Acc 555 week 11 final exam – strayer new

ACC 555 Week 11 Final Exam – Strayer New
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Chapters 7 Through 14
Prentice Hall's FederalTaxation 2015 Comprehensive, 28e (Pope)
Chapter 7 Itemized Deductions
1) For individuals, all deductible expenses must be classified as
deductions for AGI or deductions from AGI.
2) In 2014, medical expenses are deductible as a from AGI deduction to
the extent that they exceed 7.5 percent of the taxpayer's AGI.
3) Medical expenses paid on behalf of an individual who could be the
taxpayer's dependent except for the gross income or joint return tests are
deductible as itemized deductions.
4) Medical expenses incurred on behalf of children of divorced parents
are deductible by the parent who pays the expenses but only if that parent
also is entitled to the dependency exemption.
5) The definition of medical care includes preventative measures such as
routine physical examinations.
6) Due to stress on the job, taxpayer Charlie began to experience chest
pains. In order to relax and relieve the pains, he and his spousewent on
an ocean cruise. The costof the cruise to alleviate this medical condition
is tax deductible.
7) Expenditures for a weight reduction program are deductible if
recommended by a physician to treat a specific medical condition such as
hypertension caused by excess weight.

8) In order for a taxpayer to deduct a medical expense, the amount must
be paid to a certified medical doctor(M.D.).
9) Jeffrey, a T.V. news anchor, is concerned about the wrinkles around
his eyes. Because it is job-related, the costof a face lift to eliminate these
wrinkles is a deductible medical expense.
10) Expenditures for long-term care insurance premiums qualify as a
medical expense deduction subject to an annual limit based upon the age
of an individual.
11) Capital expenditures for medical care which permanently improve or
better the taxpayer's property are deductible to the extent the costexceeds
the increase in fair market value to the property attributable to the capital
expenditure.

12) Expenditures incurred in removing structural barriers in the home of a
physically handicapped individual are deductible only to the extent the
costexceeds the increase in fair market value to the property attributable
to the capital expenditure.
13) If the principal reason for a taxpayer's presence in an institution is the
need and availability of medical care, the entire costof lodging and meals
is considered qualified medical expenditures.
14) A medical expense is generally deductible only in the year in which
the expense is actually paid.
15) If a prepayment is a requirement for the receipt of the medical care,
the payment is deductible in the year paid rather than the year in which
the care is rendered.
16) If a medical expense reimbursement is received in a year after a
deduction has been taken on a previous year's return, the previous year's
return must be amended to eliminate the reimbursed expense.
17) Assessments or fees imposed for specific privileges or services are
not deductible as taxes.
18) Foreign real property taxes and foreign income taxes are not
deductible as itemized deductions.

19) A personal property tax based on the weight of the property is
deductible.
20) Assessments made against real estate for the purposeof funding local
improvements are not deductible in the year paid but rather should be
added to the costbasis of the property.
21) Self-employed individuals may deductthe full self-employment taxes
paid as a for AGI deduction.
22) Finance charges on personal credit cards are considered interest and
are, therefore, deductible.
23) In general, the deductibility of interest depends on the purposefor
which the indebtedness is incurred.
24) Interest expense incurred in the taxpayer's trade or business is
deductible as a for AGI deduction without limitation if the taxpayer
materially participates in the business.
25) Investment interest expense which is disallowed becauseit exceeds
the taxpayer's net investment income may be carried over and treated as
incurred in subsequent years.

26) Investment interest includes interest expense incurred to purchase
tax-exempt securities.
27) Taxpayers may elect to include net capital gain as part of investment
income.
28) Taxpayers may not deduct interest expense on most personal debt,
including credit card debt, car loans, and other consumer debt.
29) Qualified residence interest consists of bothacquisition indebtedness
and home equity interest.
30) Acquisition indebtedness for a personal residence includes debt
incurred to substantially improve the residence.
31) A taxpayer is allowed to deductinterest expense incurred on home
equity indebtedness limited to the lesser of $100,000 or the home equity
(FMV of the residence less the acquisition indebtedness).
32) While points paid to purchase a residence are deductible as interest in
the period paid, points associated with the refinancing of a residence must
be amortized and deducted over the life of the loan.
33) Christopher, a cash basis taxpayer, borrows $1,000 from ABC Bank
by issuing a 3-month note on December 1, 2014. Christopher receives
$940 but must repay $1,000 on the due date. The amount of interest
expense deductible in 2014 is $20.
34) Charitable contributions made to individuals are deductible if the
individuals can show extreme financial need.
35) Forcharitable contribution purposes, capital gain property includes
property which, if sold, would producea long-term capital gain.
36) A charitable contribution deduction is allowed for the FMV of

services rendered to a qualified charitable organization.
37) A charitable contribution in excess of the deduction limit for one
taxable year can be carried forward five years.
38) If a taxpayer makes a charitable contribution to a university and in
return receives the right to purchase tickets to athletic events, the
taxpayer may deductonly 80% of the payment.

39) An accrual-basis corporation can only deduct contributions made by
year-end.
40) Corporatecharitable deductions are limited to 10% of the
corporation's taxable income for the year.
41) Legal fees for drafting a will are generally deductible.
42) A taxpayer can deduct a reasonable amount for small out-of-pocket
(i.e. cash) donations.
43) Van pays the following medical expenses this year:
• $1,500 for doctorbills for Van's sonwho is claimed as a dependent by
Van's former spouse.
• $300 for Van's eyeglasses.
• $900 for Van's dental work.
• $3,800 for Van's face lift. Van, a newscaster, is worried about the
wrinkles around his eyes.
How much can Van include on his return as qualified medical expenses
before limitation?
A) $1,200
B) $2,400
C) $2,700
D) $6,500
44) All of the following are deductible as medical expenses except
A) vitamins and health foods that improve a taxpayer's general health.
B) payments for a vision exam and contact lenses.
C) payments to a hospital for laboratory fees and X-rays for diagnosis of
a medical problem.
D) cosmetic surgery necessary to correcta deformity arising from a
congenital abnormality.
45) All of the following payments for medical items are deductible with
the exception of the payment for
A) insulin.
B) general appointment for teeth cleaning.
C) acupuncture for specific medical purposes.
D) nonprescription medicine for treatment of a specific medical

condition.
46) In 2014 Sela traveled from her home in Flagstaff to San Francisco to
seek medical care. Because she was unable to travel alone, her mother
accompanied her. Total expenses included:
Hotel room en route ($150 × 2 rooms ×
3 nights) $900
Mileage, 1,000 miles
Doctors bills in San Francisco 1,600
The total medical expenses deductible before the 10% limitation are
A) $1,600.
B) $2,135.
C) $2,500.
D) $2,460.
47) Leo spent $6,600 to constructan entrance ramp and to widen
doorways in his personal residence to make the home accessible for his
wife, who is disabled and confined to a wheelchair. The $6,600
expenditure increased the value of the residence by $2,000. How much of
the $6,600 is a deductible medical expense (before considering limits
based on AGI)?
A) $0
B) $2,000
C) $4,600
D) $6,600

48) Linda had a swimming poolconstructed at her house. Her physician
advised and prescribed to her that the poolwould slow the effects of her
degenerative disease. The poolwas not suitable for recreational use. Prior
to the construction of the pool, the fair market value of her house was
$172,000. After the construction of the pool, the appraised fair market
value of the house was $181,000. The costof the poolwas $13,000. What
is the amount of Linda's qualified medical expense (before considering
limits based on AGI)?
A) $0
B) $4,000
C) $9,000
D) $13,000
49) Alan, who is a security officer, is shot while on the job. As a result,
Alan suffers from a chronic leg injury and must use a wheelchair and
undergo therapy to regain and retain strength. Alan's physician
recommends that he install a whirlpool bath in his home for therapy.
During the year, Alan makes the following expenditures:
Wheelchair $ 1,200
Whirlpool bath 2,000
Maintenance of the whirlpool 250
Increased utility bills associated with
whirlpool 450
Entrance ramp, various home
modifications 7,200
A professional appraiser tells Alan that the whirlpool has increased the
value of his home by $1,000. Alan's deductible medical expenses (before
considering limitations based on AGI) will be
A) $6,000.
B) $10,100.
C) $7,000.
D) $7,700.

