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1. (TCO 1, 2, 3, 11) Victor sold his personal residence to Colleen and paid real estate taxes of $9,450 for the year, $3,250 of which was apportioned...
1.(TCO 1, 2, 3, 11) Victor sold his personal residence to Colleen and paid real estate taxes of $9,450 for the year, $3,250 of which was apportioned to Colleen based on the period she owned the property during the year. What are the income tax consequences to each party? (Points: 10)2.Discuss the computation of percentage depletion. 3. Discuss the treatment of casualty and theft losses incurred with property in a transaction entered into for profit.4.In satisfying the support test and the gross income test for claiming a dependency exemption, a scholarship received by the person being claimed is handled the same way for each test. Do you agree or disagree with this statement? Why?5.Morgan inherits her father's personal residence including all of the furnishings. She plans to add a swimming pool and sauna to the property and rent it as a furnished house. What are some of the ad valorem property tax problems Morgan can anticipate?6.Faith inherits an undivided interest in a parcel of land from her father on February 15, 2005. Her father had purchased the land on August 25, 1965 and his basis for the land was $325,000. The fair market value of the land is $1,250,000 on the date of her father's death and is $1,100,000 six months later. The executor elects the alternate valuation date. Faith has nine brothers and sisters and each inherited a one-tenth interest. I) What is Faith's adjusted basis for her one-tenth undivided interest?II) What is her holding period for the land? 7.Chris spends $800,000 to build a qualified low-income housing project, which is placed in service on January 1, 2005. He financed the project using his personal funds. What is the amount of the low-income housing credit that Chris may claim in 2005 (assuming a rate of 7.96%)? What is the total amount of the credit that Chris may claim as a result of the $800,000 expenditure?8.Explain the ethical implications where a tax preparer knowingly prepares a return with false information.9.In 2009, Walter had the following transactions:Salary$80,000 Capital loss from a stock investment(4,000)Moving expense to change jobs(10,000)Received repayment of $10,000 loan he made to his brother in 2005 (includes interest of $1,000) 11,000 Property taxes on personal residence2,000 Based on the information given above, determine Walter's AGI. Be sure to show your work.10.Brown Corporation had consistently reported its income by the cash method. The corporation should have used the accrual method because inventories are material to the business. In 2005, Brown timely filed a request to change to the accrual method. At the beginning of 2005, Brown had accounts receivable of $60,000. Also, Brown had merchandise on hand with a cost of $80,000 and accounts payable for merchandise of $25,000. The accounts receivable, inventory, and accounts payable balance per books were zero. Determine the adjustment to income due to the change in accounting method and the amount that is allocated to 2005.1. During the year, Zander is transferred by his employer from Seattle to San Diego. His moving expenses are not reimbursed and are as follows: Cost of moving household furnishings$9,000Transportation$1,000Meals$800Lodging$1,400His qualified moving expenses are: $12,200 $11,800 $11,400 $10,000 None of the above. 2. (TCO 3) Candice, who holds a bachelor of education degree, is a middle school teacher in Birmingham, Alabama. The school board recently changed its minimum education requirement by prescribing five years of college training. Existing teachers, such as Candice, are allowed 5 years in which to acquire the additional year of education. Pursuant to this requirement, Candice spends her 2010 summer break attending University of Alabama taking education courses. Her expenses are as follows: Books and tuition$3,500Meals$800Lodging$900Laundry while in travel status$350Transportation$950Her education expense deduction is: $6,500 $6,100 $5,750 $3,500 None of the above. 3. (TCO 3) Under the terms of a divorce agreement, Troy is to pay his wife Brook $1,200 per month. The payments are to be reduced to $800 per month when their 12-year-old child reaches age 18. During the current year, Troy paid $14,400 under the agreement. Assuming all of the other conditions for alimony are satisfied, Troy can deduct from gross income (and Brook must include in gross income) as alimony: $-0-. $4,800. $9,600. $14,400. None of the above. 4. (TCO 3) Isabel's income from her investments for the current year was as follows:Gain on the sale of Rosebud Country school bonds$3,000Interest on Rosebud County school bonds$8,500Interest received during the year on U.S. Government bonds$6,500Total$18,000Isabel's gross income from the above is: $3,000 $9,500 $15,000 $18,000 None of the above. 5. (TCO 4) Which of the following statements is false regarding the education tax credits? The lifetime learning credit is available for qualifying tuition and related expenses incurred by students pursuing only undergraduate degrees. The lifetime learning credit permits a maximum credit of 20 percent of qualified expenses up to $14,000 per year. The HOPE scholarship credit is calculated per taxpayer, while the lifetime learning credit is available per eligible student. Continuing education expenses do not qualify for either education credit. All of the above statements are false. 6. (TCO 5) Which of the following is not an itemized deduction allowed for AMT purposes? Casualty losses. Gambling losses. State income taxes. Medical expenses in excess of 10 percent of AGI. None of the above are correct. 