PART I: Multiple Choice (50 POINTS, 1 POINT
EACH)
Enter
the information at the top of test before submitting test.
Identify the letter of the choice that best completes the statement
or answers the question then select the letter by clicking
on the scroll-down arrow to the left of each question. When you
have answered all 50 questions, review your choices carefully before
submitting. Click on the Submit button at the end of the test to send
your answers to my email address.
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1.
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Which, if any, of the following statements is not representative of the federal
income tax on individuals? a. | Its rates are progressive. | b. | The tax base for
the application of the rates is taxable income. | c. | Over the years,
its provisions have become more complex. | d. | Persons who have income other than wages are not subject
to its pay-as-you-go prepayments procedures. | e. | None of the
above. | | |
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2.
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The
federal income tax applicable to individuals, as contrasted with that applicable to
corporations: a. | Does not
allow a standard deduction. | b. | Does not require a determination of adjusted gross
income (AGI). | c. | Allows for a deduction for personal and dependency
exemptions. | d. | Does not allow deductions for personal and dependency
exemptions. | e. | None of the above. | | |
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3.
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A
mother rents business property to her son for a monthly rental of $1,000. In determining whether or
not this amount will be allowed as a deduction to the son, the IRS will be most interested
in: a. | The arm's length
concept. | b. | The tax benefit rule. | c. | The wherewithal
to pay concept. | d. | Public policy limitation. | e. | None of the
above. | | |
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4.
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During 2000, Bernice had the following transactions:
Salary | $40,000 | Alimony
received | 10,000 | Child support received | 12,000 | Inheritance from
uncle | 20,000 | | |
Bernice's AGI
is: a. | $50,000. | b. | $62,000. | c. | $70,000. | d. | $82,000. | e. | None of the
above. | | |
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5.
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Belle, age 66, is claimed as a dependent on her son's tax return. During 2000, she had
interest income of $1,300 and $500 of earned income from babysitting. Belle's taxable income
is: a. | $0. | b. | $50. | c. | $1,050. | d. | $1,100. | e. | Some other amount. | | |
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6.
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Elton
and Elsie are husband and wife and file a joint return. Both are under 65 years of age. They provide
more than half of the support of their daughter, Kristie (age 23), who is a full-time medical
student. Kristie receives a $3,200 scholarship covering her room and board at college. They furnish
all of the support of Hattie (Elton's grandmother), who is age 70 and lives in a nursing home. They
also support Meg (age 66), who is a friend of the family who lives with them. How many personal and
dependency exemptions may Elton and Elsie claim? a. | Two. | b. | Three. | c. | Four. | d. | Five. | e. | None of the
above. | | |
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7.
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Which
of the following unmarried taxpayers may file as a head of household in
2000?
Ron provides all the support for his mother, Mary, 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 20-year old grandson, Dan. Dan earned
$4,200 in 2000 working at a fast food restaurant and is saving his money to attend college in 2001.
Dan lives in his grandmother's home.
Joe's wife left
him late in December of 1999. No legal action was taken and Joe has not heard from her in 2000. Joe
supported his 8-year-old son, who lived with him throughout 2000. a. | Ron
only. | b. | Tammy only. | c. | Joe
only. | d. | Ron and Joe only. | e. | Ron, Tammy, and
Joe. | | |
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8.
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For
the current year, Harry reported salary and taxable interest income of $50,000. His capital asset
transactions during the year were as follows:
Long-term
capital loss | ($5,000) | Long-term
capital loss | 1,000 | | |
For the current year, what amount should Harry report
as adjusted gross income? a. | $50,000. | b. | $47,000. | c. | $46,000. | d. | $45,000. | e. | None of the above. | | |
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9.
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Jerry
purchased a U.S. Series EE savings bond for $279. The bond has a maturity value in 10 years of $500
and yields 6% interest. This is the first Series EE bond that Jerry has ever owned. a. | Jerry must
report the interest income each year using the original issue discount
rules. | b. | Jerry can report all of the $221 interest income in the year
the bond matures. | c. | The interest on the bonds is exempt from federal income
tax. | d. | Jerry must
report ($500 - $279)/10 = $22.10 interest income each year he owns the
bond. | e. | None of the above. | | |
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10.
