Question 3
1. (TCO 3) John's car was completely destroyed by fire in 2010. Its cost and fair market value were $8,000. John's claim against insurance was $3,000 and was NOT made until 2011. The following year, 2011, John settled with the insurance company for $2,000. What are John's deductions for 2010 and 2011 based on the above information if 1) the car was used for personal property and 2) business property? (Points: 25)? ? ??2. (TCO 1) Elaine provides more than half of the support for her son James, who does NOT live with her. James is 26 and is a full-time law student. He earns $2,000 from a part-time job. He has a $11,000 scholarship covering his tuition. May Elaine claim James as a dependent? Fully explain. (Points: 25)?,These questions where on the attachment 1. (TCO 9) Trent files his tax return 35 days after the due date. Along with the return, Trent remits a check for $8,000, which is the balance of the tax owed. Disregarding the interest element, Trent's total failure to file and to pay penalties are: (Points: 6) A. $80. B. $720. C. $800. D.$880. None of the above. 2. (TCO 9) A landlord leases property upon which the tenant makes improvements. The improvements are significant and are NOT made in lieu of rent. At the end of the lease, the value of the improvements are NOT income to the landlord. This rule is an example of: (Points: 6) the wherewithal to pay concept. the tax benefit rule. the arm's length concept. a clear reflection of income result. None of the above 3. (TCO 1) Tax bills are handled by which committee in the U.S. Senate? (Points: 6) Taxation Committee Ways and Means Committee Finance Committee Budget Committee None of the above 4. (TCO 1) Which statement is false with respect to tax treaties? (Points: 6) There is a $1,000 penalty per failure to disclose on the tax return where there is a direct treaty conflict for an individual. There is a $10,000 penalty per failure to disclose on the tax return where there is a direct treaty conflict for a corporation. Treaties override the Code when in conflict. Treaties may override a Code section when in conflict. None of the above. 5. (TCO 11) Which of the following taxpayers may file as a head of household in 2008? ? Ron provides all 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 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. (Points: 6) Ron only Tammy only Joe only Ron and Joe only Ron, Tammy, and Joe 6. (TCO 11) During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss. Presuming adequate income, how much of these losses may Kim claim? (Points: 6) $0 $1,000 $2,000 $3,000 None of the above 7. (TCO 7) Home Office, Inc., leased a copying machine to a new customer on December 27, 2008. The machine was to rent for $500 per month for a period of 36 months beginning January 1, 2009. The customer was required to pay the first and last month's rent at the time the lease was signed. The customer also was required to pay an $800 damage deposit. Home Office must recognize as income for the lease: (Points: 6) $1,000 in 2008, if Home Office is an accrual basis taxpayer $1,000 in 2009, if Home Office is a cash basis taxpayer $1,800 in 2008, if Home Office is a cash basis taxpayer $0 in 2008, if Home Office is an accrual basis taxpayer None of the above 8. (TCO 7) With respect to the prepaid income from services, which of the following is true? (Points: 6) The treatment of prepaid income is the same for tax and financial accounting. A cash basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt. An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt. An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less. None of the above 9. (TCO 3) Section 119 excludes the value of meals from the employees' gross income: (Points: 6) whenever the employer pays for the meals. when the employer pays for the meals, if the employee makes an accounting to the employer. when the meals are provided for the employee on the employer's business premises as a convenience to the employee. when the meals are provided for the employee on the employer's business premises as a convenience to the employer. None of the above 10. (TCO 3) Under the Swan Company's cafeteria plan, all full-time employees are allowed to select any combination of the benefits below, but the total received by the employee CANNOT exceed $8,000 a year. I. Group medical and hospitalization insurance for the employee, $3,600 a year. II. Group medical and hospitalization insurance for the employee's spouse and children, $1,200 a year. III. Childcare payments, actual cost, but not more than $4,800 a year. IV. Cash required to bring the total of benefits and cash to $8,000. Which of the following statements is true? (Points: 6) Sam, a full-time employee, selects choices II and III and $2,000 cash. His gross income must include the $2,000. Paul, a full-time employee, elects to receive $8,000 cash because his wife's employer provided these same insurance benefits for him. Paul is required to include the $8,000 in gross income. Sue, a full-time employee, elects to receive choices I, II, and $3,200 for III. Sue is not required to include any of the above in gross income. All of the above None of the above 11. (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. (Points: 6) $500 $1,000 $1,224 $1,500 None of the above 12. (TCO 10) Bob and April own a house at the beach. The house was rented to unrelated parties for 8 weeks during the year. April and the children used the house 12 days for their