Reference no: EM132454921

Assignment -

Part A -

Q1. Interest, dividends, and annuities income are classified as _____.

active income

passive income

portfolio income

None of the above

Q2. 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?

$0

$3,000

$4,800

$5,000

Q3. 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?

$19,000

$8,000

$16,000

$25,000

Q4. 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?

$8,170

$4,000

$4,330

$8,500

Q5. 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?

$7,700

$8,000

$11,190

$6,600

Q6. 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?

$90,000

$125,000

$80,000

$70,000

Q7. In October of 2011, Bobby 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?

$250,000

$210,000

$0

$450,000

Q8. Which of the following entities may select any tax period (calendar or fiscal)?

Sole partnership

Partnership

S corporations

Corporations other than S corporations

Q9. 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?

$2,560

$2,800

$2,900

$3,000

Q10. The term "Practice before the IRS" refers to _____.

tax planning for nonprofit organizations

macro-economic tax projections

representing a client before the IRS

tax planning for timber and forest investments

Q11. To be deductible for tax purposes, a trade or business expenditure must be _____.

ordinary

necessary

ordinary and necessary

ordinary or necessary

Q12. The art of using existing tax laws to pay the least amount of tax legally possible is known as _____.

taxevasion

tax avoidance

tax elusion

None of the above

Q13. Which of the following items is not subject to federal income tax?

The interest on U.S. Treasury bonds

Gambling winnings

The interest on loans made in the ordinary course of business

Life insurance proceeds

Q14. 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?

Both Bob and Sam recognize $8,000 of taxable income.

Bob recognizes $8,000 of taxable income.

Sam recognizes $8,000 of taxable income.

Neither Bob nor Sam has any taxable income from this transaction.

Q15. All of the following income items are includible in an employee's gross income except _____.

severance pay for the cancellation of employment

vacation allowance

payments from the employer while sick

a medical insurance premium paid by the employer for the employee and his or her spouse

Q16. Fines and penalties paid to the government for the violation of a law are _____.

generally deductible for tax purposes as business expenses

not deductible for tax purposes

deductible if they are ordinary and necessary

deductible if they are reasonable in amount

Part B -

Q1. 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?

Q2. Distinguish between realized gains and losses and recognized gains and losses.

Q3. Describe the current tax law for sale of residence.

Q4. Differentiate between the following: active income, passive income, and portfolio income.

Q5. 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.

Q6. 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?

Q7. 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.

Q8. 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?

Q9. 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 Corporation? Explain why.

Good Company as a proprietorship is not taxable entity - and all income/loss should be passed through to members. As Jane works 20 hours a week in the business - the passive activity limitation doesn't apply and all losses from operations in 2007 are deductible on Jane's tax return.

For the C-corporation loss - the shareholders do not get any personal deduction. The loss stays with the C-corporation and can be used to offset future taxable income of the corporation or carried back to previous years.

Q10. (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?