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Joe
and Bonnie were divorced. Their only marital property was a personal residence with a value of
$250,000 and cost of $200,000. Under the terms of the divorce agreement which did not include
the word "alimony," Bonnie was to receive the house and she was to pay Joe $9,000 each year
for ten years. If Joe died before the end of the ten years, the payments would cease. Bonnie and Joe
lived apart when Joe received the payments. a. | Joe does not recognize any income from the above
transaction. | b. | Joe must recognize a $25,000 [1/2 ´ ($250,000 -
$200,000)] gain on the sale of his interest in the house. | c. | Bonnie can
deduct $9,000 a year for the alimony paid. | d. | Bonnie must recognize gross income of
$125,000. | e. | None of the above. | | |
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11.
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Gordon, an employee, is provided $75,000 of group term life insurance coverage for
2000. The plan is nondiscriminatory. Since Gordon paid nothing toward the cost, he must include in
his 2000 gross income which of the following amounts? a. | $0. | b. | The cost (based on IRS tables) of $25,000 of group term life
insurance. | c. | The cost (based on IRS tables) of $37,500 of group term life
insurance. | d. | The cost (based on IRS tables) of $50,000 of group term life
insurance. | e. | The cost (based on IRS tables) of $75,000 of group term life
insurance. | | |
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12.
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When
Betty was diagnosed as having a terminal illness, she sold her life insurance policy to Insurance
Purchase, Inc., a company that is licensed to invest in these types of contracts. Betty sold the
policy for $25,000 and Insurance Purchase, Inc. became the beneficiary. Her total premium payments
were $18,000. Betty died 8 months after the sale. Insurance Purchase, Inc. collected $40,000 on the
policy after the company had paid an additional $1,500 in premiums on the policy. Which of the
following is true?
I. | Betty must recognize gain of $7,000 ($25,000 -
$18,000). | II. | Insurance Purchase, Inc. must recognize gain of $13,500
($40,000 - $26,500). | | |
a. | I and II are
true. | b. | Only I is true. | c. | Only II is
true. | d. | I and II are false. | e. | None of the
above. | | |
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13.
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Roger, age 19, is a full-time student at State College and a candidate for a
bachelor's degree. During 2000, he received the following payments:
State
scholarship for ten months (tuition and books) | $3,600 | Loan from
college financial aid office | 1,500 | Cash support
from parents | 3,000 | Cash
dividends | 700 | Cash prize awarded in contest |
500 | | | $9,300 | | |
What is Roger's
adjusted gross income for 2000? a. | $700. | b. | $1,200. | c. | $4,800. | d. | $9,300. | e. | None of the above. | | |
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14.
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Sally
sued her former employer for a back injury she suffered on the job in 1999 and received damage
payments in 2000. As a result of her employer's unsafe working conditions and outrageous behavior,
she received $25,000 for pain and suffering, $150,000 in punitive damages, $5,000 for the loss of
income she experienced to prosecute her claim, and $6,000 for medical expenses. She paid the medical
expenses in 1999, but did not deduct the expenses on her tax return. Sally's gross income from the
above is: a. | $0. | b. | $5,000. | c. | $150,000. | d. | $180,000. | e. | None of the
above. | | |
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15.
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James, a cash basis taxpayer, received the following compensation and fringe benefits
from his employer in 2000:
Salary | $72,000 | Bonus for 1999
services | $ 8,000 | Disability income protection | $
2,400 | Group hospitalization
insurance | $ 4,500 | | |
The bonus for
1999 was not paid until 2000 because the amount was based upon 1999 profits, which were not
determined until 2000. The wage continuation insurance would pay James three-fourths of his regular
salary if he became disabled. The insurance benefits are provided to all full-time employees. What is
James' gross income from the above? a. | $72,000. | b. | $80,000. | c. | $82,400. | d. | $86,900. | e. | None of the above. | | |
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16.
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Employees of the Soft Cloth Car Wash can get their cars washed at 50% of the charge
for non-employee customers. a. | Employees may exclude the discount from gross income as a
qualified employee discount. | b. | Employees may exclude the discount from gross income as a
no-additional-cost service. | c. | Employees may not exclude the discount from gross income
because the employer incurs additional cost for the soap and water used. | d. | Employees are
not required to include the discount in gross income because employees driving clean cars enhance the
company image. | e. | None of the above. | | |
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17.
