1. On July 1, 2001, Wally, a cash-method calendar year taxpayer, purchases a two-year bond for $1.0 million from Citibank. The Citibank bond provides for interest at a rate of 10% per annum interest compounded semiannually with all interest and principal payable on December 31, 2002. In 2001 Wally will recognize the following amount of income:
1. $50,000
2. $100,000
3. 150,000
4. Nothing because interest will not be recognized until paid
5. Nothing because cash basis taxpayers do not recognize income until it is constructively received.
2. Referring to the immediately preceding Question No. 5, in 2001 Citibank a accrual-methos taxpayer will deduct the following amount:
1. $50,000
2. $100,000
3. $150,000
4. Nothing because interest is not deducted until paid
5. Nothing because accrual basis taxpayers only take a deduction when economic performances occurs.
3. On July 1, 2001, Wally, a cash-method calendar year taxpayer, purchased a zero coupon bong with a face amount of $1.0 million payable June 30, 2003 from Citibank for $854,804.19. The yield to maturity on the Citibank bond is:
1. 4% compound semiannually
2. 6% compound semiannually
3. 8% compound semiannually
4. 10% compound semiannually
5. 12% compound semiannually
4. "Kevin's employer offers him a bonus of either $75,000 today. Or $150,000 in five years. Current interest rates are 10% per annum compounded semiannually. You should tell Kevin to take the $75,000 today, true or false?
1. True
2. False
5. Under the accrual method of tax accounting income is included in gross income when all the events have occurred which fix the right to receive such income and the amount thereof can be determined ______________
1. With reasonable accuracy
2. With reasonable certainty
3. Fairly accurately
4. Without question
5. Under any of the above
6. The goals of financial accounting include all of the following except:
1. Provide useful information to management
2. Protect creditors from being misled
3. Avoid understatement of income
4. Match income and the expenses of earning the income to the same period
5. Reasonably estimate potential liabilities
7. Under the accrual method of tax accounting expenses are deducted from gross income when all events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and _______________
1. Payment has been demanded
2. Payment is due
3. Economic performance has occurred
4. The taxpayer has received and economic benefit
5. Nothing else is required since liabilities are deducted when the all events test is met
8. Under the accrual method of tax accounting an expenditure that creates an asset whose life extends substantially beyond the close of the tax year must be:
1. Deducted in the year economic performance occurs
2. Capitalized and depreciated or amortized
3. Matched against the income associated with the deduction
4. Reported in the same manner as taxpayer reports it for financial accounting purposes
5. None of the above
9. Which of the following is least important in determining when to include an item in gross income under the accrual method of tax accounting?
1. The date the taxpayer bills the customer
2. The right to receive payment becomes fixed
3. The amount of the payment can be determined with reasonable accuracy
4. The performance of services by the taxpayer
5. All of the above are equally important
10. To challenge a taxpayer's method of accounting the Commissioner must show that:
1. It overstates income
2. It understates income
3. It is inconsistently used
4. It does not clearly reflect income
5. All of the above must be shown
11. For tax purposes, which of the following is false regarding "home equity indebtedness"?
1. It must be secured by a "qualified residence"
2. It may not exceed the excess of the residence's fair market value over the acquisition indebtedness on the property.
3. A taxpayer's total home equity indebtedness may not exceed #100,000 ($50,000 if the taxpayer is married and files a separate return).
4. The proceeds of a qualifying home equity loan can be used for personal purposes wholly unrelated to the taxpayer's residence or residences.
5. None of the above
12. For tax purposes which of the following statements is false regarding "acquisition indebtedness"?
1. It is a debt that is secured on a "qualified residence"
2. It can be incurred in acquiring the residence
3. It can be incurred in substantially improving a residence
4. The total of a taxpayer's "acquisition indebtedness" is not capped.
5. It includes indebtedness resulting from the refinancing of acquisition indebtedness not in excess of the refinanced indebtedness.
