Reference no: EM132843485

Questions -

Q1) On January 1, Fast, Inc. entered into a covenant not to compete with Swift, Inc. for a period of five years, with an option by Swift to extend it to seven years. What is the amortization period of the covenant for tax purposes?

A. 5 years.

B. 7 years.

C. 15 years.

D. 17 years.

Q2) Under Treasury Circular 230, in which of the following situations is a CPA prohibited from giving written advice concerning one or more federal tax issues?

A. The CPA takes into account the possibility that a tax return will not be audited.

B. The CPA reasonably relies upon representations of the client.

C. The CPA considers all relevant facts that are known.

D. The CPA considers assumptions about future events related to relevant facts.

Q3) In the current year, Drake, a disabled taxpayer, made the following home improvements:

Pool installation, which qualified as a medical expense and increased the value of the home by $25,000. $100,000

Widening doorways to accommodate Drake's wheelchair.

The improvement did not increase the value of his home. $10,000

For regular income tax purposes and without regard to the adjusted gross income percentage threshold limitation, what maximum amount would be allowable as a medical expense deduction in the current year?

A. $110,000

B. $85,000

C. $75,000

D. $10,000

Q4) Baker, a sole proprietor CPA, has several clients that do business in Spain. While on a four-week vacation in Spain, Baker took a five-day seminar on Spanish business practices that cost $700. Baker's round-trip airfare to Spain was $600. While in Spain, Baker spent an average of $100 per day on accommodations, local travel, and other incidental expenses, for total expenses of $2,800. What amount of educational expense can Baker deduct on Form 1040 Schedule C, "Profit or Loss From Business"?

A. $700

B. $1,800

C. $4,100

D. $1,200

Q5) On July 1, Year 4, a donor gave a taxpayer a gift of stock worth $19,000. The donor purchased the stock for $20,000 in Year 1. On November 1, Year 4, the taxpayer sold the stock to an unrelated party for $18,500. What is the amount and character of the taxpayer's gain or loss upon the sale?

A. $500 short-term capital loss.

B. $1,500 long-term capital loss.

C. $500 long-term capital loss.

D. $1,500 short-term capital loss.

Q6) Smith, a single individual, made the following charitable contributions during the current year. Smith's adjusted gross income is $60,000.

Donation to Smith's church: $5,000

Artwork donated to the local art museum. Smith purchased it for $2,000 four months ago. A local art dealer appraised it for: $3,000

Contribution to a needy family: $1,000

What amount should Smith deduct as a charitable contribution?

A. $5,000

B. $7,000

C. $8,000

D. $9,000

Q7) A calendar-year individual is eligible to contribute to a deductible IRA. The taxpayer obtained a six-month extension to file but did not file the return for 8 months. What is the latest date that an IRA contribution can be made in order to qualify as a deduction on the prior year's return?

A. Extended tax return due date.

B. Original tax return due date.

C. Last day of the calendar year.

D. Actual date the return was filed.

Q8) A taxpayer began living in a nursing home this year in order to receive medical care for a specific condition. The taxpayer has AGI of $25,000 and incurred the following unreimbursed expenses:

Nursing home health care cost $5,000

Nursing home meal and lodging costs 8,000

Prescripttion drugs 1,500

What amount may the taxpayer deduct from AGI this year as an itemized deduction?

A. $4,000

B. $10,500

C. $12,000

D. $14,500

Q9) Witten CPA has prepared Romo's 20X4 tax return. Witten's fee for his tax preparation services is $150, and Romo's 20X4 tax refund is $2,000. Romo would prefer to pay Witten out of his tax refund. Which of the following actions is Witten allowed to take?

I. Endorse Romo's tax refund check, and pay Romo $1,850.

II. Request the IRS to issue two checks, one payable to Romo for $1,850, and the other payable to Witten for $150.

III.Hold Romo's refund check until Romo has paid Witten his $150 fee.

A. I, II, and III

B. II only

C. II and III only

D. Not I, II, or III

Q10) On June 1, 20X3, Gary gave Gertrude a gift of stock worth $10,000, paying no gift tax on the transaction. Gary had purchased the stock for $7,500 in 20X1. On October 1, 20X3, Gertrude sold the stock to an unrelated party for $11,000. What is the amount and character of Gertrude's gain upon the sale?

A. $1,000 short-term capital gain

B. $3,500 long-term capital gain

C. $1,000 long-term capital gain

D. $3,500 short-term capital gain

Q11) An employed, married taxpayer owns three rental properties in which the taxpayer does not actively participate. In the current year, Property 1 had a net loss of $10,000, Property 2 had a net gain of $25,000, and Property 3 had a net loss of $5,000. The taxpayer's W-2 wages were $110,000. Considering only these facts, what is the taxpayer's adjusted gross income?

A. $110,000

B. $120,000

C. $125,000

D. $135,000

Q12) Wynn, a single individual age 60, sold Wynn's personal residence for $450,000. Wynn had owned the residence, which had a basis of $250,000, for six years. Within eight months of the sale, Wynn purchased a new residence for $400,000. What is Wynn's recognized gain from the sale of Wynn's personal residence?

A. $0

B. $50,000

C. $75,000

D. $200,000

Q13) Kent qualified for the earned income credit in 20X0. This credit could result in a

A. Refund even if Kent had no tax withheld from wages.

B. Refund only if Kent had tax withheld from wages.

C. Carryback or carryforward for any unused portion.

D. Subtraction from adjusted gross income to arrive at taxable income.

Q14) Smith made a gift of property to Thompson. Smith's basis in the property was $1,200. The fair market value at the time of the gift was $1,400. Thompson sold the property for $2,500. What was the amount of Thompson's gain on the disposition?

A. $0

B. $1,100

C. $1,300

D. $2,500

Q15) Which of the following is (are) among the requirements to enable a taxpayer to be classified as a qualifying widow(er)?

1 - A dependent has lived with the taxpayer for six months

2 - The taxpayer has maintained the cost of the principal residence for six months

A. 1 - Yes 2 - Yes

B. 1 - Yes 2 - No

C. 1 - No 2 - Yes

D. 1 - No 2 - No