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Saul
is single, under age 65, and has gross income of $50,000. His bona fide deductible expenses are as
follows:
Alimony | $8,000 | Charitable
contributions | 2,000 | Contribution to
a traditional IRA | 2,000 | Expenses paid on
rental property | 5,000 | Interest and
taxes on personal residence | 7,000 | State income
tax | 1,200 | | |
What is Saul's
AGI? a. | $28,000. | b. | $33,000. | c. | $35,000. | d. | $40,000. | e. | $43,000. | | |
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18.
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Which
of the following is correct? a. | A charitable contribution is classified as a deduction
from AGI. | b. | Real estate taxes on a taxpayer's personal residence are
classified as deductions from AGI. | c. | An expense associated with rental property is classified as a
deduction from AGI. | d. | Only a. and b. are correct. | e. | a., b., and c.,
are correct. | | |
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19.
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Angela, a real estate broker, had the following income and expenses in her
business:
Commissions
income | $100,000 | Expenses: | |
Commissions paid to non-brokers for referrals | | (illegal under state law and subject to criminal
penalties) | 20,000 | Commissions paid to other real estate brokers for
referrals | | (not illegal under state law) | 10,000 |
Travel and transportation | 12,000 |
Supplies | 4,000 | Office and phone | 5,000 |
Parking tickets | 500 | | |
How much net income must Angela report from
this business? a. | $48,500. | b. | $49,000. | c. | $60,000. | d. | $68,500. | e. | $69,000. | | |
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20.
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Tommy
is an automobile mechanic who works for an auto dealership, but he is considering opening a fast food
franchise. If Tommy decides not to acquire the fast food franchise, the investigation expenses
are: a. | Classified as a
deduction for AGI. | b. | Classified as a deduction from AGI, subject to the 2
percent floor. | c. | Classified as a deduction from AGI, not subject
to the 2 percent floor. | d. | Not deductible. | e. | None of the
above. | | |
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21.
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Which
of the following is not deductible? a. | Moving expenses. | b. | Tax return
preparation fees. | c. | Expenses incurred for the production of
income. | d. | Hobby expenses in excess of hobby
income. | e. | None of the above. | | |
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22.
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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
and April's joint income tax return for the current year assuming the IRS approach is used if
applicable? a. | A $1,500 loss
should be reported. | b. | Only the mortgage interest and property taxes should be
deducted. | c. | 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. | d. | Since the house
was used less than 50% personally by Bob and April, all expenses allocated to personal use may be
deducted. | e. | Bob and April should include none of the income or expenses
related to the beach house in their current year income tax return. | | |
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23.
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Amos
loaned James (a friend) $2,000 in 1999 with the agreement that the loan would be repaid in two years.
In 2000, James filed for bankruptcy and Amos learned that he could expect to receive $0.40 on the
dollar. In 2001, final settlement was made and Amos received $500. Assuming the loan is a nonbusiness
bad debt, how should Amos account for the loan? a. | $1,500 ordinary loss in 2001. | b. | $1,200 ordinary
loss in 2000 and $300 ordinary loss in 2001. | c. | $1,500
short-term capital loss in 2001. | d. | $1,200 short-term capital loss in 2000 and $300 short-term
capital loss in 2001. | e. | $2,000 ordinary loss in 2000. | | |
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24.
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Ilene, a married taxpayer filing a joint return, had the following items for
2000:
• | Salary of $80,000. | • | Gain of $2,000 on sale of §1244 stock acquired two years
ago. | • | Loss of $60,000
on the sale of § 1244 stock acquired 10 months ago. | • | Stock acquired three years ago for $8,000 became worthless on
May 20 of the current year. | | |
Determine Ilene's AGI for 2000. a. | $14,000. | b. | $17,000. | c. | $27,000. | d. | $77,000. | e. | None of the
above. | | |
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25.