vacation during the year. After properly dividing the expenses between rental and personal use, it was determined that a loss was incurred as follows: Gross rental income $4,000 Less: Mortgage interest and property taxes $3,500 Other allocated expenses 2,000 (5,500) Net rental loss ($1,500) What is the correct treatment of the rental income and expenses on Bob's and April's joint income tax return for the current year, assuming the IRS approach is used, if applicable? (Points: 6) A $1,500 loss should be reported. Only the mortgage interest and property taxes should be deducted. Since the house was used more than 10 days personally by Bob and April, the rental expenses (other than mortgage interest and property taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to the rental use. Since the house was used less than 50% personally by Bob and April, all expenses allocated to personal use may be deducted. Bob and April should include none of the income or expenses related to the beach house in their current year income tax return. 13. (TCO 10) On May 2, 2008, Karen places in service a new sports utility vehicle that cost $70,000 and has a gross vehicle weight of 6,300 lbs. The vehicle is used 40% for business and 60% for personal use. Determine the cost recovery deduction for 2008. (Points: 6) $1,224 $2,800 $7,000 $18,000 None of the above 14. (TCO 10) Danielle owns a vacation cottage. During the current year, she rented it for $1,500 for two weeks, lived in it two months, and left if vacant the remainder of the year. The year's expenses were $6,000 mortgage interest expense, $500 property taxes, $1,500 in utilities, and $2,400 depreciation. As a consequence of the above, which of the following is true? (Points: 6) The income is excluded. The mortgage interest and property tax expenses are itemized. Other expenses are non-deductible personal expenses. All of the above are true. a and b only 15. (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: (Points: 6) $400. $600. $1,000. $1,400. None of the above. 16. (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? (Points: 6) $0 $15,800 $15,900 $35,900 None of the above 17. (TCO 3) Jennifer donates $1,000 to the university's athletic department. The donation guarantees that she will have preferred seating at basketball games. Subsequently, Jennifer purchases four $50 tickets. Jennifer is allowed a charitable deduction of how much? (Points: 6) $1,000 $200 $0 $800 18. (TCO 3) Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year. What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation? (Points: 6) $3,300 $10,500 $12,150 $13,800 None of the above 19. (TCO 3) Pat died this year. Before she died, Pat gave 5,000 shares of stock in Coyote Corporation (a publicly traded corporation) to her church (a qualified charitable organization). The stock was worth $180,000 and she had acquired it as an investment four years ago at a cost of $150,000. In the year of her death, Pat had AGI of $300,000. In completing her final income tax return, how much of the charitable contribution should Pat s executor deduct? (Points: 6) $90,000 $150,000 $180,000 $210,000 None of the above 20. (TCO 3) Several years ago, Joy acquired a passive activity. Until 2006, the activity was profitable. Joy's at-risk amount at the beginning of 2006 was $250,000. The activity produced losses of $100,000 in 2006, $80,000 in 2007, and $90,000 in 2008. During the same period, no passive income was recognized. How much is suspended under the at-risk rules and the passive loss rules at the beginning of 2009? (Points: 6) $0; $270,000 $20,000; $250,000 $30,000; $240,000 $260,000; $10,000 None of the above 21. (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: (Points: 6) 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 22. (TCO 2) The installment method applies where a payment will be received after the tax year of the sale: (Points: 6) By an investor who sold real estate at a gain. By an investor who sold real estate at a loss. By an appliance dealer who sold inventory. By an investor who sold IBM Corporation common stock. None of the above 23. (TCO 2) Hal sold land held as an investment with a fair market value of $100,000 for $36,000 cash and a note for $64,000 that was due in two years. The note bore interest of 11% when the applicable federal rate was 7%. Hal's cost of the land was $40,000. Because of the buyer's good credit record and the high interest rate on the note, Hal thought the fair market value of the note was at least $74,000. (Points: 6) Hal can elect to treat the $36,000 as a recovery of capital. Hal must recognize $70,000 gain in the year of sale. Hal must recognize $60,000 gain in the year of sale. Unless Hal elects not to use the installment method, Hal must recognize $21,600 gain in the year of sale. None of the above 24. (TCO 2) Todd, a CPA, 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 $360,000. Todd's basis in the land was $75,000. (Points: 6) If Todd uses the accrual basis to report the income from his practice, he cannot use the installment method to report the gain on the sale of the land. If Todd uses the cash basis to report the income from his practice, he cannot use the installment method to report the gain from the sale of the land. If Todd uses the installment method to report the gain, the contract price is $600,000. If Todd does not use the installment method, his gain in the year of sale is $125,000 ($200,000 $75,000). None of the above 25. (TCO 2) Social considerations can be used to justify: (Points: 6) allowing a federal income tax deduction for state and local sales taxes. allowing excess capital losses to be carried over to other years. allowing accelerated amortization for the cost of installing pollution control facilities. allowance of a credit for child care expenses. None of the above,this is what was on the attachment "These questions where on the attachment 1. (TCO 9) Trent files his tax return 35 days after the due date. Along with the return, Trent remits a check for $8,000, which is the balance of the tax owed. Disregarding the interest element, Trent's total failure to file and to pay penalties are: (Points: 6) A. $80. B. $720. C. $800. D.