Reference no: EM132836172

Questions -

Q1) In the current year, Tatum exchanged farmland for an office building. The farmland had a basis of $250,000, a fair market value (FMV) of $400,000, and was encumbered by a $120,000 mortgage. The office building had an FMV of $350,000 and was encumbered by a $70,000 mortgage. Each party assumed the other's mortgage. What is the amount of Tatum's recognized gain?

A. $0

B. $50,000

C. $100,000

D. $150,000

Q2) Under the Internal Revenue Code, a person who is paid to put together and file federal tax returns is referred to as which of the following?

A. A tax return professional.

B. An enrolled agent.

C. A tax return preparer.

D. A tax practitioner.

Q3) An individual client asks a CPA to determine whether the client is solvent for federal tax purposes. The client has assets consisting of cash and marketable securities with a basis of $250,000 and a fair market value of $155,000. The client has liabilities of $175,000, which include $130,000 of nondischargeable liabilities under the Bankruptcy Code. Which of the following statements is correct?

A. The client is insolvent since the client's liabilities exceed the fair market value of the client's assets by $20,000.

B. The CPA is unable to determine whether the client is solvent or insolvent because the CPA is not an accredited appraiser.

C. The client is solvent because the fair market value of the client's assets exceeds the client's nondischargeable debt by $25,000.

D. The client is solvent because the basis of the client's assets totals $250,000 and exceeds the client's liabilities by $75,000.

Q4) Aman, a sole proprietor and rental property owner, had the following expenses in year 1:

Payment to tax lawyer for advice related to business tax liability $1,000

Property taxes paid on rental home $2,000

Property taxes paid for Aman's personal residence $500

Specify whether each expense would be deducted for Adjusted Gross Income (AGI) or from AGI in the order they are presented.

A. For; From; From

B. For; For; From

C. From; For; For

D. From; From; For

Q5) Which of the following is not an itemized deduction?

A. Gambling losses up to the amount of gambling winnings.

B. Medical expenses exceeding 10% of adjusted gross income.

C. Real estate taxes.

D. Employee business expenses.

Q6) Individual Lark's year 2 brokerage account statement listed the following capital gains and losses from the sale of stock investments:

Short-term capital gain $6,000

Long-term capital gain $14,000

Short-term capital loss $4,000

Long-term capital loss $8,000

In addition, two stock investments became worthless in year 2. Public Company X stock was purchased in December, year 1, for $5,000, and formal notification was received by Lark on July, year 2, that it was worthless. Private company Section 1244 stock was issued to Lark for $10,000 in January, year 1, and was determined to be worthless in December, year 2. What is Lark's year 2 net capital gain or loss before any capital loss limitation?

A. $2,000 net capital loss

B. $3,000 net capital gain

C. $7,000 net capital loss

D. $8,000 net capital gain

Q7) Which of the following conditions must be satisfied for a taxpayer to expense, in the year of purchase, under Internal Revenue Code Section 179, the cost of new or used tangible depreciable personal property?

1- The property must be purchased for use in the taxpayer's active trade or business

2-The property must be purchased from an unrelated party

A. 1-Yes 2-Yes

B. 1-Yes 2-No

C. 1-No 2-Yes

D. 1-No 2-No

Q8) A taxpayer discovered an error that had been made in a previously filed tax return. The taxpayer should

A. File an amended return on Form 1040-X as long as the error is detected within 3 years of when the return was originally filed.

B. File an amended return on Form 1040-X as long as the error is detected within 5 years of when the return was originally filed.

C. Adjust the amounts in the current year's Form 1040 as long as the error is detected within 3 years of when the return was originally filed.

D. Adjust the amounts in the current year's Form 1040 as long as the error is detected within 5 years of when the return was originally filed.

Q9) In Year 1, a taxpayer sold real property for $200,000, receiving $100,000 at closing and $100,000 plus accrued interest at the prime rate in the next year. The buyer also assumed a $50,000 mortgage on the property. The taxpayer's adjusted basis was $75,000, and the taxpayer incurred $10,000 of selling expenses. If this transaction qualifies for installment sale treatment, what is the gross profit on the sale?

A. $115,000

B. $125,000

C. $165,000

D. $175,000

Q10) A taxpayer had AGI of $60,000 in year 1. During the same year, the taxpayer incurred $10,000 in qualifying unreimbursed medical expenses, all which were charged to a credit card. The taxpayer paid off $7,000 of the credit card charges by December 31 of year 1. What amount may the taxpayer deduct as an itemized deduction for medical expenses?

A. $1,000

B. $4,000

C. $7,000

D. $10,000

Q11) Robinson's personal residence was partially destroyed by fire in a wildfire that was a federally declared disaster. Its fair market value (FMV) before the fire was $500,000, and the FMV after the fire was $300,000. Robinson's adjusted basis in the home was $350,000. Robinson settled the insurance claim on the fire for $175,000. If Robinson's adjusted gross income for the year is $120,000, what amount of the casualty loss may Robinson claim after consideration of threshold limitations?

A. $12,900

B. $13,000

C. $24,900

D. $25,000

Q12) An employed taxpayer also solely owns and actively participates in a rental real estate activity that produced a $20,000 loss in the current year. The taxpayer's W-2 income in the current year is $115,000. What is the taxpayer's adjusted gross income?

A. $97,500

B. $102,500

C. $105,000

D. $107,500

Q13) A taxpayer wants to deduct the cost of a seven-year asset placed in service this year. The cost qualifies for the Section 179 election to expense assets. Which of the following statements is most accurate regarding the immediate expensing of this asset versus the depreciation of this asset over seven years?

A. Depreciation provides a greater deduction over the life of the asset.

B. Section 179 provides a greater deduction over the life of the asset because, subject to limitations, the cost of the asset is deductible in full.

C. The cost of the asset may be deducted under both Section 179 and as depreciation.

D. There is no difference in the total amount that is deductible over the life of the asset.

Q14) Rock Crab, Inc. purchases the following assets during the year:

Computer $3,000

Computer desk $1,000

Office furniture $4,000

Delivery van $25,000

What should be reported as the cost basis for MACRS five-year property?

A. $3,000

B. $25,000

C. $28,000

D. $33,000

Q15) The sale of which of the following types of business property should be reported as Section 1231 (Property Used in the Trade or Business and Involuntary Conversions) property?

A. Inventory held for resale.

B. Machinery held for six months.

C. Cattle held for 6 months.

D. Land held for 18 months.