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During the year, Rocky had the following uninsured personal casualty losses (arising
from one casualty). Rocky also had $18,000 AGI for the year:
| | | Fair Market Value | Asset | Adjusted
Basis | Before | After |
A | $ 500 | $ 700 | $600 |
B | $3,000 | $2,000 | $-0- |
C | $ 700 | $ 600 | $-0- | | | | | |
Rocky's casualty loss deduction is: a. | $600. | b. | $2,600. | c. | $2,700. | d. | $3,100. | e. | None of the
above. | | |
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26.
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Mavis, age 29, is single with no dependents. The following information was obtained
from her personal records for the current year:
Salary | $10,000 | Dividends | $
100 | Itemized deductions - consisting of no casualty
losses | ($15,000) | | |
Based on the
above information, what is Mavis' net operating loss for the current year? a. | $0. | b. | $3,000. | c. | $4,000. | d. | $4,900. | e. | $5,000. | | |
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27.
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Cora
purchased a hotel building on May 17, 2000, for $3,000,000. Determine the cost recovery deduction for
2001. a. | $48,150. | b. | $59,520. | c. | $69,000. | d. | $109,080. | e. | None of the
above. | | |
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28.
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Hazel
purchased a new passenger automobile on August 17, 2000, for $13,000. During the year, the car was
used 65% for business and 35% for personal use. Determine Hazel's cost recovery deduction for the car
for 2000. a. | $1,690. | b. | $1,989. | c. | $3,060. | d. | $5,000. | e. | None of the
above. | | |
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29.
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Wyatt
performs services for Abby. Which, if any, of the following factors indicate that Wyatt is an
employee (rather than an independent contractor)? a. | Wyatt sets his own work schedule. | b. | Wyatt is paid by
the number of units he produces. | c. | Abby furnishes the tools Wyatt uses. | d. | Abby does not
supervise Wyatt's work. | e. | None of the above. | | |
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30.
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Boyd
works as an auditor for a large major CPA firm. During the months of August and September of each
year, he is permanently assigned to the team auditing Ivory Corporation. As a result, every day he
drives from his home to Ivory and returns home after work. Mileage is as
follows:
| | Miles | Home to
office | 20 | Home to Ivory | 30 | Office to
Ivory | 25 | | |
For the period
of August and September, Boyd's deductible mileage for each workday is: a. | 0. | b. | 25. | c. | 30. | d. | 60. | e. | None of the above. | | |
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31.
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During the year, Dustin took a trip from Springfield to Buenos Aires. He was away from
home for 12 days. He spent six days on business (including two travel days) and six days vacationing.
His expenses are as follows:
Air fare | $2,200 | Lodging (12 days
´
$200) | 2,400 | Meals (12 days ´ $150) | 1,800 | | |
Dustin's travel expense deduction is: a. | $2,750. | b. | $3,200. | c. | $3,850. | d. | $4,300. | e. | None of the
above. | | |
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32.
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Earl
entertains one of his clients on January 1 of the current year. Expenses paid by Earl are as
follows:
Cab
fare | $ 22 | Cover charge at supper club | 40 | Dinner at
club | 190 | Tips to waiter | 38 | | |
Presuming proper substantiation, Earl's deduction
is: a. | $126. | b. | $136. | c. | $145. | d. | $156. | e. | None of the
above. | | |
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33.
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Which, if any, of the following expenses qualify for deductibility: a. | Cost of regular
uniforms of U.S. Navy officer on active duty. | b. | Job-hunting
expenses of a recent college graduate looking for her first job. | c. | Job-hunting
expenses of a biology professor seeking employment as a master auto
mechanic. | d. | Part of the cost of local service for a residential telephone
which taxpayer uses part of the time for business. | e. | None of the
above. | | |
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34.
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Tara
is employed as a computer consultant. For calendar year 2000, she had AGI of $50,000 and paid $3,800
in medical insurance premiums. During the year, she paid the following other medical
expenses:
Doctor and
hospital bills for Steve | | and Judy
(Tara's parents) | $6,000 | Doctor and
dentist bills for Tara | 3,200 | Prescribed
medicines for Tara | 800 | Nonprescribed
insulin for Tara | 350 | | |
Steve and Judy would qualify as Tara's dependents
except that they file a joint return. Tara's medical insurance policy does not cover them. Tara filed
a claim for $2,100 of her own expenses with her insurance company in December 2000. She received the
$2,100 reimbursement in January 2001. What is Tara's maximum allowable medical expense deduction for
2000? a. | $7,900. | b. | $8,250. | c. | $9,700. | d. | $10,400. | e. | None of the
above. | | |
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35.