50) Mitzi's medical expenses include the following:
Medical premiums $10,850
Doctors fees 2,000
Hospital fees 3,350
Prescription drugs 600
Eyeglasses 350
General purposevitamins 100
Mitzi's AGI for the year is $33,000. She is single and age 49. None of
the medical costs are reimbursed by insurance. After considering the AGI
floor, Mitzi's medical expense deduction is
A) $12,900.
B) $13,850.
C) $14,675.
D) $16,325.
51) Caleb's medical expenses before reimbursement for the year include
the following:
Medical premiums $11,000
Doctors, hospitals 3,500
Prescriptions 600
Caleb's AGI for the year is $50,000. He is single and age 58. Caleb also
receives a reimbursement for medical expenses of $1,000. Caleb's
deductible medical expenses that will be added to the other itemized
deduction will be
A) $10,350.
B) $9,100.
C) $14,500.
D) $15,100.

52) A review of the 2014 tax file of Gregory, a single taxpayer who is age
40, provides the following information regarding Gregory's 2014 tax
status:
Adjusted gross income $40,000
Medical expenses (before percentage
limit) 5,000
Itemized deductions other than
medical 5,400
2014 potential standard deduction 6,200
In 2015, Gregory receives a reimbursement for last year's medical
expenses of $1,200. As a result, Gregory must
A) include $200 in gross income for 2015.
B) include $1,200 in gross income for 2015.
C) reduce 2015's medical expenses by $1,200.
D) amend the 2014 return.

53) Mr. and Mrs. Thibodeaux, who are filing a joint return, have adjusted
gross income of $75,000. During the tax year, they paid the following
medical expenses for themselves and for Mrs. Thibodeaux's mother, Mrs.
Watson (age 63). Mrs. Watson provided over one-half of her own
support.
Prescription drugs for Mr.
Thibodeaux $3,600
General vitamins for Mrs.
Thibodeaux $ 100
Doctor bill for Mr. Thibodeaux $1,800
Doctor bill for Mrs.
Thibodeaux $4,000
Hospital bill for Mrs. Watson $2,200
Mr. and Mrs. Thibodeaux received no reimbursement for the above
expenditures. What is the amount of their deductible itemized medical
expenses?
A) $1,900
B) $2,000
C) $4,100
D) $9,400

54) Mr. and Mrs. Gere, who are filing a joint return, have adjusted gross
income of $50,000. During the tax year, they paid the following medical
expenses for themselves and for Mrs. Gere's mother, Mrs. Williams. The
Gere's could claim Mrs. Williams as their dependent, but she has too
much gross income.
Insulin for Mr. Gere $1,000
Health insurance premiums for Mrs.
Gere $3,100
Hospital bill for Mrs. Williams $5,200
Doctor bill for Mrs. Gere $4,000
Mr. and Mrs. Gere received no reimbursement for the above
expenditures. What is the amount of their deductible itemized medical
expenses?
A) $5,200
B) $8,300
C) $4,300
D) $13,300
55) The following taxes are deductible as itemized deductions with the
exception of
A) state income taxes.
B) federal income taxes.
C) foreign real property taxes.
D) local personal property taxes.

56) Matt paid the following taxes in 2014:
Real estate taxes on rental property he
owns $4,000
Real estate taxes on his own residence 3,600
Federal income taxes 8,000
State income taxes 3,400
Local city income taxes 500
State sales taxes 700
What amount can Matt deduct as an itemized deduction on his tax return?
A) $7,500
B) $11,500
C) $15,500
D) $19,500
57) In 2014, Carlos filed his 2013 state income tax return and paid taxes
of $800. Also in 2014, Carlos's employer withheld state income tax of
$750 from Carlos's salary. In 2015, Carlos filed his 2014 state income tax
return and paid an additional $600 of state income tax due for 2014. How
much state income tax can Carlos deduct on his 2014 federal income tax
return for state income tax?
A) $1,350
B) $1,400
C) $1,550
D) $2,150

58) Doug pays a county personal property tax on his automobile of
$1,500. The $1,500 includes $800 based on the weight of the car and
$700 based on the value of the car. How much of the tax can Doug
deducton his tax return?
A) $0
B) $700
C) $800
D) $1,500
59) During the year Jason and Kristi, cash basis taxpayers, paid the
following taxes:
State gift tax $1,000
Property tax on home in the United States 4,100
State income tax (withholdings) 3,000
Estimated federal income tax 4,500
Estimated state income tax (paid by check) 800
Special assessmentby city for sidewalks and
street lighting
on their street 2,000
What amount can Kristi and Jason claim as an itemized deduction for
taxes on their federal income tax return in the current year?
A) $7,900
B) $8,900
C) $10,900
D) $15,400
60) In February of the current year (assume a non-leap year), Ken and
Kelsey received their property tax statement for last calendar-year taxes
of $1,600, which they paid to the taxing authority on March 1 of the
current year. They had purchased their home on May 1 last year. What
amount of property tax on this statement may they claim as an itemized
deduction this year?
A) $0
B) $1,069
C) $1,074
D) $1,600

61) On September 1, of the current year, James, a cash-basis taxpayer,
sells his farm to Bill, also a cash-basis taxpayer, for $100,000. James'
basis in the farm is $65,000. The real property tax year is the calendar
year. Real estate taxes on the property for the year are $3,650 and are
payable in November of the current year. The sales agreement does not
provide for apportionment of real estate taxes between the buyer and
seller. Assume Bill pays all of the real estate taxes in the current year.
The effects of this sales structure will be:
A)
Taxes allocatedto
James
Taxes allocatedto
Bill
Effecton James'
Gain
$0 $3,650 no effect on gain
B)
Taxes allocatedto
James
Taxes allocatedto
Bill
Effecton James'
Gain
$3,650 $0
decrease gain by
$1,220
C)
Taxes allocatedto
James
Taxes allocatedto
Bill
Effecton James'
Gain
$2,430 $1,220
increase gain by
$2,430
D)
Taxes allocatedto
James
Taxes allocatedto
Bill
Effecton James'
Gain
$1,220 $2,430
increase gain by
$1,220

62) On September 1, of the current year, Samuel, a cash-basis taxpayer,
sells his farm to Edward, also a cash-basis taxpayer for $100,000.
Samuel's basis in the farm is $65,000. The real property tax year is the
calendar year. Real estate taxes on the property for the year are $3,650
and are payable on April 1 of the following year. The sales agreement
does not provide for apportionment of real estate taxes between the buyer
and seller. Assume Samuel pays all of the real estate taxes prior to the
sale. The effects of this sales structure will be:
A)
Taxes allocatedto
Samuel
Taxes allocatedto
Edward
Effecton Samuel's
Gain
$1,220 $2,430
increase gain by
$1,220
B)
Taxes allocatedto
Samuel
Taxes allocatedto
Edward
Effecton Samuel's
Gain
$2,430 $1,220
increase gain by
$2,430
C)
Taxes allocatedto
Samuel
Taxes allocatedto
Edward
Effecton Samuel's
Gain
$2,430 $1,220
decrease gain by
$1,220
D)
Taxes allocatedto
Samuel
Taxes allocatedto
Edward
Effecton Samuel's
Gain
$1,220 $2,430
decrease gain by
$1,220
63) Peter is assessed $630 for street improvements in front of his house.
Which of the following statements is correct?
A) Peter must deduct the assessment as a tax.
B) Peter must reduce the property basis by $630.
C) Peter must increase the property basis by $630.
D) Peter can elect to deduct the $630 currently or increase the basis in the
property.