$880. None of the above. 2. (TCO 9) A landlord leases property upon which the tenant makes improvements. The improvements are significant and are NOT made in lieu of rent. At the end of the lease, the value of the improvements are NOT income to the landlord. This rule is an example of: (Points: 6) the wherewithal to pay concept. the tax benefit rule. the arm's length concept. a clear reflection of income result. None of the above 3. (TCO 1) Tax bills are handled by which committee in the U.S. Senate? (Points: 6) Taxation Committee Ways and Means Committee Finance Committee Budget Committee None of the above 4. (TCO 1) Which statement is false with respect to tax treaties? (Points: 6) There is a $1,000 penalty per failure to disclose on the tax return where there is a direct treaty conflict for an individual. There is a $10,000 penalty per failure to disclose on the tax return where there is a direct treaty conflict for a corporation. Treaties override the Code when in conflict. Treaties may override a Code section when in conflict. None of the above. 5. (TCO 11) Which of the following taxpayers may file as a head of household in 2008? ? Ron provides all 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 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. (Points: 6) Ron only Tammy only Joe only Ron and Joe only Ron, Tammy, and Joe 6. (TCO 11) During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss. Presuming adequate income, how much of these losses may Kim claim? (Points: 6) $0 $1,000 $2,000 $3,000 None of the above 7. (TCO 7) Home Office, Inc., leased a copying machine to a new customer on December 27, 2008. The machine was to rent for $500 per month for a period of 36 months beginning January 1, 2009. The customer was required to pay the first and last month's rent at the time the lease was signed. The customer also was required to pay an $800 damage deposit. Home Office must recognize as income for the lease: (Points: 6) $1,000 in 2008, if Home Office is an accrual basis taxpayer $1,000 in 2009, if Home Office is a cash basis taxpayer $1,800 in 2008, if Home Office is a cash basis taxpayer $0 in 2008, if Home Office is an accrual basis taxpayer None of the above 8. (TCO 7) With respect to the prepaid income from services, which of the following is true? (Points: 6) The treatment of prepaid income is the same for tax and financial accounting. A cash basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt. An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt. An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less. None of the above 9. (TCO 3) Section 119 excludes the value of meals from the employees' gross income: (Points: 6) whenever the employer pays for the meals. when the employer pays for the meals, if the employee makes an accounting to the employer. when the meals are provided for the employee on the employer's business premises as a convenience to the employee. when the meals are provided for the employee on the employer's business premises as a convenience to the employer. None of the above 10. (TCO 3) Under the Swan Company's cafeteria plan, all full-time employees are allowed to select any combination of the benefits below, but the total received by the employee CANNOT exceed $8,000 a year. I. Group medical and hospitalization insurance for the employee, $3,600 a year. II. Group medical and hospitalization insurance for the employee's spouse and children, $1,200 a year. III. Childcare payments, actual cost, but not more than $4,800 a year. IV. Cash required to bring the total of benefits and cash to $8,000. Which of the following statements is true? (Points: 6) Sam, a full-time employee, selects choices II and III and $2,000 cash. His gross income must include the $2,000. Paul, a full-time employee, elects to receive $8,000 cash because his wife's employer provided these same insurance benefits for him. Paul is required to include the $8,000 in gross income. Sue, a full-time employee, elects to receive choices I, II, and $3,200 for III. Sue is not required to include any of the above in gross income. All of the above None of the above 11. (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. (Points: 6) $500 $1,000 $1,224 $1,500 None of the above 12. (TCO 10) Bob and April own a house at the beach. The house was rented to unrelated parties for 8 weeks during the year. April and the children used the house 12 days for their vacation during the year. After properly dividing the expenses between rental and personal use, it was determined that a loss was incurred as follows: Gross rental income $4,000 Less: Mortgage interest and property taxes $3,500 Other allocated expenses 2,000 (5,500) Net rental loss ($1,500) What is the correct treatment of the rental income and expenses on Bob's and April's joint income tax return for the current year, assuming the IRS approach is used, if applicable? (Points: 6) A $1,500 loss should be reported. Only the mortgage interest and property taxes should be deducted. Since the house was used more than 10 days personally by Bob and April, the rental expenses (other than mortgage interest and property taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to the rental use. Since the house was used less than 50% personally by Bob and April, all expenses allocated to personal use may be deducted. Bob and April should include none of the income or expenses related to the beach house in their current year income tax return. 