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Henry, a resident of Decatur, Illinois, is advised by his family physician that his
dependent son needs surgery for benign tumors in his leg. Henry and his son travel to Rochester,
Minnesota, for in-patient treatment at the Mayo Clinic, which specializes in this type of surgery.
Henry incurred the following costs:
Round-trip airfare ($420 each) | $840 | Henry's hotel in
Rochester for four nights ($60 per night) | 240 | Henry's meals
while in Rochester | 100 | | |
Compute Henry's medical expenses for the trip (subject
to the 7.5% floor). a. | $840. | b. | $1,040. | c. | $1,080. | d. | $1,340. | e. | None of the above. | | |
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36.
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Betty, a sole proprietor of an antique shop, has two dependent children. During 2000,
she paid health insurance premiums of $1,600 for her own coverage and $2,400 for coverage of her
children. What amount will Betty be allowed to deduct as an itemized deduction (disregard the 7.5%
limitation)? a. | $4,000. | b. | $2,400. | c. | $1,600. | d. | $0. | e. | None of the above. | | |
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37.
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During 2000, Ozzie paid the following interest charges:
Home
mortgage | $4,200 | Investment interest (net investment income was $8,000) | 9,500 | On loan to
purchase a new fishing boat | 800 | On loan to
purchase City of Chicago general | | purpose bonds
(wholly tax-exempt) | 1,300 | | |
If Ozzie itemizes her deductions for 2000, the amount
deductible as interest expense is: a. | $14,500. | b. | $13,700. | c. | $12,900. | d. | $12,200. | e. | None of the above. | | |
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38.
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Henry, a duly appointed delegate from his church, attends a four-day national
conference of the church's parent organization. Expenses in connection with this nonpersonal trip are
as follows:
Mileage on
personal auto | 1,000
miles | Lodging | $220 | Meals | 80 | Registration
fee | 70 | | |
As a result of
attending the conference, the amount that qualifies as a charitable contribution is: a. | $0. | b. | $430. | c. | $440. | d. | $510. | e. | None of the
above. | | |
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39.
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Josh,
a calendar year married taxpayer, files a joint return for 2000. Information for 2000 includes the
following:
AGI | $168,950 | State income
taxes | 6,000 | Charitable contributions | 7,000 | Wagering losses
(wagering gains were $11,000) | 9,000 | | |
Josh's allowable itemized deductions for 2000
are: a. | $11,800. | b. | $14,800. | c. | $20,800. | d. | $22,000. | e. | None of the
above. | | |
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40.
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Stan,
a professor, earns a salary of $80,000 from State University in the current year. He receives $25,000
in dividends and interest during the year. In addition, he incurs a loss of $40,000 from an
investment in a passive activity. His at-risk amount in the activity at the beginning of the year was
$35,000. What is Stan's adjusted gross income for this year? a. | $65,000. | b. | $70,000. | c. | $105,000. | d. | None of the above. | | |
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41.
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Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited
partnership, and a $26,000 passive loss from a rental real estate activity in which she actively
participates. Her modified adjusted gross income is $155,000. Of the $26,000 loss, how much is
deductible? a. | $0. | b. | $10,000. | c. | $25,000. | d. | $26,000. | e. | None of the
above. | | |
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42.
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John
works as a day laborer and earns $9,000 during 2000. He is 22 years old, has no children, and
supports himself. He may claim an earned income credit of the following amount: a. | $0. | b. | $105.90. | c. | $247.10. | d. | $353.00. | e. | None of the
above. | | |
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43.
