Midterm Exam 1

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Question #1

AGI (“adjusted gross income”) is usually lower than taxable income in the tax formula.

A TRUE

B FALSE

Question #2

A FALSE

B TRUE

Question #3

Camellia, an accountant, accepts a new job located 1,000 miles away from her current job location. She has to pay a moving company plus the transportation costs for herself to move to the new location. The new employer does not pay moving costs. Camellia will be allowed a deduction for the work-related

A TRUE

B FALSE

Question #4

Monte inherited 1,000 shares of Corporation Zero stock from his father who died on March 4 of the current year. His father paid $30 per share for the stock on September 2, 2005. The FMV of the stock on the date of death was $50 per share. On September 4 this year, the FMV of the stock was $55 per share. The executor did not elect the alternate valuation date. Monte sold the stock for $65 per share on December 3. What is the amount and nature of any gain or loss?

A $ 35,000 LTCG

B $ 15,000 LTCG

C $ 10,000 LTCG

D $ 15,000 STCG

Question #5

Donovan was in an automobile accident while he was going to work. The doctor advised him to stay home for eight months due to his physical injuries. The resulting lawsuit was settled and Donovan received the following amounts:

Compensatory damages for physical injury $30,000
Punitive damages 55,000

How much of the settlement must Donovan include in ordinary income on his tax return?

A $85,000.00

B $0

C $30,000

D $55,000

Question #6

Which one of the following items is not considered gross income for tax purposes?

A gambling winnings

B face amount of life insurance received due to the death of the insured

C illegal income

D cash dividends

Question #7

David, age 59 and divorced, is the sole support of his mother age 83, who is a resident of a local nursing home for the entire year. David’s mother had no income for the year. David’s filing status is

A married filing jointly

B head of household

C single

D married filing separately

Question #8

Gwen, an independent consultant, traveled to New York City on a business trip. Gwen spent 4 days in business meetings and conferences and then spent 2 days sightseeing in the area. Gwen’s plane fare for the trip was $250. Meals cost $160 per day. Hotels and other incidental expenses amounted to $250 per day. Gwen may deduct

A $0.00

B $1,890.00

C $1,570

D $1,487.00

Question #9

The following individuals maintained offices in their home:
(1) Dr. Austin is a self-employed surgeon who performs surgery at four hospitals. He uses his home for administrative duties as he does not have an office in any of the hospitals.
(2) June, who is a self-employed plumber, earns her living in her customer’s homes. She maintains an office at home where she bills clients and does other paperwork related to her plumbing business.
(3) Cassie is an employed as a sales representative of Montgomery Products, an out-of-town company which does not have a local office. She uses an extra room in her home to plan her sales calls, write up orders and store inventory. The use of this room in her home is a required part of the job., and this work is the only use of this room.

Who is entitled to a home office deduction?

A Dr. Austin and June

B Cassie and June

C Dr Austin

D All of the taxpayers are entitled to a deduction.

Question #10

Which of the following bonds do not generate tax exempt Federal income?

A bonds issued by cities

B school district bonds

C U.S. Treasury bonds

D bonds issued by fire districts

Question #11

Trish sells her personal car for $13,000. The car cost $20,000 so she realizes a $7,000 loss. She may deduct a $3,000 capital loss.

A FALSE

B TRUE

Question #12

Which of the following is not excluded from income? (Assume that any amounts received by the taxpayer were kept).

A life insurance proceeds paid by reason of death

B fair market value of prize won on a game show

C gifts and inheritances

D public assistance payments

Question #13

Life insurance proceeds paid to a beneficiary because of the insured’s death is taxable.

A TRUE

B FALSE

Question #14

The requirements for a payment to be considered as alimony include all of the following except

A be made in cash or property.

B terminate at the death of the payee.

C be made pursuant to a divorce, separation or a written agreement between the spouses.

D not be designated as being other than alimony.

Question #15

All of the following items are generally excluded from income except

A life insurance proceeds paid by reason of death.

B child support payments.

C interest on corporate bonds.

D interest on state and local government bonds.

Question #16

Carolyn, who earns $400,000, is required to pay John, her ex-husband, $200,000 as part of the property settlement as a result of their divorce agreement which was executed in 2019. In turn, John transfers stock worth $50,000 to Carolyn. What is the amount of Carolyn’s adjusted gross income in 2019?

A $250,000

B $400,000

C $450,000

D $200,000

Question #17

How long must a capital asset be held to qualify for long-term treatment?

A one year and one day

B 6 months

C one year

D same trade date one year from purchase

Question #18

Which of the following taxes is progressive?

A federal income tax

B excise tax

C property tax

D sales tax

Question #19

Rebecca is the beneficiary of a $500,000 insurance policy on her husband’s life. She elects to receive $52,000 per year for 10 years rather than receive the entire amount in a lump sum. Of the amount received each year

A $50,000 is taxable income.

B $52,000 is taxable income.

C $5,000 per year is tax free as a death benefit.

D $2,000 is taxable income.

Question #20

Sarah receives a $8,000 per year scholarship from City University. The university specifies that $2,000 is for tuition, books, supplies, and equipment for classes. The other $6,000 is for room and board. As part of the condition of the scholarship, Sarah must also work ten hours per week as a grader, for which she is paid $5,500 for the year. Of the total amount received, Sarah may not exclude

A $5,500

B $11,500.00

C $13,500.00

D $7,500.00

Question #21

Reva is a single taxpayer with a taxable pension of $24,000, tax-exempt interest of $8,000, and Social Security benefits of $10,000. What is the amount of her taxable Social Security benefits?

A $5,000

B $10,000

C $8,500

D $7,050

Question #22

Joel has four transactions involving the sale of capital assets during the year resulting in a STCG of $5,000, a STCL of $12,000, a LTCG of $1,800 and a LTCL of $1,000. As a result of these transactions, Joel will

A deduct net losses of $6,200 against ordinary income.

B deduct losses of $3,000 against ordinary income and carry $3,200 of losses back two years.

C deduct losses of $3,000 against ordinary income and carry $3,200 of STCL forward.

D deduct losses of $3,000 against ordinary income and carry $3,200 of LTCL forward.

Question #23

A couple will be getting divorced in 2019, resulting in the payment of alimony. Alimony paid in 2019 will be

A an item which does not affect the payor’s or the payee’s tax reporting.

B deductible by the payor and included in income by the payee.

C included in income by the payor and deducted by the payee.

D deductible by both the payor and the payee.

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