64) Hui pays self-employment tax on her sole proprietorship income,
supplemental Medicare surtaxes on excess wages and self-employment
income (the .09% tax) and supplemental Medicare taxes on investment
income (the 3.8% tax). Which of the following statements is correct
regarding the deductibility of these taxes?
A) All three of the taxes are deductible as itemized deductions.
B) One-half of the self-employment tax is deductible for AGI, and the
.09% and 3.8% taxes are itemized deductions.
C) None of the taxes are allowed as a deduction.
D) One-half of the self-employment tax is deductible for AGI, but the
.09% and 3.8% taxes are not allowed as deductions.
65) Which of the following is deductible as interest expense?
A) personal credit card interest
B) interest to purchase tax-exempt bonds
C) bank service charges on personal account
D) interest on a home equity loan to purchase a car
66) Riva borrows $10,000 that she intends to use for purchasing supplies
for her business. She temporarily deposits the funds in her personal
checking account. Prior to the deposit, the checking accountheld
$40,000 of personal funds. Riva books a vacation for $6,000 and writes a
check to the travel agency from her personal account. Later in the month,
the business supplies bill arrives and Riva writes a check for $10,000
from the personal account. With respect to the interest expense on the
$10,000 loan,
A) it will all be treated trade or business expense.
B) 60 percent will be treated as personal interest expense and 40 percent
as trade or business expense.
C) it will all be treated as personal expense.
D) 20 percent will be treated trade or business expense.

67) When both borrowed and owned funds are mingled in the same
account, for purposes ofcategorizing interest expense, a repayment of the
debt is allocated first to
A) personal expenditures.
B) trade or business expenditures.
C) investment expenditures.
D) passive activity expenditures in real estate.
68) All of the following statements are true except
A) investment interest expense is deductible to the extent of a taxpayer's
net investment income.
B) short-term capital gains meet the definition of net investment income.
C) investment interest expense includes interest expense to purchase or
carry tax-exempt securities.
D) net investment income is the taxpayer's investment income in excess
of investment expenses.
69) In the current year, Julia earns $9,000 in net investment income and
incurs $14,000 of investment interest expense. What is the maximum
amount of investment interest expense she is allowed to deductthis year?
A) $0
B) $3,000 deductible this year; $11,000 carried forward to next year
C) $9,000 deductible this year; $5,000 carried forward to next year
D) $14,000 deductible this year; nothing to be carried forward to next
year

70) Ted pays $2,100 interest on his automobile loan, $120 interest on a
loan to purchase a computer for personal use, $630 interest on credit
cards, and $1,100 investment interest expense. Ted has net investment
income of $850. Ted's deductible interest is
A) $850.
B) $1,100.
C) $2,950.
D) $3,200.
71) Takesha paid $13,000 of investment interest expense in a year in
which she earned $4,500 in dividends, $5,400 in interest income, and had
a short-term capital gain of $1,000 and a long-term capital gain of $2,200.
The capital gains resulted from the sale of stockheld as an investment.
She has no other investment-related expenses. What is her maximum
deduction for investment interest expense, assuming Takesha does not
make any elections?
A) $5,400
B) $6,400
C) $13,100
D) $13,000
72) Dana paid $13,000 of investment interest expense in a year in which
she earned $4,500 in dividends, $5,400 in interest income, and had a
short-term capital gain of $1,000 and a long-term capital gain of $2,200.
The capital gains resulted from the sale of stockheld as an investment.
She has no other investment-related expenses. What is her maximum
deduction for investment interest expense if Dana makes the proper
elections to raise her ceiling as high as possible?
A) $5,400
B) $9,900
C) $13,100
D) $13,000

73) Faye earns $100,000 of AGI, including $90,000 of salary and
$10,000 of interest income. Faye does itemize her deductions. The
miscellaneous category of her itemized deductions consists of $1,500 of
unreimbursed employee business expenses and a $900 fee paid for
investment advice. Faye has paid $11,000 of interest expense on a loan
used to purchase stocks. How much of the $11,000 interest expense can
be deducted this year?
A) $11,000
B) $10,000
C) $9,100
D) $9,600

74) Teri pays the following interest expenses during the year:
Home mortgage interest on personal residence $8,500
Credit card interest on personal purchases 550
Interest on loans used to purchase investments (Net
investment
income is $2,000) 2,400
Interest on loans used for a business conducted as a
sole proprietorship 3,800
Interest on a credit card used exclusively in the
business 470
What is the amount of interest expense that can be deducted as an
itemized deduction?
A) $10,500
B) $10,900
C) $14,300
D) $14,700
75) On July 31 of the current year, Marjorie borrows $120,000 to
purchase a new fishing boat. The loan is secured by her personal
residence. On the date of the loan, the outstanding balance on the original
debt incurred to purchase the residence is $300,000 and the FMV of the
home is $450,000. What is the total amount of debt on which Marjorie
can deductinterest in the current year?
A) $300,000
B) $400,000
C) $420,000
D) $450,000

76) Wayne and Maria purchase a home on April 1 of the current year. In
order to obtain a thirty-year mortgage, they are required to pay $7,200 in
points at closing. Charging points is a customary business practice in the
area. In addition, they pay $4,400 of interest during the year. What is
their current year deduction related to their home?
A) $4,400
B) $4,580
C) $7,200
D) $11,600
77) Claudia refinances her home mortgage on June 1 of the current year.
She obtains a 30 year mortgage at 5%. As part of the refinancing, she
pays points of $3,600 (a customary practice in her location). What
amount, if any, of the points are deductible?
A) $0
B) $70
C) $120
D) $3,600
78) Leslie, who is single, finished graduate schoolthis year and began
repaying her student loan. The proceeds of the loan were used to pay her
qualified higher education expenses. She has not received any type of
educational assistance or scholarships. The amount of interest paid during
the year amounted to $3,800. What is the amount and classification of her
student loan interest education deduction if her modified AGI is $40,000?
A) $2,500 for AGI
B) $2,500 from AGI
C) $3,800 for AGI
D) $3,800 from AGI

79) Marcia, who is single, finished graduate schoolthis year and began
repaying her student loan. The proceeds of the loan were used to pay her
qualified higher education expenses. She has not received any type of
educational assistance or scholarships. The amount of interest paid
during the year amounted to $3,000. What is the amount and
classification of her student loan interest deduction if her AGI is
$68,000?
A) $500 for AGI
B) $2,000 for AGI
C) $2,500 for AGI
D) $3,000 for AGI
80) Don's records contain the following information:
1. Donated stockhaving a fair market value of $3,600 to a qualified
charitable organization. He acquired the stockfive months previously at a
costof $2,400.
2. Paid $700 to a church schoolas a requirement for the enrollment of
his daughter.
3. Paid $200 for annual homeowner's association dues.
4. Drove 400 miles in his personal auto at 14 cents per mile. The travel
was directly related to volunteer services he performed for his church
(actual costs were not available).
What is Don's charitable contribution deduction?
A) $2,456
B) $3,156
C) $3,356
D) $3,656

81) Erin's records reflect the following information:
1. Paid $200 dues to a fraternal organization (such as the Elks Club)
2. Donated stockhaving a fair market value of $3,500 to a qualified
charitable organization. She purchased the stock2 years earlier for
$3,000.
3. Paid $1,600 cash to qualified public charitable organizations
Erin's adjusted gross income for this year was $50,000. What is the
amount of her charitable contribution deduction for the year?
A) $4,600
B) $4,800
C) $5,100
D) $5,300
82) Sacha purchased land in 2010 for $35,000 that she held as a capital
asset. This year, she contributed the land to the Boy Scouts of America (a
charitable organization) for use as a site for a summer camp. The market
value of the land at the date of contribution is $40,000. Sacha's adjusted
gross income is $90,000. Assuming no special elections, Sacha's
maximum deductible contribution this year is
A) $13,000.
B) $27,000.
C) $35,000.
D) $40,000.