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Harry
and Wilma are married and file a joint income tax return. On their tax return, they report $40,000 of
adjusted gross income ($18,000 salary earned by Harry and $22,000 salary earned by Wilma) and claim
two exemptions for their dependent children. During the year, they pay the following amounts to care
for their 4-year old son and 6-year old daughter while they work:
ABC Day Care
Center | $2,000 | Blue Ridge Housekeeping Services | 2,000 | Mrs. Mason
(Harry's mother) | 1,000 | | |
Harry and Wilma may claim a credit for child and
dependent care expenses of: a. | $960. | b. | $1,000. | c. | $1,440. | d. | $1,500. | e. | None of the above. | | |
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44.
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Drew
and Cassie are married, file a joint tax return, have AGI of $96,000, and have two children. Del is
beginning her freshman year at State College during Fall 2000, and Owen is beginning his senior year
at Southwest University during Fall 2000. Owen completed his junior year during the spring semester
of 1999 (i.e., he took a "leave of absence" during the 1999-2000 school year). Both Del and
Owen are claimed as dependents on their parents' tax return. Del's qualifying tuition expenses and
fees total $2,500 for the Fall semester, while Owen's qualifying tuition expenses were $3,200 for the
Fall 2000 semester. Del's room and board costs were $2,750 for the Fall semester. Owen did not incur
room and board costs since he lived with his aunt and uncle during the year. Full payment is made for
the tuition and related expenses for both children at the beginning of each semester. In addition to
the children's college expenses, Drew also spent $1,000 on professional education seminars during the
year in order to maintain his license as a practicing dentist. Drew attended the seminars during July
and August 2000. Compute the available education tax credits for Drew and Cassie for
2000. a. | $468. | b. | $2,340. | c. | $2,500. | d. | $2,940. | e. | $3,500. | | |
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45.
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Pat
generated self-employment income in 2000 of $60,000. The self-employment tax is: a. | $0. | b. | $8,477.73. | c. | $9,180.00. | d. | $10,657.80. | e. | None of the
above. | | |
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46.
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In
order to qualify for like-kind exchange treatment under § 1031, which of the following
requirements must be satisfied? a. | The form of the transaction is an
exchange. | b. | Both the property transferred and the property received are
held either for productive use in a trade or business or for investment. | c. | The property is
like-kind property. | d. | All of the above. | e. | None of the
above. | | |
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47.
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Mabel, an unmarried taxpayer, sells her residence in December, 2000. Which of the
following statements is correct? a. | To qualify for the §121 exclusion, the residence must be
Mabel's principal residence at the date of the sale. | b. | The maximum
§121 exclusion available to Mabel is $250,000. | c. | If Mabel sells
her principal residence at a loss, her basis for a replacement residence is the cost plus the
disallowed loss on the sale. | d. | Only a. and b. | e. | a., b., and
c. | | |
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48.
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Which
of the following statements is incorrect? a. | For a married couple filing a joint return, the maximum amount
of the § 121 exclusion (exclusion of gain on sale of principal residence) is
$500,000. | b. | For a single taxpayer, the maximum amount of the
§ 121 exclusion (exclusion of gain on sale of principal residence) is
$250,000. | c. | For a married couple filing separately, the maximum amount of
the § 121 exclusion (exclusion of gain on sale of principal residence) for each spouse is
$250,000. | d. | For a married couple filing separately, the maximum amount of
the § 121 exclusion (exclusion of gain on sale of principal residence) for each spouse is
$125,000. | e. | None of the above. | | |
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49.
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Recognition of capital gain or loss usually requires: a. | A sale or
exchange or a deemed sale or exchange as a result of a Code section that specifically provides for
sale or exchange treatment. | b. | The disposition of a capital asset. | c. | The receipt of
cash proceeds. | d. | Only a. and b. | e. | a., b., and
c. | | |
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50.
|
Ophelia had the following capital transactions for the
year:
Acquired | Item | Sold | Selling
Price | Cost | 09-13-1995 | Stock | 07-13-2000 | $3,000 | $4,500 | 06-20-1991 | Stock | 09-30-2000 | $5,800 | $2,000 | 07-01-2000 | Stock | 09-30-2000 | $1,000 | $1,300 | | | | | |
In addition,
Ophelia has a long-term capital loss carryover from 1999 of $1,800. What is Ophelia's 2000 net
capital gain? a. | $2,300. | b. | $2,000. | c. | $700. | d. | $200. | e. | None of the
above. | | |
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