Acc324 Mids
Acc324 Mids
Acc324 Mids
(TCO 9) In terms of probability, which of the following taxpayers would least likely be audited by the
IRS? (Points : 6)
Taxpayer just received a $3 million personal injury award as a result of a lawsuit.
Taxpayer just won a $1 million slot machine jackpot at a Las Vegas casino.
When negligence and civil fraud apply to a deficiency, both penalties are imposed.
The criminal fraud penalty is 75% of the deficiency attributable to the fraud.
The IRS has a greater burden of proof in the case of criminal fraud than with civil fraud.
3. (TCO 1) Federal tax legislation generally originates in what body? (Points : 6)
4. (TCO 1) In § 212(1), the number (1) stands for the: (Points : 6)
5. (TCO 11) Emily, whose husband died in December 2008, maintains a household in which her
dependent daughter lives. Which (if any) of the following is her filing status for the tax year 2008? (Note:
Emily is the executor of her husband's estate.) (Points : 6)
Single
6. (TCO 11) 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? (Points : 6)
$0
$1,000
$2,000
$3,000
7. (TCO 7) Kathy operates a gym. She sells memberships that entitle the member to use the facilities at
any time. A one-year membership costs $360 ($360/12 = $30 per month); a two-year membership costs
$600 ($600/24 = $25 per month). Cash payment is required at the beginning of the membership period.
On July 1, 2009, Kathy sold a one-year membership and a two-year membership.
I. If Kathy is a cash basis taxpayer, her 2009 gross income from the contracts is $960 ($360 + $600).
II. If Kathy is an accrual basis taxpayer, her 2009 gross income from the contracts is $330 [(6/12 x $360)
+ (6/24 x $600)].
III. If Kathy is an accrual basis taxpayer, her 2010 gross income from the contracts is $630 [(6/12) ($360)
+ $450]. (Points : 6)
8. (TCO 7) With respect to the prepaid income from services, which of the following is true? (Points : 6)
The treatment of prepaid income is the same for tax and financial accounting.
A cash basis taxpayer can spread the income over the period services are to be provided if all of
the services will be completed by the end of the tax year following the year of receipt.
An accrual basis taxpayer can spread the income over the period services are to be provided if
all of the services will be completed by the end of the tax year following the year of receipt.
An accrual basis taxpayer can spread the income over the period services are to be provided on
a contract for three years or less.
9. (TCO 3) The First Chance Casino has gambling facilities, a bar, a restaurant, and a hotel. All
employees are allowed to obtain food from the restaurant at no charge during working hours. In the case
of the employees who operate the gambling facilities, bar, and restaurant, 60% of all First Chance's
employees, the meals are provided for the convenience of the casino. However, the hotel workers
demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while
they are at work. Which of the following is correct? (Points : 6)
All the employees are required to include the value of the meals in their gross income.
Only the restaurant employees may exclude the value of their meals from gross income.
Only the employees who work in gambling, the bar, and the restaurant may exclude the meals
from gross income.
All of the employees may exclude the value of the meals from gross income.
10. (TCO 3) Under the Swan Company's cafeteria plan, all full-time employees are allowed to select any
combination of the benefits below, but the total received by the employee CANNOT exceed $8,000 a
year.
I. Group medical and hospitalization insurance for the employee, $3,600 a year.
II. Group medical and hospitalization insurance for the employee's spouse and children, $1,200 a year.
III. Childcare payments, actual cost, but not more than $4,800 a year.
IV. Cash required to bring the total of benefits and cash to $8,000.
Sam, a full-time employee, selects choices II and III and $2,000 cash. His gross income must
include the $2,000.
Paul, a full-time employee, elects to receive $8,000 cash because his wife's employer provided
these same insurance benefits for him. Paul is required to include the $8,000 in gross income.
Sue, a full-time employee, elects to receive choices I, II, and $3,200 for III. Sue is not required to
include any of the above in gross income.
11. (TCO 10) Hans purchased a new passenger automobile on August 17, 2010 for $40,000. During the
year, the car was used 40% for business and 60% for personal use. Determine his cost recovery
deduction for the car for 2010. (Points : 6)
$500
$1,000
$1,224
$1,500
12. (TCO 10) Bob and April own a house at the beach. The house was rented to unrelated parties for 8
weeks during the year. April and the children used the house 12 days for their vacation during the year.
After properly dividing the expenses between rental and personal use, it was determined that a loss was
incurred as follows:
What is the correct treatment of the rental income and expenses on Bob and April's joint income tax
return for the current year, assuming the IRS approach is used, if applicable? (Points : 6)
Only the mortgage interest and property taxes should be deducted.
Since the house was used more than 10 days personally by Bob and April, the rental expenses
(other than mortgage interest and property taxes) are limited to the gross rental income in excess of
deductions for interest and taxes allocated to the rental use.
Since the house was used less than 50% personally by Bob and April, all expenses allocated to
personal use may be deducted.
Bob and April should include none of the income or expenses related to the beach house in their
current year income tax return.