83) Doris donated a diamond broochrecently appraised at $25,000 to her
local church. Doris had purchased it many years ago for $10,000. The
church sold the broochto provide funding for church programming.
Doris' AGI is $40,000. Doris will be able to take a charitable deduction of
A) $10,000.
B) $25,000.
C) $12,000.
D) $20,000.
84) Clayton contributes land to the American Red Cross foruse as a
future site for a new building. His AGI is $50,000. Clayton paid $20,000
for the land eight months ago but its market value at the date of
contribution is $25,000. With no special elections, Clayton's deductible
contribution this year is
A) $7,000.
B) $18,000.
C) $20,000.
D) $25,000.
85) Carl purchased a machine for use in his trade or business two years
ago for $30,000. During the current year, Carl donates the machine to the
local community college. At the time of the contribution, the machine's
adjusted basis is $10,000 and its FMV is $15,000. Carl's AGI for the year
is $48,000. What is the amount of his charitable contribution deduction?
A) $10,000
B) $14,000
C) $15,000
D) $25,000

86) During the current year, Jane spends approximately 90 hours of her
time in developing computer software for a church. As a programmer and
data analyst, Jane normally bills her clients at $130 per hour for her time.
Jane also drives her car a total of 800 miles in performing her voluntary
work. Jane's deductible contribution is
A) $0.
B) $112.
C) $11,700.
D) $11,812.
87) Carol contributes a painting to a local museum for display. Her AGI
is $60,000. Carol paid $22,000 for the painting in 2006, but its market
value at the date of the contribution is $25,000. With no special elections,
Carol's deductible contribution this year is
A) $ 7,000.
B) $18,000.
C) $22,000.
D) $25,000.
88) Hugh contributes a painting to a local museum for display. His AGI
is $35,000. Hugh paid $16,000 for the painting in 2000, but its market
value at the date of the contribution is $22,000. If Hugh makes the
election to maximize the current year deduction, his deductible
contribution for this year will be
A) $10,500.
B) $16,000.
C) $17,500.
D) $22,000.

89) Patrick's records for the current year contain the following
information. He donated stockhaving a fair market value of $5,000 to a
qualified charitable organization. Patrick acquired the stocktwo years
ago at a costof $3,000. He paid $1,000 for membership in an athletic
scholarship program maintained by the university. The only benefit of the
membership is that Patrick is entitled to purchase a season ticket to the
university's home football games. He also donated $7,500 cash to a
qualified charitable organization. Patrick's adjusted gross income for the
year is $100,000. What is the amount of his charitable contribution
deduction?
A) $11,300
B) $11,500
C) $13,300
D) $13,500
90) Grace has AGI of $60,000 in 2013 and 2014. She makes cash
contributions to public charities of $34,000 in 2013 and $31,000 in 2014.
Grace's charitable contribution carryover to 2015 is
A) $0.
B) $1,000.
C) $4,000.
D) $5,000.

91) Daniel had adjusted gross income of $60,000, which consisted of
$55,000 in wages and $5,000 in dividend income from taxable domestic
corporations. His expenses include:
Investment counseling fee $800
Attorney fee for preparing a
will 200
Union dues 350
Tax return preparation fee 450
What is the net amount deductible by Daniel for the above items?
A) $400
B) $600
C) $1,000
D) $1,600
92) Wang, a licensed architect employed by Skye Architects, incurred the
following unreimbursed expenses this year:
Subscription to architectural journals $800
Dues to Professional Architecture Society 400
Tax return preparation 600
Investment advice 500
Wang's AGI is $75,000. What is his net deduction for miscellaneous
itemized deductions?
A) $0
B) $1,900
C) $800
D) $1,500

93) Tasneem, a single taxpayer has paid the following amounts in 2014:
State income taxes $10,000
Property taxes on home 4,000
Mortgage interest on home 12,000
Charitable contributions 14,000
Tasneem's AGI is $360,000. What is her net itemized deduction allowed?
A) $40,000
B) $38,352
C) $36,826
D) None of the above.
94) Christa has made a $25,000 pledge to the American Red Cross (a
public charity). Christa expects AGI of $200,000 this year. Which of the
following assets should she donate?
A) $25,000 of cash
B) stockpurchased three years ago for $18,000 with a current FMV of
$25,000
C) stockpurchased six months ago for $28,000 with a current FMV of
$25,000
D) Christa should be indifferent among the three choices.
95) Which of the following is not required substantiation for a noncash
charitable contribution?
A) name and address of charitable organization
B) method used to determine the donated property's fair market value
C) date and location of property donated
D) use of donation by charitable organization

96) During the current year, Deborah Baronne, a single individual, paid
the following amounts:
Federal income tax $10,000
State income tax $4,000
Real estate taxes on land in France $1,500
Real estate taxes on land in U.S. $1,700
State sales taxes $2,000
State occupational license fee $ 600
How much can Deborah deductin taxes as itemized deductions?
97) Phoebe's AGI for the current year is $120,000. Included in this AGI
is $100,000 salary and $20,000 of interest income. In earning the
investment income, Phoebe paid investment interest expense of $30,000.
She also incurred the following expenditures subject to the 2% of AGI
limitation:
Investment expenses:
Subscriptions to investment journals $ 500
Investment counseling 1,500
Safe-deposit box rental for stock certificates 100
Noninvestment expenses:
Unreimbursed employee business expenses $1,800
Tax return preparation fees (non-business-related) 500
What is Phoebe's investment interest expense deduction for the year?

98) On December 1, 2014, Delilah borrows $2,000 from her credit union
to use in her business. Under the terms of the contract, Delilah actually
receives $1,940 but is required to repay $2,000 in three months.
a. What amount may Delilah deduct as interest expense in 2014 and in
2015 if she is a cash basis taxpayer?
b. What amount may Delilah deduct as interest expense in 2014 and in
2015 if she is an accrual basis taxpayer?

99) During 2014 Richard and Denisa, who are married and have two
dependent children, have the following income and losses:
Total salaries $150,000
Bank account interest 25,000
Short-term capital gains 4,000
Short-term capital losses ( 1,500)
They also incurred the following expenses:
Qualified medical expenses $ 8,000
State income taxes paid 12,000
Property taxes on home 2,300
Qualified residence interest 9,000
Investment interest expense 7,500
Cash charitable contributions 15,000
Tax return preparation fees 3,600
Unreimbursed employee business expenses 4,000
Compute Richard and Denisa's taxable income for the year. (Show all
calculations in good form.)

100) Hope is a marketing manager at a local company. Information about
her 2014 income and expenses is as follows:
Income received
Salary $150,000
Taxes withheld from salary:
Federal income tax $30,000
State income tax 8,000
Social Security tax 7,254
Medicare tax 2,175
Interest income from bank 6,000
Dividend income from U.S. stocks 4,000
Short-term capital gain 2,000
Long-term capital gain 3,000
State income tax refund from last year 500
Expenses paid:
Unreimbursed dental and eyecare costs $1,800
Property taxes on her home 3,900
Fees paid to town for garbage pick-up 400
Stockdonated to American Red Cross;FMV
$5,000; purchased three years ago for $3,100
Dues paid to American Marketing Association 600
Subscription to professional marketing journals 300
Fee for preparation of 2013 tax return and IRS
audit assistance 2,000
Investment advisor fee 1,000
Home mortgage interest 10,000
Interest on borrowing to purchase investment
assets 11,000
Interest on car loan 1,100
Compute Hope's taxable income for the year in good form. Show all
supporting computations. Hopeis single, and she elects to itemize her
deductions each year. Assume she does not make any elections regarding
the investment interest expense. Also assume that her tax profile was
similar in the preceding year.

101) Explain under what circumstances meals and lodging en route to a
medical facility may be deductible.
102) Explain when the costof living in an institution other than a hospital
may be deductible.
103) Discuss the timing of the allowable medical expense deduction.
104) Patrick and Belinda have a twelve year old son, Aidan, who is
autistic. Patrick and Belinda pay tuition of $20,000 annually for Aidan to
attend a schoolfor autistic children. What tax issues should be
considered? What additional information would you need?

