600,000 The United Methodist Church would use the property to establish a sectarian middle school. Planet, a well-known car dealership, would revamp the property and operate it as a branch location. If you were a member of the school district board, what factors would you consider in evaluating the two bids? (Points : 20) 2. (TCOs 2, 3, & 11) Discuss the computation of percentage depletion. (Points : 15) 3. (TCOs 1, 2, 3, & 11) In satisfying the support test and the gross income test for claiming a dependency exemption, a scholarship received by the person being claimed is handled the same way for each test. Do you agree or disagree with this statement? Why? (Points : 10) 4. (TCOs 1, 2, 3, & 11) Rachel owns rental properties. When Rachel rents to a new tenant, she usually requires the tenant to pay an amount in addition to the first month's rent. The additional amount serves as security for damages to the property and the tenant's failure to pay future rents. How should the payments be characterized (e.g., on lease documents) to minimize Rachel's current tax liability? (Points : 10)
