Assignment
Question 1
Capital recoveries include:
The cost of capital improvements.
Ordinary repair and maintenance expenditures.
Selling expenses.
Amortization of bond premium.
Question 2
During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss. Presuming adequate income, how much of these losses may Kim claim?
$0.
$1,000.
$2,000.
$3,000.
Question 3
Harry and Wanda were married in Virginia, a common law state, but moved to Texas, a community property state. The calculation of their income on a joint return:
Will increase as a result of changing their state of residence.
Will decrease as a result of changing their state of residence.
Will not change as a result of changing their state of residence.
Will not be permitted.
Question 4
Harry divorced Nancy during the year. He incurred legal expense which were itemized by his attorney: Fees related to property division $500, Fees related to the determination of dependency exemption $150, and general legal fees associated with the divorce $900. Harry only wants to deduct what he is entitled to ethically. How much should he deduct?
$0
$150
$650
$1,550
Question 5
Hollis and Arlene are married and live in a common law state. Hollis wants to make gifts to their five children. Gift tax has all of the following characteristics except:
Only taxable gifts are subject to gift tax.
The gift tax applies to transfers made during the owner's life and after their death.
There is an annual exclusion.
The gift tax rate schedule is the same as the applicable estate tax.
Question 6
In order to qualify for like-kind exchange treatment under section 1031, which of the following requirements must be satisfied?
The form of the transaction is an exchange.
Both the property transferred and the property received are held either for productive use in a trade or business or for investment.
The exchange must be completed by the end of the second tax year following the tax year in which the taxpayer relinquishes his or her like-kind property.
Only a. and b.
Question 7
In regard to choosing a tax year for a retail business owned by individuals, which form of business provides the greater number of options in regard to the tax year?
The C corporation.
The S corporation.
The partnership.
The limited liability company.
Question 8
Jane wants to expense personal property, which code section would she research?
197
179
195
203
Question 9
Last year, Lucy purchased a $100,000 account receivable for $80,000. During the current year, Lucy collected $85,000 on the account. What are the tax consequences to Lucy associated with the collection of the account receivable?
$0.
$5,000 gain.
$10,000 loss.
$15,000 loss.
Question 10
On June 1 of the current year, Tab converted a machine to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?
$70,000.
$90,000.
$120,000.
$140,000.
Question 11
Refundable tax credits include the:
Foreign tax credit.
Tax credit for rehabilitation expenses.
Credit for certain retirement plan contributions.
Earned income credit.
Question 12
Sharon's automobile slid into a ditch. A stranger pulled her out. Sharon offered to pay $25, but the stranger refused. Sharon slipped the $25 in the stranger's truck when he was not looking.
The $25 is a nontaxable gift received by the stranger because Sharon was not legally required to pay him.
The $25 is a nontaxable gift because the stranger did not ask to receive it.
The $25 is taxable compensation for services rendered.
The $25 is a nontaxable service award.
Question 13
Tara owns a shoe store and a bookstore. Both businesses are operated in a mall. She also owns a restaurant across the street and a jewelry store several blocks away. Which of the following statements is correct?
All four businesses can be treated as a single activity if Tara elects to do so.
Only the shoe store and bookstore can be treated as a single activity, the restaurant must be treated as a separate activity, and the jewelry store must be treated as a separate activity.
The shoe store, bookstore, and restaurant can be treated as a single activity, and the jewelry store must be treated as a separate activity.
All four businesses must be treated as separate activities.
Question 14
The tax law requires that capital gains and losses be separated from other types of gains and losses. Among the reasons for this treatment are:
Long-term capital gains may be taxed at a lower rate than ordinary gains.
Capital losses that are short term are not deductible.
Net capital loss is deductible only up to $3,000 per year against ordinary income for individual taxpayers.
a and c
Question 15
When using the automatic mileage method, which, if any, of the following expenses can also be claimed?
Tolls and parking charges.
Tire replacement.
Expensing under section 179.
Oil changes.
Question 16
Which of the following assets held by a manufacturing business is not a section 1231 asset?
Inventory.
A machine used in the business and held more than one year.
A factory building used in the business and held more than one year.
Land used in the business and held more than one year.
Question 17
Which of the following is not a "trade or business" expense?
Interest on business indebtedness.
Property taxes on business property.
Parking ticket paid on business auto.
Depreciation on business property.
Question 18
Which of the following sources has the highest tax validity?
Revenue Ruling.
Revenue Procedure.
Regulations.
Technical Advice Memoranda.
Question 19
Which of the following statements is correct?
The purpose of the AMT is to replace the regular income tax.
Adjustments can either increase AMTI or decrease AMTI.
Tax preferences can either increase AMTI or decrease AMTI.
Tax preferences can only decrease AMTI.
Question 20
Which, if any, of the following items is a deduction for AGI?
Moving expenses.
Union dues.
Child support payments.
Tax return preparation fee.