105) Discuss what circumstances must be met for personalproperty taxes
to be deductible.
106) Explain why interest expense on investments is limited to net
investment income.
107) When are points paid on a loan deductible as interest expense?
108) Sharif is planning to buy a new car for personal use and will need to
take out a loan. His sources of the financing include (1) a loan from the
car dealership charging 6% interest, (2) a loan from his brokerage firm
secured against his stockportfolio charging 6.2% and (3) a home equity
bank loan secured against his home charging 7%. Sharif has AGI of
$150,000 and does itemize his deductions. He is in the 28% tax bracket.
Discuss how income taxes can influence his decision regarding the source
of financing.

109) May an individual deducta charitable contribution for services
rendered to a charitable organization?
110) What is the result if a taxpayer makes a contribution to a college or
university and in return receives the right to purchase tickets to athletic
events?
111) What is the treatment of charitable contributions in excess of the
applicable limits for the current year?
112) Explain how tax planning may allow a deduction of qualified
medical expenses.

113) Explain what types of tax planning are available for taxpayers
making charitable contributions.
114) Jill is considering making a donation to her church. She wants to
give $50,000 for the new church building. She has some stockwith a
FMV of $50,000 and an adjusted basis of $10,000 that she has held for 3
years. She is planning to sell the stockand donate the $50,000 proceeds
to the church. What should she consider before taking that action?
Chapter 8 Losses andBad Debts
1) In order to be recognized and deducted on a tax return, a loss must first
be realized.
2) The amount of loss realized on the sale of property is computed by
subtracting adjusted basis from amount realized.
3) A loss incurred on the sale or exchange of property is deductible only
if the propertyis used in a trade or business or held for investment.
4) The sale of inventory at a loss results in an ordinary loss.
5) Losses incurred in the sale or exchange of personal-use property are
deductible as capital losses.
6) A loss on business or investment property which is abandoned is
deductible as an ordinary loss to the extent of the property's adjusted
basis on the date of abandonment.
7) The total worthlessness of a security generally results in an ordinary
loss.

8) A capital loss may arise from the sale or exchange of a capital asset.
9) The destruction of a capital asset by a casualty gives rise to a capital
rather than ordinary loss.
10) One of the requirements which must be met for stockto be
considered Section 1244 stockis that the stockmust be owned by an
individual or a partnership.
11) One of the requirements which must be met for stockto be
considered Section 1244 stockis that the corporationcannot have more
than $10 million of total capital and paid in surplus as of the stock
issuance.
12) When applying the limitations of the passive activity rules, a
taxpayer's AGI is classified into active income, portfolio income and
passive income. Forthis purpose, portfolio income includes dividends,
interest, annuities, and royalties.
13) Losses from passive activities that cannot be deducted currently are
carried over for up to 5 subsequent years.
14) Individual taxpayers can offset portfolio income with passive losses.

15) If a taxpayer disposes ofan interest in a passive activity, unused
carryover losses are available to the purchaser of the interest.
16) A taxpayer may deductsuspended losses of a passive activity when
the taxpayer completely terminates his or her ownership of the activity.
17) Once an activity has been classified as passive, it is considered
passive with regard to that taxpayer until it is sold.
18) A passive activity includes any rental activity or any trade or business
in which the taxpayer does not materially participate.
19) Two separate business operations conducted at the same location may
be treated as separate activities under the passive activity rules.
20) Partnerships and S corporations must identify their business and
rental activities by applying the passive activity rules at the partnership or
S corporation level and then must report the results of their operations by
activity to the partners or shareholders.
21) Material participation by a taxpayer in a passive activity is satisfied if
the individual participates in the activity for more than 500 hours during
the year.
22) Forpurposes ofthe application of the passive loss limitations, a
closely held C corporationis a C corporation where more than 50 percent
of the stockis owned by five or fewer individuals at any time during the
last half of the taxable year.
23) A closely held C Corporation's passive losses may offset its active
income.
24) Individuals who actively participate in the management of rental real
property may deductup to $25,000 in losses, subject to AGI limitations.

25) Forpurposes ofapplying the passive loss limitations for rental real
estate, active participation requires a greater time commitment by the
taxpayer than does material participation.
26) Taxpayers are allowed to recognize net passive losses from all
activities up to a ceiling of $25,000.

27) A taxpayer may deduct a loss resulting from the theft of business and
investment property but not a theft of personal-use property.
28) When business property involved in a casualty is totally destroyed,
the amount of the loss is limited to the lesser of the taxpayer's adjusted
basis in the property or the reduction in FMV.
29) In the case of casualty losses of personal-use property, the losses
sustained in each separate casualty are reduced by both$100 and 10
percent of the taxpayer's AGI for the year.
30) A theft loss is deducted in the year in which the theft is discovered.
31) When personal-use property is covered by insurance, no deduction is
available for a casualty loss of the property unless the taxpayer timely
files an insurance claim for the loss.
32) When the taxpayer anticipates a full recovery on a casualty loss of
personal-use property but receives less than full recovery in a subsequent
year, the unrecovered portion may be deducted.

33) If a taxpayer suffers a loss attributable to a disaster in an area
subsequently declared a disaster area, the casualty loss may be deducted
in the year preceding the year in which the loss actually occurs.
34) Fora bad debt to be deductible, the taxpayer must have a basis in the
debt.
35) A bona fide debtor-creditor relationship can never exist in the case of
related parties.
36) A taxpayer guarantees another person's obligation and is forced to
pay the debt under the terms of the guarantee. The original debtordoes
not repay the taxpayer. The taxpayer/guarantor may deductthe loss.
37) Lisa loans her friend, Grace, $10,000 to finance a new business. If
Grace defaults on the loan, Lisa may take a deduction for a business bad
debt in the year of total worthlessness.
38) A business bad debt gives rise to an ordinary deduction while a
nonbusiness bad debtis treated as a short-term capital loss.

39) No deduction is allowed for a partially worthless nonbusiness debt.
40) A net operating loss (NOL) occurs when taxable income for any year
is negative because itemized deductions and total exemptions exceed
business income.
41) A net operating loss can be carried backthree years or carried
forward five years.
42) All of the following losses are deductible except
A) decline in value of securities.
B) total worthlessness of securities.
C) sale or exchange of business property.
D) destruction of personal use property by fire, storm, or casualty.
43) The amount realized by Matt on the sale of property to Caitlin
includes all of the following with the exception of
A) cash received by Matt.
B) mortgage on the property that is assumed by Caitlin.
C) mortgage on the property paid off by Matt prior to the sale.
D) the FMV of any other property received by Matt in the transaction.

44) In 2000, Michael purchased land for $100,000. Over the years,
economic conditions deteriorated, and the value of the land declined to
$60,000. Michael sells the property in this year, when it is subject to a
$30,000 nonrecourse mortgage. The buyer pays Michael $34,000 cash
and takes the property subject to the mortgage. Michael incurs $5,000 in
real estate commissions. Michael's gain or loss on the sale is
A) $4,000 gain.
B) $1,000 loss.
C) $36,000 loss.
D) $41,000 loss.
45) Lucia owns 100 shares of Cronco Inc. which she purchased on
December 1 of last year for $10,000. The stockis not Sec. 1244 stock. On
July 1 of the current year, Lucia receives notice from the bankruptcy
court that Conco Inc. has been liquidated, and there are no assets
remaining for shareholders. As a result, Lucia will have
A) a short-term capital loss of $10,000.
B) a long-term capital loss of $10,000.
C) an ordinary loss of $10,000.
D) no loss allowed.
46) Jamie sells investment real estate for $80,000, resulting in a $15,000
loss. Jamie's loss is
A) an ordinary loss.
B) a capital loss.
C) a Sec. 1231 loss.
D) a Sec. 1244 loss.
47) Juan has a casualty loss of $32,500 on investment property after
receiving an insurance settlement. This is Juan's only casualty transaction
this year. Juan's loss is
A) an ordinary loss.
B) a capital loss.
C) a Sec. 1231 loss.
D) a Sec. 1244 loss.
48) All of the following are true of losses from the sale or worthlessness
of small business corporation (Section 1244) stock with the exception of
A) the stockmust be owned by an individual or a partnership.
B) the stockmust have been issued by a domestic corporation.
C) the stockmust have been issued for cashor property other than stock
or securities.
D) a single taxpayer may deduct, as ordinary losses, up to a maximum of

