ACCT 553 Final Exam
(TCO E) For federal tax purposes, income attributable to the direct efforts of the tax payer, such as salary, is classified
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(TCO D) Which of the following is an example of a nontaxable like-kind exchange?
(TCO H) Alex and Amy file a joint return for the 2012 tax year. Their adjusted gross income is $90,000. They had net investment income of $8,000. In 2012, they had the following interest expenses:
• Personal credit card interest: $5,000
• Home mortgage interest: $10,000
• Interest paid on qualified education loans: $2,000
• Investment interest (on loans used to buy stocks): $10,000
What is the interest deduction for Alex and Amy for the 2012 tax year?
(TCO B) Unreimbursed expenses of employees are considered to be deductions:
(TCO A) Which of the following expenditures is always an itemized deduction for individual taxpayers?
(TCO E) Adam sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Adam received $80,000 cash and a painting with a fair market value of $20,000 from the buyer. The buyer also assumed Adam’s $25,000 loan on the equipment. Adam paid $5,000 in selling expenses. What is the amount of Adam’s gain on the sale?
(TCO I) Gary and Gerdy Gray purchased a home for $125,000 on September 15, 2010. On October 7, 2011 they were divorced, and as part of the divorce agreement, the home was transferred to Gerda, who sold the home on October 18, 2012 for $350,000. How much can Gerda exclude?
(TCO I) Under the accrual method of accounting, expenses are generally accrued when:
(TCO D) Sean, a calendar year taxpayer, purchased stock on June 18, 2011 for $8,000. The stock became worthless on June 4, 2012. What is Sean’s loss in 2012?
(TCO A) Which of the following is a primary source of tax authority?
(TCO F) A nonbusiness bad debt is deductible for tax purposes as a(n):
(TCO A) The art of using existing tax laws to pay the least amount of tax legally possible is known as:
(TCO C) Which of the following items is not taxable?
(TCO B) Under the terms of their divorce agreement executed in October 2011, Keith transferred Corporation M stock to his former wife, Karen, as a property settlement. At the time of the transfer, the stock had a basis to Keith of $20,000 and a fair market value of $50,000. What is the tax consequence of this transaction to Keith, and what is Karen’s basis in the Corporation M stock?
(TCO G) During 2012, Edward East had wages of $10,000 and received unemployment compensation of $6,200 from the state. Edward is single and 45 years old. What is the amount of unemployment compensation to be included in his gross income?
(TCO F) Hobby expenditures are deductible to the extent of:
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Essays
1. (TCO E) In 2012, Uriah Stone received the following payments:
• Interest on refund of federal income tax for 2011: $400
• Interest on award for personal injuries in 2009 automobile accident: $300
• Interest on municipal bonds: $1,500
• United States savings bonds interest (Series H): $1,000
What amount, if any, should Mr. Stone report as interest income on his 2012 tax return?
2. (TCO G) Would any of the following items be deductible on an individual’s income tax return? If so, would the item be deductible for or from AGI? Explain each item.
(a) Hobby expenditures of $2,000 in excess of hobby gross income
(b) $3,000 loss on the sale of a personal sailboat
(c) Interest of $8,000 on money borrowed to purchase tax-exempt securities
3. (TCO F) Michael and Mary Mason sold for $380,000 in November of 2012 their residence that they had purchased in 2002 for $75,000. They made major capital improvements during their 10-year ownership totaling $25,000.
(a) What is their excluded gain? How much must they recognize?
(b) Suppose, instead, that the Masons sold their home for $720,000. They moved into a smaller house costing $220,000. What is their excluded gain? How much must they recognize?
4. (TCO G) John Baron, a professional baseball player, raises Black Angus cattle under circumstances that would indicate that the activity is a hobby. His adjusted gross income for the year is $50,000, and he has $500 of other miscellaneous itemized deductions, all of which are subject to the two-percent floor. During the taxable year, the feed for the cattle cost $1,500. The income from the sale of cattle was $1,400.
(a) Under the hobby loss rule, to what extent is the expense of $1,500 deductible?
(b) Under the two-percent-of-adjusted-gross-income limitation, how much is the overall deductible amount of his itemized deductions?
5. (TCO I) Rick, a single individual with a salary of $45,000, incurred and paid the following expenses during the year:
Student loan interest: $800
Medical expenses: $5,000
Alimony: $11,000
Mortgage interest on personal residence: $3,000
State income taxes: $4,000
Moving expenses: $1,500
Contribution to a traditional IRA: $2,000
Analyze the above expenses, and determine which ones are deductible for AGI. Please support your position.
6. (TCO I) Kim had the following transactions for 2012:
Salary: $48,000
Damage award (compensatory) for city bus accident: $18,000
Loss on sale o [Show Less]