Final Exam

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Question #1

For a business, Sec. 1231 property does not include

A inventory purchased 24 months ago.

B an office building purchased five years ago.

C land used in the business that was purchased two years ago.

D timber, coal, or domestic iron ore.

Question #2

If an individual is liable for self employment tax, one half of the self employment tax is

A a Schedule C business expense.

B a For AGI deduction.

C an itemized deduction.

D self-employment tax is nondeductible.

Question #3

A fiscal year is a 12 month period that ends on the last day of any month other than December.

A TRUE

B FALSE

Question #4

James went back to school to earn a master of accountancy degree. He incurred $7,000 of qualified educational expenses and his modified AGI for the year was $40,000. His Lifetime Learning Credit is

A $1,800

B $1,000

C $2,000

D $1,400

Question #5

Pierce has a $16,000 Sec. 1231 loss, a $12,000 Sec. 1231 gain, and a salary of $50,000. What is the treatment of these items in Pierce’s AGI?

A The 1231 gains and losses are treated as ordinary gains and losses making Pierce’s AGI for the year $46,000.

B Pierce has a LTCG of $12,000 and a net ordinary income of $34,000.

C Pierce has net LTCG of $9,000 and $37,000 of net ordinary income.

D Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000. He also has a $1,000 LTCL carryover.

Question #6

Daniella exchanges business land with a $100,000 adjusted basis for $10,000 cash and business land with a $96,000 FMV. What is the amount of gain recognized on the exchange?

A $0

B $4,000

C $10,000

D $6,000

Question #7

A farmer sells his land while the corn crop is still growing. The farmer will be allowed Sec 1231 treatment on the unharvested corn inventory.

A TRUE

B FALSE

Question #8

The earned income credit is available only to taxpayers with qualifying children.

A FALSE

B TRUE

Question #9

Jason owns a warehouse that is used in business. The FMV of the warehouse is $200,000 (basis $120,000), and the warehouse is subject to a mortgage of $40,000. Jason exchanges the warehouse for land valued at $150,000. The other party also pays him $10,000 cash and assumes the mortgage on the warehouse. Jason’s basis in the land received will be

A $120,000

B $200,000

C $150,000

D $180,000

Question #10

In May of this year, Cassie acquired a machine for $20,000 to use in her business. The machine is classified as 5-year property. Cassie does not expense the property under Sec. 179. Cassie’s depreciation on the machine this year is

A $8000

B $4000

C $20000

D $2000

Question #11

On November 3, this year, Kerry acquired and placed into service 7-year business equipment costing $80,000. In addition, on May 5th of this year, Kerry had also placed in business use 5-year recovery property costing $15,000. Kerry did not elect Sec. 179 immediate expensing. No other assets were purchased during the year. The depreciation for this year is

A $14432

B $3606

C $13576

D $6606

Question #12

Section 1250 does not apply to assets sold or exchanged at a loss.

A FALSE

B TRUE

Question #13

Taxable income for an individual is defined as:

A gross income reduced by itemized deductions.

B AGI reduced by tax credits.

C AGI reduced by the greater of the standard deduction or itemized deductions.

D AGI reduced by itemized deductions and tax credits.

Question #14

Child support is

A deductible by both the payor and the payee.

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

Question #15

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 $30,000

B $0

C $85,000

D $55,000

Question #16

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 #17

Any expense incurred for business meals must be reduced by

A 100%

B 10%

C 50%

D Expenses for business meals are not reduced.

Question #18

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

A one year

B 6 months

C one year and one day

D same trade date one year from purchase

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 $2,000 is taxable income.

B $50,000 is taxable income.

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

D $52,000 is taxable income.

Question #20

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

A school district bonds

B U.S. Treasury bonds

C bonds issued by fire districts

D bonds issued by cities

Question #21

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 single

C married filing separately

D head of household

Question #22

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 $1,487

B $0

C $1,890

D $1,570

Question #23

During 2019, Marcia, who is single and is covered under a pension plan at work, contributes $6,000 into a Roth IRA. If her AGI is $68,000, which of the following is true?

A None of the contribution is deductible.

B She must withdraw all of the contribution immediately since she is covered under a plan at work.

C Only 60% of the contribution is deductible since her AGI exceeds $64,000 by $4,000 and her maximum contribution is phased out by 40%.

D All of the contribution is deductible.

Question #24

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 FALSE

B TRUE

Question #25

For purposes of the “Kiddie Tax,” unearned income includes

A gifts received.

B taxable interest & dividends.

C wages of the child.

D more than one of the above are considered unearned income.

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