$100,000 per tax year with the remainder treated as capital losses.
49) Stacy, who is married and sole shareholder of ABC Corporation, sold
all of her stockin the corporation for $100,000. Stacy had organized the
corporation in 2009 by contributing $225,000 and receiving all of the
capital stock of the corporation. ABC Corporation is a domestic
corporation engaged in the manufacturing of ski boots. Thestockin ABC
Corporation qualified as Sec. 1244 stock. The sale results in a(n)
A) ordinary loss of $125,000.
B) long-term capital loss of $125,000.
C) long-term capital loss of $100,000 and ordinary loss of $25,000.
D) ordinary loss of $100,000 and long-term capital loss of $25,000.
50) Amy, a single individual and sole shareholder of Brown Corporation,
sold all of the Brown stockfor $30,000. The stockbasis was $150,000.
Amy had owned the stockfor 3 years. Brown Corporation meets the
Section 1244 requirements. Amy has
A) a $50,000 ordinary loss and $70,000 LTCL.
B) a $50,000 STCLand a $70,000 LTCL.
C) a $100,000 ordinary loss and a $20,000 LTCL.
D) a $100,000 LTCL and a $20,000 ordinary loss.

51) Sarah had a $30,000 loss on Section 1244 stock, a $15,000 loss on
sale of a personal use automobile and a $8,000 loss on stockthat is not
classified as Section 1244. Without regard to net capital loss limitations,
Sarah should recognize
A) a ordinary loss of $38,000.
B) a capital loss of $53,000.
C) an ordinary loss of $30,000 and a capital loss of $8,000.
D) an ordinary loss of $30,000 and a capital loss of $23,000.
52) During the year, Mark reports $90,000 of active business income
from his law practice. He also owns two passive activities. From Activity
A, he earns $20,000 of income, and from Activity B, he incurs a $30,000
loss. As a result, Mark
A) reports AGI of $80,000.
B) reports AGI of $90,000 with a $10,000 passive loss carryover.
C) reports AGI of $90,000 with a $30,000 passive loss carryover.
D) reports AGI of $110,000 with a $30,000 passive loss carryover.
53) Joy reports the following income and loss:
Salary $ 120,000
Income from activity A 60,000
Loss from activity B ( 35,000)
Loss from activity C ( 55,000)
Activities A, B, and C are all passive activities.
Based on this information, Joy has
A) adjusted gross income of $90,000.
B) salary of $120,000 and deductible net losses of $30,000.
C) salary of $120,000 and net passive losses of $30,000 that will be
carried over.
D) salary of $120,000, passive income of $60,000, and passive loss
carryovers of $90,000.

54) Jana reports the following income and loss:
Salary $ 120,000
Activities A, B, and C are all passive activities.
Based on this information, Joy has the following suspended losses:
A)
Activity B Activity C
$30,000 $70,000
B)
$0 $0
C)
$18,000 $42,000
D)
$12,000 $28,000
55) Jeff owned one passive activity. Jeff sold the activity and realized a
$2,000 gain on the sale. Prior to the sale, he realized a current year loss
from the activity of $6,000. In addition, he has suspended losses from
prior years of $7,000. What is the net impact on Jeff's AGI this year due
to the passive activity?
A) increase of $2,000
B) no net change
C) decrease of $4,000
D) decrease of $11,000

56) Nancy reports the following income and loss in the current year.
Salary $ 60,000
All three activities are passive activities with respectto Nancy. Nancy
also has $21,000 of suspended losses attributable to activity C carried
over from prior years. During the year, Nancy sells activity C and realizes
a $15,000 taxable gain. What is Nancy's AGI as a result of these
transactions?
A) $50,000
B) $55,000
C) $64,000
D) $71,000
57) Lewis died during the current year. Lewis owned passive activity
property with a FMV of $61,000 and a basis of $48,000. Suspended
losses of $15,000 were attributable to the property. How much of the
suspended loss is deductible on Lewis's final income tax return?
A) $0
B) $2,000
C) $13,000
D) $15,000

58) Mara owns an activity with suspended passive losses from prior years
of $13,000. In the current year, Mara becomes a material participant in
the activity. This year the activity generates $6,000 of income. The net
effect of this activity on Mara's current year AGI is a(n)
A) increase of $6,000.
B) decrease of $13,000.
C) 0.
D) decrease of $7,000.
59) Charlie owns activity B which was considered a passive activity and
generated a $17,000 suspended loss. Charlie increases his involvement
with activity B so that this year activity B is not considered passive for
Charlie. During this year, activity B produces a $9,000 loss. In addition,
Charlie acquires an investment in activity X, a passive activity, this year.
Charlie's share of activity X's income is $13,000. Charlie's salary this
year is $70,000. As a result, this year Charlie must
A) offset B's loss carryover against X's current income and carry over
$9,000 loss from activity B to next year.
B) offset B's carryover loss and current loss against X's income first and
then offset any remaining loss against salary.
C) offset B's $9,000 loss against X's $13,000 income and offset B's loss
carryover against the remaining $4,000 of X's income.
D) offset B's current $9,000 loss against his salary and offset B's loss
carryover against X's income and carry over $4,000 of loss to next year.
60) Jorge owns activity X which produced a $20,000 passive loss last
year. Jorge's only income last year was wages of $30,000. Jorge is a
material participant in activity X this year when it produces a $14,000
loss. This year, Jorge's wages are $40,000. This year, Jorge also has
passive activity income from activity Y of $16,000. What is the total
passive activity loss carryover to next year?
A) $0
B) $3,000
C) $4,000
D) $18,000

61) Which of the following is not generally classified as a passive
activity?
A) an activity in which the taxpayer does not materially participate
B) a limited partnership interest
C) rental real estate
D) a business in which the taxpayer owns an interest and works 1,000
hours a year
62) An individual is considered to materially participate in an activity if
any of the following tests are met with the exception of
A) the individual participates in the activity for more than 500 hours
during the year.
B) the individual participates in the activity for 75 hours during the year,
and that participation is more than any other individual's participation for
the year.
C) the individual has materially participated in the activity in any five
years during the immediate preceding 10 taxable years.
D) the individual's participation in the activity for the year constitutes
substantially all of the participation in the activity by all individuals.
63) Tom and Shawn own all of the outstanding stockof Brady
Corporation (a retail store operated as a C corporation). This year, Brady
generates taxable income of $20,000 from active business operations, and
also reports investment interest of $22,000 and losses of $28,000 from a
passive activity. As a result, Brady Corporationreports
A) net income of $42,000.
B) interest income of $22,000 and a passive loss carryover of $8,000.
C) business income of $20,000 and a passive loss carryover of $6,000.
D) business income of $20,000, interest income of $22,000, and a passive
loss carryover of $28,000.

64) A taxpayer's rental activities will be considered a trade or business,
rather than a passive activity, if
A) the taxpayer performs more than 750 hours of work during the year
managing the rental properties
B) the taxpayer performs more than 500 hours of work during the year
managing the rental properties.
C) more than half of the taxpayers personal services performed in all
business activities during the year are spent managing the rental
properties.
D) conditions A and C, but not B, are satisfied.
65) Justin has AGI of $110,000 before considering his $30,000 loss from
rental property, which he actively manages. How much of the rental loss
can Justin deductthis year?
A) $10,000
B) $20,000
C) $25,000
D) $30,000
66) Josephhas AGI of $170,000 before considering the $20,000 rental
loss for property which he actively manages. How much of the rental loss
can he deduct?
A) $0
B) $10,000
C) $20,000
D) $25,000
67) Shaunda has AGI of $90,000 and owns rental property generating a
$27,000 loss. She actively manages the property. Her deductible loss is
A) $0.
B) $13,500.
C) $25,000.
D) $27,000.