13. (TCO 10) On May 2, 2008, Karen places in service a new sports utility vehicle that cost $70,000 and has a gross vehicle weight of 6,300 lbs. The vehicle is used 40% for business and 60% for personal use. Determine the cost recovery deduction for 2008. (Points: 6) $1,224 $2,800 $7,000 $18,000 None of the above 14. (TCO 10) Danielle owns a vacation cottage. During the current year, she rented it for $1,500 for two weeks, lived in it two months, and left if vacant the remainder of the year. The year's expenses were $6,000 mortgage interest expense, $500 property taxes, $1,500 in utilities, and $2,400 depreciation. As a consequence of the above, which of the following is true? (Points: 6) The income is excluded. The mortgage interest and property tax expenses are itemized. Other expenses are non-deductible personal expenses. All of the above are true. a and b only 15. (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: (Points: 6) $400. $600. $1,000. $1,400. None of the above. 16. (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? (Points: 6) $0 $15,800 $15,900 $35,900 None of the above 17. (TCO 3) Jennifer donates $1,000 to the university's athletic department. The donation guarantees that she will have preferred seating at basketball games. Subsequently, Jennifer purchases four $50 tickets. Jennifer is allowed a charitable deduction of how much? (Points: 6) $1,000 $200 $0 $800 18. (TCO 3) Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year. What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation? (Points: 6) $3,300 $10,500 $12,150 $13,800 None of the above 19. (TCO 3) Pat died this year. Before she died, Pat gave 5,000 shares of stock in Coyote Corporation (a publicly traded corporation) to her church (a qualified charitable organization). The stock was worth $180,000 and she had acquired it as an investment four years ago at a cost of $150,000. In the year of her death, Pat had AGI of $300,000. In completing her final income tax return, how much of the charitable contribution should Pat s executor deduct? (Points: 6) $90,000 $150,000 $180,000 $210,000 None of the above 20. (TCO 3) Several years ago, Joy acquired a passive activity. Until 2006, the activity was profitable. Joy's at-risk amount at the beginning of 2006 was $250,000. The activity produced losses of $100,000 in 2006, $80,000 in 2007, and $90,000 in 2008. During the same period, no passive income was recognized. How much is suspended under the at-risk rules and the passive loss rules at the beginning of 2009? (Points: 6) $0; $270,000 $20,000; $250,000 $30,000; $240,000 $260,000; $10,000 None of the above 21. (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: (Points: 6) 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 22. (TCO 2) The installment method applies where a payment will be received after the tax year of the sale: (Points: 6) By an investor who sold real estate at a gain. By an investor who sold real estate at a loss. By an appliance dealer who sold inventory. By an investor who sold IBM Corporation common stock. None of the above 23. (TCO 2) Hal sold land held as an investment with a fair market value of $100,000 for $36,000 cash and a note for $64,000 that was due in two years. The note bore interest of 11% when the applicable federal rate was 7%. Hal's cost of the land was $40,000. Because of the buyer's good credit record and the high interest rate on the note, Hal thought the fair market value of the note was at least $74,000. (Points: 6) Hal can elect to treat the $36,000 as a recovery of capital. Hal must recognize $70,000 gain in the year of sale. Hal must recognize $60,000 gain in the year of sale. Unless Hal elects not to use the installment method, Hal must recognize $21,600 gain in the year of sale. None of the above 24. (TCO 2) Todd, a CPA, 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 $360,000. Todd's basis in the land was $75,000. (Points: 6) If Todd uses the accrual basis to report the income from his practice, he cannot use the installment method to report the gain on the sale of the land. If Todd uses the cash basis to report the income from his practice, he cannot use the installment method to report the gain from the sale of the land. If Todd uses the installment method to report the gain, the contract price is $600,000. If Todd does not use the installment method, his gain in the year of sale is $125,000 ($200,000 $75,000). None of the above 25. (TCO 2) Social considerations can be used to justify: (Points: 6) allowing a federal income tax deduction for state and local sales taxes. allowing excess capital losses to be carried over to other years. allowing accelerated amortization for the cost of installing pollution control facilities. allowance of a credit for child care expenses. None of the above "
