ACC/307 Midterm Exam 100% Correct Answers

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Question 1

A characteristic of FUTA is that:

• Question 2

Which of the following statements best describes the history of the Federal income tax?

• Question 3

Taxes not imposed by the Federal government include:

• Question 4

A VAT (value added tax):

• Question 5

Which of the following transactions will decrease a taxing jurisdiction’s ad valorem tax revenue imposed on real estate?

• Question 6

In 2013, Cindy had the following transactions:

Salary $90,000

Short-term capital gain from a stock investment 4,000

Moving expense to change jobs (11,000)

Received repayment of $20,000 loan she made to her sister in 2009 (includes no interest) 20,000

State income taxes (5,000)

Cindy’s AGI is:

• Question 7

Millie, age 80, is supported during the current year as follows:

Percent of Support

Weston (a son) 20%

Faith (a daughter) 35%

Jake (a cousin) 25%

Brayden (unrelated close family friend) 20%

During the year, Millie lives in an assisted living facility. Under a multiple support agreement, indicate which parties can qualify to claim Millie as a dependent.

• Question 8

Which of the following is a deduction for AGI?

• Question 9

Emily, whose husband died in December 2012, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2013? (Note: Emily is the executor of her husband’s estate.)

• Question 10

Which of the following items is deductible?

• Question 11

Our tax laws encourage taxpayers to ____ assets that have appreciated in value and ____ assets that have declined in value.

• Question 12

Harry and Wanda were married in Texas, a community property state, but moved to Virginia, a common law state. The calculation of their income on a joint return:

• Question 13

Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation. Sarah is not an employee of the corporation.

• Question 14

The purpose of the tax rules that apply to below-market loans between family members is to:

• Question 15

Margaret owns land that appreciates at the rate of 10% each year. Ralph owns a zero coupon (i.e., all of the interest is paid at maturity but is taxed annually) corporate bond with a yield to maturity of 10%. At the end of 10 years, the bond will mature and the land will be sold. At the end of the 10 years,

• Question 16

The exclusion of interest on educational savings bonds:

• Question 17

Employees of the Valley Country Club are allowed to use the golf course without charge before and after working hours on Mondays, when the number of players on the course is at its lowest. Tom, an employee of the country club played 40 rounds of golf during the year at no charge when the non-employee charge was $20 per round.

• Question 18

The Royal Motor Company manufactures automobiles. Employees of the company can buy a new automobile for Royal’s cost plus 2%. The automobiles are sold to dealers at cost plus 20%. Generally, employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealer’s cost. Officers of Local Dealer are allowed to use a company vehicle (for personal use) at no cost.

• Question 19

Jena is a full-time undergraduate student at State University and is claimed by her parents as a dependent. Her only source of income is a $10,000 athletic scholarship ($1,000 for books, $5,500 tuition, $500 student activity fee, and $3,000 room and board). Jena’s gross income for the year is:

• Question 20

Olaf was injured in an automobile accident and received $25,000 for his physical injury, $50,000 for his loss of income, and $10,000 punitive damages. As a result of the award, the amount Olaf must include in gross income is:

ACC 307 Midterm Exam Set 2

• Question 1

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions?

• Question 2

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

• Question 3

Payments by a cash basis taxpayer of capital expenditures:

• Question 4

Which of the following is not deductible?

• Question 5

Velma and Bud divorced. Velma’s attorney fee of $5,000 is allocated as follows:

General representation in obtaining the divorce $1,500

Services in obtaining custody of the child 900

Services in settlement of martial property 600

Determining the tax consequences of:

Dependency deduction for child 700

Property settlement 1,300

Of the $5,000 Velma pays to her attorney, the amount she may deduct as an itemized deduction is:

• Question 6

Five years ago, Tom loaned his son John $20,000 to start a business. A note was executed with an interest rate of 8%, which is the Federal rate. The note required monthly payments of the interest with the $20,000 due at the end of ten years. John always made the interest payments until last year. During the current year, John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800. Tom is an accrual basis taxpayer whose only income is salary and interest income. The proper treatment for the nonpayment of the note is:

• Question 7

Jed is an electrician. Jed and his wife are accrual basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement. Jed was able to collect the judgement but not the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year?

• Question 8

Norm’s car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2013. The car’s adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insurance policy. Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is Norm’s deductible loss?

• Question 9

Which of the following events would produce a deductible loss?

• Question 10

Ivory, Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in 2013. Ivory’s domestic production activities deduction is:

• Question 11

Bhaskar purchased a new factory building on September 10, 2013, for $3,700,000. Five hundred thousand of the purchase price was allocated to the land. He elected the alternative depreciation system (ADS). Determine the cost recovery deduction for 2014.

• Question 12

Howard’s business is raising and harvesting peaches. On March 10, 2013, Howard purchased 10,000 new peach trees at a cost of $60,000. Howard does not elect to expense assets under § 179. If eligible, Howard takes additional first-year depreciation. Determine the cost recovery deduction for 2013.

• Question 13

James purchased a new business asset (three-year property) on July 23, 2013, at a cost of $40,000. James takes additional first-year depreciation. Determine the cost recovery deduction for

• Question 14

Alice purchased office furniture on September 20, 2012, for $100,000. On October 10, 2012, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, 2013. Alice did not elect to expense any of the assets under § 179, nor did she elect straight-line cost recovery. She did not take additional first-year depreciation. Determine the cost recovery deduction for the business assets for 2013.

• Question 15

Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2, 2013. Determine the cost recovery deduction for the year of the sale.

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