7. (TCO 5) Carrie owns a mineral property that had a basis of $15,000 at the beginning of the year. The property qualifies for a 22% depletion rate. Gross income from the property was $150,000 and net income before the percentage depletion deduction was $100,000. What is Carrie's tax preference for excess depletion? $0 $15,000 $18,000 $33,000 None of the above. 8. (TCO 7) Grady purchased a business asset (three-year property) on November 15, 2008, at a cost of $60,000. This is the only asset he purchased during the year. Grady did not elect to expense any of the asset under § 179, nor did he elect straight-line cost recovery. Grady sold the asset on May 13, 2009. Determine the cost recovery deduction for 2009. $7,500 $13,750 $19,998 $36,666 None of the above 9. (TCO 7) Stanley is an executive for the Elegant Furniture Manufacturing Company. Stanley purchased furniture from the company for $2,000, the price Elegant ordinarily charges a wholesaler. The retail price of the furniture was $4,000. The company also paid for Stanley's parking space in a garage near the office. The parking fee was $1,500 for the year. Only highly compensated employees are allowed to buy furniture at the wholesaler's price. In addition, the company does not pay other employees' parking fees. Stanley's gross income from the above is: $0 $1,500 $2,000 $3,500 None of the above. 10. (TCO 7) Orlando and Katelyn were divorced. Their only marital property was a personal residence with a value of $250,000 and cost of $100,000. Under the terms of the divorce agreement, Katelyn would receive the house and Katelyn would pay Orlando $25,000 each year for 5 years, or until Orlando's death, whichever should occur first. Orlando and Katelyn lived apart when the payments were made to Orlando. The divorce agreement did not contain the word "alimony." Katelyn paid the $125,000 to Orlando over the five-year period. Then, Katelyn sold the residence for $300,000. Katelyn's recognized gain is: $0 $50,000 ($300,000 - $250,000) $125,000 ($300,000 - $125,000 - $50,000) $200,000 ($300,000 - $100,000) None of the above. 11. (TCO 8, 9) Victoria, whose husband died in December 2008, maintains a household in which her dependent son lives. What is Victoria's filing status for the tax year 2010? Surviving spouse. Single. Married, filing separately. Head of household. None of the above.1. (TCO 2) In the case of a retailer with average annual gross receipts of $900,000: (Points: 5)The installment method can be used to report income from the sale of inventory. The cash method can be used for sales and cost of goods sold. The accrual basis must be used for sales and cost of goods sold. The cash method is required. None of the above. 2. (TCO 2, 11) Juaquin owns five activities. He elects not to group them together as a single activity under the "appropriate economic unit" standard. He participates for 140 hours in Activity A, 165 hours in Activity B, 196 hours in Activity C, 100 hours in Activity D, and 85 hours in Activity E. Which of the following statements is correct? (Points: 5)Activities A, B, C, D and E are all significant participation activities. Activities A, B, C, and D are all significant participation activities. Juaquin is a material participant with respect to Activities A, B, and C only. Juaquin is a material participant with respect to Activities A, B, C, D, and E. None of the above. 3. (TCO 6) Tiffany gives her niece a machine to use in her business with a fair market value of $100,000 and a basis in Tiffany's hands of $150,000. What is the niece's basis for depreciation (cost recovery)? (Points: 5)$0 $100,000 $125,000 $150,000 None of the above. 4. (TCO 6) Vivian and Leonard exchange real estate in a like-kind exchange. Vivian's basis in the real estate, subject to a $150,000 mortgage, is $220,000 and the fair market value is $300,000. She receives real estate with a fair market value of $150,000 and Leonard assumes the mortgage. What is Vivian's recognized gain and adjusted basis for the real estate received? (Points: 5)$0, $240,000 $80,000, $150,000 $80,000, $300,000 $150,000, $300,000 None of the above. 5. (TCO 6) Jude has a NLTCG of $25,000 and a NSTCL of $30,000. What is Jude's 2009 capital loss deduction if Jude's adjusted gross income for 2009 (before considering capital asset transactions) is $90,000? (Points: 5)$90,000 $30,000 $25,000 $3,000 None of the above. 6. (TCO 8) Dale, age 16, is claimed as a dependent on his parents' tax return. During 2010, he had interest income of $3,750 from a savings account and $500 wages from a part-time job. Dale's taxable income is: (Points: 5)$4,250 $3,750 $3,700 $3,450 None of the above. 7. (TCO 9) What is the name given to a tax imposed on the increment in value as goods move through production and manufacturing stages to the marketplace? (Points: 5)Value added tax. National sales tax. Flat tax. Level tax. All of the above. 8. (TCO 9) Which of the following is considered a primary source of the tax law? (Points: 5)Article in the Journal of Taxation, February 2004. U.S. Tax Court decision. Technical Advice Memoranda. General Counsel Memoranda. None of the above. 9. (TCO 2, 3, 10) Kirk had adjusted gross income of $60,000. During the year, his personal use summer home was partially destroyed by a fire. Pertinent data with respect to the home follows: Cost basis$225,000Value before casualty$235,000Value after casualty$165,000Kirk was insured for 70% of his actual loss and he received the insurance settlement. What is Kirk's allowable casualty loss deduction? (Points: 5)$70,000 $21,000 $15,000 $14,900 $0 10. (TCO 1) Social considerations can be used to justify: (Points: 5)a. Allowing accelerated amortization for the cost of installing pollution control facilities. b. Allowing a Federal income tax deduction for state and local income taxes paid on the same income. c. Allowing a carryback and carryover of net operating losses. d. Disallowance of a deduction for fines and penalties. Both b. and c.