13. Which of the following is true regarding the deduction for interest on education loans?
1. There is no maximum deduction for any year.
2. The deduction is reduced if an unmarried taxpayer's modified adjusted gross income exceeds $50,000 (as adjusted for inflation) in any given year.
3. The deduction is not denied for any year for which some other person is allowed a dependency exemption for the taxpayer.
4. Only a. and b.
5. Only b. and c.
14. Becker purchased a home 25 years ago for $50,000. The home is worth %300,000 today. He still owes $5,000 on the mortgage encumbering the home. He borrows $130,000 to purchase a BMW and gives a second mortgage on his home to secure the loan. How much interest may he deduct on the $130,000 loan?
1. $0
2. The interest on the full $130,000
3. The interest on only $100,000 of the loan
4. The interest on only $105,000 of the loan
5. None of the above
15. Which statement is correct regarding the IRC §168's "applicable recovery period"?
1. Automobiles and light general purpose trucks are specifically classified as five-year property
2. Property that has not been given a class life and is not residential rental property of nonresidential real property is seven-year property
3. Residential rental property and nonresidential have recovered periods of 20 years
4. None of the above
5. Only a. and b.
16. Which statement is false with regard to the "applicable depreciation method."?
1. For tangible personal property, the applicable depreciation method is the 200 percent declining balance method
2. The taxpayer may not elect the 150 percent declining balance method or straight line method for any property otherwise depreciable by a more rapid method.
3. The straight line method is mandatory for all residential rental property and nonresidential real property
4. None of the above
5. Only a. and b.
17. IRC §1245 provides that recognized gain on the disposition of "section 1245 property" shall be included in income as ordinary income to the extent of depreciation deductions taken with respect to the property. With regard to this section, which of the following statement is correct?
1. §1245 applies to depreciable personal property
2. §1245 does not apply to losses
3. A disposition under §1245 includes a sale or exchange or an involuntary conversion of property
4. All of the above
5. Only a. and c.
18. Which statement is correct with regard to the "applicable convention"?
1. A half year convention is usually used under which all property is deemed placed in service at the midpoint of the year in which it is actually placed in service
2. A mid quarter convention is substituted for the half-year convention if a taxpayer's acquisitions are lumped in the last three months of the taxable year
3. The applicable convention for residential rental property is the mid-month convention
4. All of the above
5. Only a. and b.
19. IRC §7872 contains special rules for gift loans. Which of the following rules are correctly stated?
1. In the case of any gift loan directly between individuals, the amount treated as re-transferred by the borrower to the lender as of the close of any year may exceed the borrower's net investment income for such year
2. In any case in which a borrower has outstanding more than 1 gift loan, the net investment income of such borrower shall be allocated among such loans in proportion to the respective amounts which would be treated as retransferred by the borrower
3. There is no limitation on interest accrual for purposes of income taxes where loans fo not exceed $100,000
4. None of the above are correct
5. All of the above are correct
20. Which of the following statements is false regarding §7872?
1. The section defines a gift loan as any below market loan where the forgoing interest is in the nature of the gift.
2. The section defines a demand loan as any loan which is payable in full at any time on the demand of the lender
3. The section does not define a term loan as any loan which is not a demand loan
4. Under the section, a husband and wife are treated as one person
5. None of the above is false
21. Under IRC §280F(b), if a taxpayer owns "listed property" that is used for both business and other purposes, ACRS deductions are sharply limited unless the business use predominates. Which statement is correct?
1. Business use is considered predominant in any year in which more than one half of all use is business use
2. When the predominant-use test is not satisfied with respect to an item of listed property, ACRS is determined by the alternative depreciation system of §168(g), under which depreciation is computed by the straight line method over recovery periods untended to match economic useful life more closely than the usual ACRS recovery periods
3. The predominant-use test us applied annually; if it is failed for any year, ACRS is determined under the alternative depreciation system for that year and all subsequent years
4. If the predominant-use test is met in the year property is placed into service, but isfailed in a subsequent year, a recapture rule applies in the year of failure
5. All of the above
22. IRC §1245 provides that recognized gain on the disposition of "section 1245 property" shall be included in income as ordinary income to the extent of depreciation deductions taken with respect to the property. With regard to this section, which of the following statement is correct?