68) Brandon, a single taxpayer, had a loss of $48,000 from a rental real
estate activity in which he actively participated. He also had $27,000 of
income from another rental real estate activity in which he actively
participated. He acquired both investments in 2014. If Brandon has no
other passive income or losses and has adjusted gross income of $84,000
before considering passive activities, how much loss from rental activities
can he use to offset his nonpassive income?
A) $21,000
B) $24,000
C) $25,000
D) $45,000
69) Which of the following is most likely not considered a casualty?
A) fire loss
B) water damage caused by a busted water heater
C) death of a pine tree due to a two-day infestation of pine beetles
D) water damage to the walls and ceiling of a taxpayer's personal
residence as the result of gradual deterioration of the roof
70) Nicole has a weekend home on Pecan Island that she purchased in
2005 for $250,000. Recently, the home was appraised at $260,000. After
the appraisal, a hurricane hit Pecan Island, severely damaging Nicole's
home. An appraisal placed the value of the home at $140,000 after the
hurricane. Because of its prohibitive cost, Nicole had no hurricane
insurance. Before any reductions or limitations, Nicole's casualty loss
amount is
A) $0.
B) $10,000.
C) $120,000.
D) $140,000.

71) A fire totally destroyed office equipment and furniture which Monica
uses in her business. The equipment had an adjusted basis of $15,000 and
a FMV of $10,000 before the fire. The furniture's adjusted basis was
$5,000 and its FMV was $2,000 before the fire. Monica's AGI for the
year is $60,000. Monica does not have insurance on the destroyed assets.
How much is Monica's deductible casualty loss?
A) $5,900
B) $12,000
C) $13,900
D) $20,000
72) Lena owns a restaurant which was damaged by a tornado. The
following assets were partially destroyed:
Basis Reduction in FMVInsurance Payment
Building $150,000 $200,000 $100,000
Equipment $30,000 $20,000 $10,000
Lena has AGI of $50,000. What is the amount of Lena's deductible
casualty loss?
A) $54,900
B) $60,000
C) $70,000
D) $180,000
73) Leonard owns a hotel which was damaged by a hurricane. The hotel
had an adjusted basis of $1,000,000 before the hurricane. A recent
appraisal determined that the hotel's FMV was $1,500,000 before the
hurricane and $700,000 afterwards. Leonard received insurance proceeds
of $500,000. His AGI is $60,000. What is the amount of his deductible
casualty loss?
A) $293,900
B) $300,000
C) $793,900
D) $800,000
74) Jarrett owns a mountain chalet that he purchased in 2008 for
$175,000. This year, the home appraised at $300,000. Shortly after the
appraisal, a blizzard hit the area in spring of the current year, destroying
trees and severely damaging several homes, including Jarrett's chalet. Its
value was reduced to $135,000. Jarrett does not have insurance. Jarrett's
AGI is $200,000. Jarrett's deductible loss after limitations is
A) $135,000.

B) $144,900.
C) $164,900.
D) $165,000.
75) Hope sustained a $3,600 casualty loss due to a severe storm. She also
incurred a $800 loss from a theft in the same year. Both the casualty and
theft involved personal-use property. Hope's AGI for the year is $25,000
and she does not have insurance coverage. Hope's deductible casualty
loss is
A) $1,700.
B) $1,800.
C) $4,200.
D) $4,300.

76) In the current year, Marcus reports the following casualty gains and
losses on personal-use property. Assets X and Y are destroyed in the first
casualty while Z is destroyed in a second casualty.
Asset
Reduction
in FMV
Adjusted
Basis Insurance
Holding
Period
X $8,000 $2,000 $7,000 2 years
Y 3,000 5,000 2,000 10 months
Z 2,500 1,300 1,000 8 months
As a result of these losses and insurance recoveries, Marcus must report
A) a net gain of $3,700.
B) a long-term gain of $4,900 on asset X; a short-term capital loss of
$900 on asset Y; and a short-term capital loss of $200 on assetZ.
C) a long-term capital gain of $5,000 on asset X; a short-term capital loss
of $900 on asset Y; and a short-term capital loss of $200 on asset Z.
D) a long-term capital gain of $5,000 on assetX; a short-term capital loss
of $900 on asset Y; and a short-term capital loss of $300 on asset Z.
77) Wesley completely demolished his personal automobile in a car
accident. Damage to the auto was estimated at $35,000. Wesley had
purchased the car a few years ago for $60,000. He received an insurance
reimbursement of $28,000. His adjusted gross income this year was
$55,000 and he incurred no other losses during the year. What amount
can he deductas a casualty loss on his income tax return after limitations?
A) $1,400
B) $1,500
C) $6,900
D) $7,000

78) A flood damaged an auto owned by Mr. and Mrs. South on June 15 of
this year. The car was only used for personal purposes.
Fair market value before the
flood $18,500
Fair market value after the
flood 2,000
Costbasis 20,000
Insurance proceeds 13,000
Adjusted gross income for this
year 25,000
Business use of auto 0
Based on these facts, what is the amount of the South's casualty loss
deduction after limitations for this year?
A) $900
B) $1,000
C) $4,400
D) $4,500

79) In February 2014, Amelia's home, which originally cost$150,000, is
damaged by a windstorm. Amelia had refinanced the home shortly before
the storm, and it was appraised at $200,000. After the storm, the home
appraised at $120,000. Amelia has received no insurance reimbursement
by December 31, but expects to recover 90 percent of the loss. In the
subsequent year, the insurance company pays Amelia $50,000. Amelia's
AGI is $85,000 in 2014, and her 2015 AGI is $80,000. Amelia suffers no
other casualty losses in either year. Amelia may deduct
A) $7,900 in 2014.
B) $22,000 in 2015.
C) $13,900 in 2015.
D) $14,000 in 2015.
80) This summer, Rick's home (which has a basis of $80,000) is damaged
by a tornado. An appraisal by a realtor placed the FMV of the home at
$120,000 before the tornado and at $85,000 after the tornado. Rick
estimates that the insurance company will reimburse him for 60% of the
loss. Next year, the insurance company pays Rick $20,000. Rick's
current year's AGI is $50,000 and his next year's AGI is $55,000. Rick
suffers no other casualty losses in either year. After limitations, Rick may
deducta casualty loss this year of
A) $ 8,900.
B) $ 9,900.
C) $15,000.
D) $35,000.

81) Juanita, who is single, is in an automobile accident in 2014 and her
car sustains $6,200 in damages. Because both drivers received tickets in
the accident, Juanita does not expect to recover any of the loss from her
insurance company. Juanita's 2014 AGI is $31,000, and she deducts a
$3,000 loss on her 2014 tax return. Her other itemized deductions in 2014
exceed $12,000. In 2015, Juanita's insurance company reimburses her
$2,800. Juanita's 2015 AGI is $28,000. As a result, Juanita must
A) amend 2014 to show a $200 loss.
B) do nothing and simply keep the $2,800.
C) do nothing to the 2014 return but report $2,800 of income on her 2015
return.
D) amend the 2014 return to show $0 loss and file her 2015 return to
show a $200 loss.
82) Constance, who is single, is in an automobile accident in 2014, and
her car sustains $6,200 in damages. Because bothdrivers received tickets
in the accident, Constance does not expect to recover any of the loss from
her insurance company. Constance's 2014 AGI is $31,000. Her casualty
loss is $3,000; she has other itemized deductions of $1,200. In 2015,
Constance's insurance company reimburses her $2,800. Constance's 2015
AGI is $28,000. As a result, Constance must
A) amend the 2015 return to show the $200 loss.
B) do nothing and simply keep the $2,800.
C) amend the 2014 return to show $0 loss and file her 2015 return to
show $200 loss.
D) do nothing to the 2014 return but report $2,800 of income on her 2015
return.

