1. (TCO E) Interest, dividends, and annuities income are classified as _____. (Points : 5)
2. (TCO D) Tom Tanner traded in a printing press with an adjusted basis of $20,000 for a smaller press valued at $12,000. In addition to the smaller press, Tom received $3,000 in cash and was relieved of the existing liability of $5,000 on the old press. What is Tom’s recognized gain? (Points : 5)
3. (TCO H) Bob and Susan file a joint return for the 2010 tax year. Their adjusted gross income is $80,000. They had a net investment income of $9,000. In 2010, they had the following interest expenses.
Personal credit card interest: $5,000
Home mortgage interest: $10,000
Investment interest (on loans used to buy stocks): $10,000
What is the interest deduction for Bob and Susan for the 2010 tax year? (Points : 5)
4. (TCO B) Bob and Cindy Smith paid the following medical expenses during the year (all in excess of reimbursement).
Hospital and doctor bills: $800
Medicine and drugs: $700
Hospitalization insurance premiums: $6,000
Medicine and drugs (for dependent mother, age 71): $1,000
Assuming that the Smiths’ adjusted gross income was $60,000, how much of a medical expense deduction may Bob and Cindy claim on their joint return? (Points : 5)
5. (TCO A) ***** *****, a cash-basis, calendar-year taxpayer, paid the following during the year.
Social security tax (withheld from wages): $4,500
Real estate taxes: $3,200
State income tax: $3,400
Special assessment for installation of sidewalks: $1,140
Penalty on tax underpayment: $300
Flat fee for automobile registration: $90
What itemized deduction may John claim for taxes on his return? (Points : 5)
6. (TCO E) Bob sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Josh received $80,000 cash and a painting with a fair market value of $20,000 from the buyer. The buyer also assumed Josh’s $25,000 loan on the equipment. Josh paid $5,000 in selling expenses. What is the amount of Josh’s gain on the sale? (Points : 5)
7. (TCO I) In October of 2011, Bobby and ***** ***** sold their residence for $450,000. They purchased it in 2000 for $200,000. They made major capital improvements during their 10-year ownership, which totaled $40,000.
What is their recognized gain? (Points : 5)
8. (TCO I) Which of the following entities may select any tax period (calendar or fiscal)? (Points : 5)
9. (TCO D) For 2011, Greg Grammer had a short-term capital loss of $4,000, a short-term capital gain of $1,900, a short-term capital loss carryover from 2010 of $700, a long-term capital gain of $800, and a long-term capital loss of $1,000. What is Greg’s deductible loss in 2011? (Points : 5)
10. (TCO A) The term “Practice before the IRS” refers to _____. (Points : 5)
11. (TCO F) To be deductible for tax purposes, a trade or business expenditure must be _____.
12. (TCO A) The art of using existing tax laws to pay the least amount of tax legally possible is known as _____. (Points : 5)
13. (TCO C) Which of the following items is not subject to federal income tax? (Points : 5)
14. (TCO B) Sam owes Bob $8,000. Bob cancels (forgives) the debt. The cancellation is not a gift, and Sam is neither insolvent nor bankrupt. Which of the following statements is correct concerning the impact of this transaction? (Points : 5)
15. (TCO G) All of the following income items are includible in an employee’s gross income except _____. (Points : 5)
16. (TCO F) Fines and penalties paid to the government for the violation of a law are _____. (Points : 5)
1. (TCO E) Zelda Zayer has been a widow for over 3 years and files a return as a single taxpayer. Items of income received by Zelda in 2011 were as follows.
Interest on savings account with Bank of America: $50
Interest on state income tax refund: $25
Gambling winnings: $2,400
Dividends from mutual life insurance company on life insurance policy: $500
Dividends from Better Auto Co. received on January 2, 2011: $875
The total dividends received on the life insurance policy do not exceed the aggregate of the premiums paid to the company.
(a)How much should Zelda include in her 2011 taxable income as interest?
(b) How much should Zelda report as dividend income for 2011?
(c) How much should Zelda include in taxable “Other Income” for her state lottery winnings?
(Points : 17)
2. (TCO E) Distinguish between realized gains and losses and recognized gains and losses. (Points : 17)
3. (TCO F) Describe the current tax law for sale of residence. (Points : 17)
4. (TCO G) Differentiate between the following: active income, passive income, and portfolio income. (Points : 17)
5. (TCO I) Jake, a single individual with a salary of $40,000, paid the following expenses during the year.
Alimony: $8,000
Charitable contributions: $2,000
Casualty loss (after $100 floor): $1,000
Mortgage interest on personal residence: $3,000
Moving expenses: $1,500
Student loan interest: $1,000
Contribution to a traditional IRA: $2,000
Analyze the above expenses and determine which ones are deductible for AGI. Please support your position. (Points : 17)
6. (TCO I) Carl had the following transactions for 2010.
Salary: $55,000
Damage award (compensatory) for city bus accident: $20,000
Loss on sale of stock investment: $4,500
Loan from father to purchase auto: $10,000
Alimony paid to former wife: $11,000
What is Carl’s AGI for 2010? (Points : 17)
7. (TCO F) Pam owns a sole proprietorship, and Kevin is the sole shareholder of a C (regular) corporation. Each business sustained a $16,000 operating loss and a $2,500 capital loss for the year. Evaluate how these losses will affect the taxable income of the two owners. (Points : 17)
8. (TCO B) Kyle forms a corporation and transfers property having a basis to him of $20,000 and a fair market value of $30,000 to the corporation for 1,000 shares of $9 par stock. One year later, Bob transfers property having a basis to him of $2,000 and a fair market value of $4,000 for 100 shares of the stock. Bob is not related to Kyle. The corporation issued no other stock.
(a) How much gain does Kyle recognize on his exchange? What is the basis to Kyle of his 1,000 shares?
(b) How much gain does Bob recognize on his exchange? What is the basis to Bob of his 100 shares?
(c) What gain or loss is recognized by the corporation when it issues its shares to Kyle? What is the basis to the corporation of the property it received from Kyle? (Points : 17)
9. (TCO F) Good Co. had a net loss of $75,000 from merchandising operations in 2007. Jane owns Good Co. and works 20 hours a week in the business. She has a large amount of income from other sources and is in the 35% marginal tax bracket. Would Jane’s tax situation be better if Good Co. were a proprietorship or a C corporation? Explain why. (Points : 17)
10. (TCO H) On May 18, 2011, Sara Douglas purchased 30 shares of WXY stock for $210, and on October 29, 2011, she purchased 90 additional shares for $900. On November 28, 2011, she sold 48 shares, which could not be specifically identified, for $480, and on December 8, 2011, she sold another 25 shares for $150. What is her recognized gain or loss? (Points : 17)