1. §1245 applies to depreciable personal property
2. §1245 does not apply to loses
3. §1245 only applies if property is disposed of which includes a sale or exchange or an involuntary conversion of property
4. All of the above
5. Only a. and c. THOMAS CAPITAL GAIN TRANSACTIONS. The next 8 questions deal with the following fact situation which shall be designated as the "Basic Facts." For 2016, Thomas, an unmarried individual without dependents who takes the standard deduction, has income from wages of $50,2651. In addition, Thomas had capital gain and losses from four sales of publicly traded common stock in the following amounts: Long Term Capital Gains $3,000 Long Term Capital Loss (10,000)Short Term Capital Gain 5,000Short Term Capital Loss (6000) Make the following determinations for Thomas for 2016 under the Basic facts:
23. You determine that Thomas has a "net capital gain" for 2016 of:
1. $0
2. $2,000
3. $3,000
4. $5,000
5. $8,000
24. Of Thomas' $16,000 in capital losses you determine that he can take a maximum deduction of the following amount:
1. $16,000
2. $13,000
3. $11,000
4. $9,000
5. 6,000
25. Assume that in addition to the transactions described Basic facts, on December 31st of the current year, Thomas had sold 100 shares of Mobile Oil Company common stock for $34,000. Thomas had RECEIVED THAT STOCK FROM HIS FATHER AS A GIFT on November 13th of that year when the stock was valued at $12,000. His father had purchased the stock for $16,000 on January 15th of that year. You determine that the sale produced the following capital transaction:
1. $18,000 long term capital gain
2. $18,000 short term capital gain
3. $22,000 long term capital gain
4. $22,000 short term capital gain
5. $4,000 short term capital loss
26. Assume that in addition to the transactions described in the Basic Facts, on December 31st of the current year, Thomas had sold 100 shares of Mobile Oil Company common stock for $34,000. Thomas had RECEIVED THAT STOCK FROM HIS FATHER'S ESTATE AFTER HIS FATHER DIED on November 13th of that year when the stock was valued at $12,000. His father had purchased the stock for $16,000 in January 15th of that year. You determine that the sake produced the following capital transaction:
1. $18,000 long term capital gain
2. $18,000 short term capital gain
3. $22,000 long term capital gain
4. $22,000 short term capital gain
5. $4,000 short term capital loss
27. Assume that in addition to the transactions described in the Basic facts, on December 31st of the current year, Thomas had sold 100 shares of Mobile Oil Company common stock for $34,000. Thomas had PURCHASED THE STOCK FROM HIS FATHER for only $12,000 on November 13th of that year when the stock was valued at $12,000. His father had purchased the stock for $16,000 on January 15th of that year. You determine that the sale produced the following capital transaction:
1. $18,000 long term capital gain
2. $18,000 short term capital gain
3. $22,000 long term capital gain
4. $22,000 short term capital gain
5. $4,000 short term capital loss
28. Assuming you have determined that the transaction involving Thomas' father produces a capital gain of $20,000 then, of Thomas $16,000 in capital losses, you determine that he can take a maximum deduction of the following amount:
1. $16,000
2. $11,000
3. $10,000
4. $9,000
5. $6,000
29. Assuming the Thomas' " taxable income" is $47,65 which included, based on your determination, $20,000 of short term capital gains, then Thomas' tax liability for 2016 would be approximately:
1. $16,000
2. $11,000
3. $10,000
4. $9,000
5. $6,000
30. Assuming that Thomas' "taxable income" is $47,651, which includes, based on your determination, $20,000 of "net capital gains", then Thomas' tax liability for 2013 would be approximately
1. $3,491
2. $4,991
3. $6,491
4. $7,491
5. $7,791