Questions -
Q1. James can invest in a project that will cost $70,000. The project is expected to pay him $95,000 after---tax in 5 years. What is the maximum discount rate, as a whole number, that he could use to evaluate the project that would yield a positive cash flow?
a. 5%
b. 6%
c. 7%
d. 8%
Q2. Cynthia and John have dependent twins ages 24. Their joint income places them in the 35 percent marginal tax bracket. What are their total tax savings if they can transfer $7,500 of taxable income to each of the children? The children have no other taxable income.
Q3. Wilma divorced Barney last year. This year she received the title to their boat that cost $45,000 and is now worth $55,000. Barney paid Wilma $1,500 per month, $500 for alimony and $1,000 for support of their two children. Wilma owed $60,000 to the bank for a loan on a failed business. To satisfy the debt, she transferred title of the boat to the bank and paid an additional $5,000. What are the tax consequences of these transactions for Barney and Wilma?
Q4. Sheryl sold 100 shares of ABC stock for $2,100 and 300 shares of XYZ stock for $8,900. She purchased the ABC stock four years ago for $1,200 and the XYZ stock two years ago for $9,100. What is the net effect of these sales on Sheryl's income?
a. $200 net gain
b. $700 net gain
c. $900 net gain
d. $1,100 net gain
Q5. To deduct bad debt expense for tax purposes, the taxpayer must use:
a. The specific charge---off method
b. The aging of receivables method
c. The reserve method
d. Any other method permitted for financial accounting
Q6. The first and last years of MACRS depreciation deductions for a 5---year asset costing $10,000 using the half---year convention are:
a. $2,000 and $2,000
b. $2,000 and $1,152
c. $2,000 and $576
d. $2,000 and $1,000
Q7. Carl, an employee of a Miami CPA firm, was sent to work in Tampa for eight months on March 1, year 1, on a financial audit. His monthly transportation expenses were $400, his monthly lodging was $1,200, and his meals were $800 per month. At the end of the sixth month, his employer determined that the audit was going to continue for eight more months due to an SEC investigation. How much of his expenses may Carl deduct if Carl's employer reimburses him for all of the expenses and includes the reimbursements in his income in years 1 and 2? How much may the employer deduct for these expenses in years 1 and 2?
Q8. Brent sold his personal car and some household furniture during the year. He had a $3,000 gain on the car but a $5,000 loss on the furniture. What is his recognized gain or loss included in taxable income as a result of these sales?
a. 0
b. $2,000 loss
c. $3,000 gain
d. $5,000 loss
Q9. What is the amount of the casualty loss on a business truck that had a fair market value of $14,000 before an accident and $4,000 after an accident, if its adjusted basis is zero?
a. $14,000
b. $10,000
c. $4,000
d. 0
e. None of the above
Q10. Corporation P files a consolidated return with Corporation S. In preparing a consolidated return, their accountant finds the following:
|
P
|
S
|
|
Separate taxable income (loss)
|
$500,000
|
($200,000)
|
|
Capital gain (loss)
|
($25,000)
|
$50,000
|
|
Charitable contributions
|
$20,000
|
$10,000
|
|
Dividend from S
|
$10,000
|
|
What is the consolidated return taxable income?
a. $365,000
b. $295,000
c. $280,000
d. $315,000
Q11. When does a partner recognize gain on a distribution?
a. In a liquidating distribution when the fair market value of the property received exceeds partnership interest basis.
b. In a nonliquidating distribution and the property received exceeds the fair market value of the partnership interest.
c. In a nonliquidating distribution and the cash received exceeds the basis of the partnership interest.
d. Gain is not recognized until the property received for the partnership interest is sold.
Q12. Sonjay had AGI of $60,000 in 2011 and made several charitable contributions as follows: Land donated to county for new school: FMV = $30,000; basis = $20,000
Appraisal fee for the land: $2,500
Contributions to his church: $4,000
Contributions to the Red Cross: $1,000
What is the maximum charitable contribution deduction that Sonjay could claim in 2011:
a. $30,000
b. $27,500
c. $25,000
d. $24,000
Q13. Ikito had a bad year. His home was broken into and his TV, DVD, VCR and computer were all stolen. The properties had a basis of $15,000 and a current fair market value of $9,000. Later that year, his car was hit by a garbage truck. It cost Ikito $9,000 to have the car repaired. Ikito didn't believe in insurance, so he received no reimbursements. In addition, the garbage company filed for bankruptcy after the accident. How much may Ikito deduct as an itemized deduction in 2011 if his AGI is $68,000?
a. $18,000
b. $17,800
c. $11,000
d. $10,200
Q14. Vera and Jake, a married couple with AGI of $321,000 for 2011, have $20,000 of mortgage interest, $8,000 of unreimbursed medical expenses, $4,000 of property taxes, and $9,000 of charitable contributions. How much may they claim for itemized deductions in 2011?
a. $41,000
b. $37 ,000
c. $33,000
d. $32,000
Q15. All of the following are deductions from the gross estate except
a. the decedent's funeral expenses.
b. charitable bequests.
c. the annual exclusion.
d. a credit card bill of the decedent's.
e. Property bequeathed to the surviving spouse.
Q16. Which of the following is not an advantage of lifetime gifts?
a. The annual exclusion can shield thousands of dollars from taxation.
b. Property appreciation does not enter the estate tax calculation.
c. A stepped---up basis is secured for appreciated gifts.
d. Gift---splitting allows spouses to combine their annual exclusions