13. (TCO 10) Harry divorced Wanda during the year. He incurred the following legal expenses as itemized
on the bill from his attorney:
Fees related to property division $500
Fees related to the determination of dependency exemption $150
General legal fees incident to divorce $900
$0
$150
$650
$1,550
14. (TCO 10) Danielle owns a vacation cottage. During the current year, she rented it for $1,500 for 48
days, and lived in it for 12 days. How would any expenses be accounted for? (Points : 6)
The expenses must be allocated between personal and rental days.
15. (TCO 3) Jim had a car accident in which his car was completely destroyed. At the time of the accident,
the car had a fair market value of $30,000 and an adjusted basis of $40,000. Jim used the car 100% of
the time for personal use. Jim received an insurance recovery of 80% of the value of the car at the time of
the accident. If Jim's AGI for the year is $50,000, determine his deductible loss on the car. (Points : 6)
$900
$6,000
$10,900
$30,000
17. (TCO 3) Hannah makes the following charitable donations in the current year:
Fair Market
Basis Value
Inventory held for resale in Hannah's business $8,000 $7,200
(a sole proprietorship)
Stock in HBM, Inc., held as an investment $16,000 $40,000
(acquired four years ago)
Baseball card collection held as an investment $4,000 $20,000
(acquired six years ago)
The HBM stock and the inventory were given to Hannah's church, and the baseball card collection was
given to the United Way. Both donees promptly sold the property for the stated fair market value.
Disregarding percentage limitations, Hannah's current charitable contribution deduction is: (Points : 6)
$28,000.
$51,200.
$52,000.
$67,200.
18. (TCO 3) Karen, a calendar year taxpayer, made the following donations to qualified charitable
organizations in the current year:
Basis Fair
MarketValue
Cash donation to Midwest State University $30,000 $ 30,000
Unimproved land to the city of Terre Haute, Indiana $70,000 $210,000
The land had been held as an investment and was acquired 4 years ago. Shortly after receipt, the city of
Terre Haute sold the land for $210,000. Karen's AGI is $450,000.
19. (TCO 3) Josh has investments in two passive activities. Activity A, acquired three years ago, produces
income in the current year of $60,000. Activity B, acquired last year, produces a loss of $100,000 in the
current year. At the beginning of this year, Josh's at-risk amounts in Activities A and B are $10,000 and
$100,000, respectively. What is the amount of Josh's suspended passive loss with respect to these
activities at the end of the current year? (Points : 6)
$0
$36,000
$40,000
$100,000
20. (TCO 3) Sandra acquired a passive activity three years ago. Until last year, the activity was profitable
and her at-risk amount was $300,000. Last year, the activity produced a loss of $100,000, and in the
current year, the loss is $50,000. Assuming Sandra has received no passive income in the current or
prior years, her suspended passive loss from the activity is: (Points : 6)
$90,000 from last year and $50,000 from the current year.
$100,000 from last year and $50,000 from the current year.
$0 from last year and $0 from the current year.
21. (TCO 3) Jon owns both an apartment building in which he is a material participant and a computer
consulting business. Of the 2,000 hours he spends on these activities during the year, 55% of the time is
spent operating the apartment building and 45% of the time is spent in the computer consulting business.
Which of the following statements is correct? (Points : 6)
The computer consulting business is a passive activity, but the apartment building is not.
The apartment building is a passive activity, but the computer consulting business is not.
Both the apartment building and the computer consulting business are passive activities.
Neither the apartment building nor the computer consulting business are passive activities.
22. (TCO 2) The installment method applies when a payment will be received after the tax year of the
sale: (Points : 6)
by an investor who sold real estate at a gain.
23. (TCO 2) Hal sold land held as an investment with a fair market value of $100,000 for $36,000 cash
and a note for $64,000 that was due in two years. The note bore interest of 11% when the applicable
federal rate was 7%. Hal's cost of the land was $40,000. Because of the buyer's good credit record and
the high interest rate on the note, Hal thought the fair market value of the note was at least
$74,000. (Points : 6)
Unless Hal elects not to use the installment method, Hal must recognize $21,600 gain in the year
of sale.
24. (TCO 2) Pedro, NOT a dealer, sold real property that he owned with an adjusted basis of $60,000 and
encumbered by a mortgage for $28,000 to Pat in 2008. The terms of the sale required Pat to pay $14,000
cash, assume the $28,000 mortgage, and give Pedro eleven notes for $6,000 each (plus interest at the
federal rate). The first note was payable two years from the date of sale, and each succeeding note
became due at two-year intervals. Pedro did NOT elect out of the installment method for reporting the
transaction. If Pat pays the 2011 note as promised, what is the recognized gain to Pedro in 2010
(exclusive of interest)? (Points : 6)
$6,000
$3,600
$2,400
$0
25. (TCO 2) Both economic and social considerations can be used to justify: (Points : 6)
various tax credits, deductions, and exclusions that are designed to encourage taxpayers to
obtain additional education.
disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g.,
fines, penalties, illegal kickbacks, bribes to government officials).
favorable tax treatment for accident and health plans provided for employees and financed by
employers.
allowance of a deduction for state and local income taxes paid.
Based on the information given above, determine David's AGI. Be sure to show your work. (Points : 35)
salary $75,000
less:
Capital loss from a stock investment (6,000)
Moving expense to change jobs ($12,500)
add:
interest $900
David's AGI= $57,400