83) Last year, Abby loaned Pat $10,000 as a gesture of their friendship.
Although Pat had signed a note payable that contained interest payments
and a maturity date, the loan had not been repaid this year when Pat died
insolvent. Forthis year, assuming that the loan was bona fide, Abby
should account for nonpayment of the loan as a(n)
A) itemized deduction.
B) ordinary loss.
C) long-term capital loss.
D) short-term capital loss.
84) In October2014, Jonathon Remodeling Co., an accrual-method
taxpayer, remodels and renovates an office building for Dale and bills
him $30,000. Dale signs a note for the debt. Dale keeps delaying payment
and files bankruptcy in 2015. Creditors are informed that no assets are
available for payment. Jonathon Remodeling Co. will report
A) $0 income in bothyears.
B) $30,000 income in 2014 and a bad debt deduction of $30,000 in 2015.
C) $30,000 income in 2014 and a STCLof $30,000 in 2015 limited to
$3,000 after netting.
D) $30,000 income in 2014 and then must amend last year's return to
show $0 income when advised of the bankruptcy.
85) Martha, an accrual-method taxpayer, has an accounting practice. In
2013, she performs tax analyses for Arnold and sends him an invoice for
$10,000. In 2014, Martha sells her practice and all accounts to David.
Arnold's debt becomes worthless that year after David has purchased the
practice. The result is
A) Martha deducts a nonbusiness bad debt in 2014.
B) Martha deducts a business bad debt in 2014.
C) David deducts a business bad debt in 2014.
D) David deducts a nonbusiness bad debt in 2014.

86) Vera has a key supplier for her business who was facing cash flow
problems which would impair Vera's ability to get shipments of key
components for her production. Vera made a $10,000 loan to the
supplier. Unfortunately the supplier filed for bankruptcy and has gone
out of business without repaying Vera. Vera will be able to recognize a
loss of
A) $10,000.
B) $3,000.
C) $7,000.
D) 0.
87) In 2013 Grace loaned her friend Paula $12,000 to invest in various
stocks. Paula signed a note to repay the principal with interest.
Unfortunately the market for that industry sector plunged, and Paula
incurred large losses. In 2014 Paula declared personal bankruptcy and
Grace was unable to collect any of her loan. Grace had no other gains or
losses last year or this year. The result is
A) Grace deducts a business bad debt of $12,000 in 2014.
B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital
loss in 2014.
C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital
loss in 2014 and carries $9,000 over to subsequent years.
D) Grace deducts a business bad debt of $3,000 in 2014 and carries
$9,000 over to subsequent years.
88) Which of the following expenses or losses could create a net
operating loss for an individual taxpayer?
A) large losses on sales of investment assets
B) an operating loss from a sole proprietorship
C) large charitable contributions
D) all of the above

89) An individual taxpayer has negative taxable income for the year. In
calculating the net operating loss created, which of the following
expenses or losses will be added back to the negative taxable income?
A) capital losses
B) personal and dependency exemptions
C) nonbusiness deductions in excess of nonbusiness income
D) all of the above
90) A taxpayer incurs a net operating loss in the current year. With
respect to the application of the NOL,
A) the taxpayer will carry backthe NOL three years first, then carry
forward any balance for five years.
B) the taxpayer must carry forward the loss and has up to 20 years to use
it.
C) the taxpayer can carry forward the loss indefinitely until there is
sufficient taxable income to use it up.
D) the taxpayer will first carry back the NOL for two years, then
carryforward the balance for a period of 20 years, or the taxpayer can
elect to only carry forward the loss for the 20-year allowable period.
91) Kendal reports the following income and loss:
Salary $120,000
Activities A, B, and C are all passive activities, but none are rental
properties. What is the amount of the suspended loss attributable to each
activity?

92) During the year, Patricia realized $10,000 of taxable income from
activity A, $4,000 loss from activity B, and $6,000 of taxable income
from activity C. All three activities are passive activities with regard to
Patricia, but are not rental properties. In addition, $32,000 of passive
losses from activity C is carried over from prior years. During the current
year, Patricia sells activity C for an $18,000 taxable gain. Patricia's salary
for the year is $100,000. What is the amount of Patricia's deduction
against salary income?
93) Hersh realized the following income and loss this year:
Net taxable income from chocolate shop $50,000
Interest income 10,000
Loss from passive activity (not a rental property) (58,000)
a. Assume Hersh is an individual taxpayer and the chocolate shop is his
sole proprietorship. Determine Hersh's AGI and any carryovers.
b. Assume the taxpayer is Hersh Inc., a C corporation, owned 100% by
the Hersh family. Determine Hersh Inc.'s taxable income and any
carryovers.
94) Adam owns interests in partnerships A and B, bothof which are
Publicly Traded Partnerships. During the current year, Adam's share of
the income from A is $12,000. Adam's share of B's loss is $3,500. B also
generates portfolio income of which Adam's share is $2,000. What are
the tax consequences of these income and loss items?

95) Parveen is married and files a joint return. He reports the following
items of income and loss for the year:
Salary $ 135,000
Activity A (passive) 13,000
Activity B (nonbusiness rental real estate) ( 45,000)
If Parveen actively participates in the management of Activity B, what is
his AGI for the year and what is the passive loss carryover to next year?

96) Aretha has AGI of less than $100,000 and a 25% marginal tax rate.
During the year, she reports a $36,000 loss from Activity A and a
$24,000 loss from Activity B. Additionally, Activity A generates $8,000
of tax credits. Both activities A and B are passive real estate rental
activities in which Anita actively participates and owns over 10% of each
activity.
a. How much loss can be recognized from each activity?
b. What is the amount of Aretha's suspended loss from each activity?
c. How much of the tax credits can be applied this year?
97) Wes owned a business which was destroyed by fire in May 2014.
Details of his losses follow:
Adj. FMV FMV Insurance
Asset Basis Before After Reimbursement
A $1,000 $2,000 $ 0 $2,000
B 15,000 10,000 3,000 2,000
C 2,400 5,000 2,500 1,000
His AGI without consideration of the casualty is $45,000.
What is Wes's net casualty loss deduction for 2013?

98) Determine the net deductible casualty loss on the Schedule A for
Alan Michael when his adjusted gross income was $40,000 in 2014 and
the following occurred:
Adj. FMV FMV Insurance
Asset Basis Before After Reimbursement
A $1,200 $2,000 $ 500 $ 100
B 14,000 12,000 5,000 1,100
C 600 3,000 2,775 125
A and B were destroyed in the same casualty in March. C was destroyed
in a separate casualty in July.
All casualty losses were nonbusiness personal use property losses and
none occurred in a federally declared disaster area.
What is the amount of the net deductible casualty loss?

99) Frank loaned Emma $5,000 in 2012 with the agreement that the loan
would be repaid in three years. In 2013, Emma filed for bankruptcy and
based on available information from the bankruptcy court, it was
estimated that Frank could expect to receive $.65 on the dollar. In 2014,
final settlement was made and Frank received $600.
a. Assuming the loan is a business bad debt, what is the amount of and
the nature of Frank's deduction in 2013?
b. Assuming the loan is a business bad debt, what is the amount of and
the nature of Frank's deduction in 2014?
c. Assuming instead that the loan is a nonbusiness bad debt, what is the
amount of and the nature of Frank's deduction in 2013 and 2014?

100) Becky, a single individual, reports the following taxable items in
2014:
Gross income from business $ 93,000
Minus: Business expenses ( 105,000)
($ 12,000)
Interest income 1,500
AGI ($ 10,500)
Itemized deductions:
Interest expense $ 3,100
State Income Taxes 1,900
Casualty 3,000
Total itemized deductions ( 8,000)
Minus: Personal exemption ( 3,950)
Taxable income ($22,450)
What is Barbara's NOL for the year?

101) Harley, a single individual, provided you with the following
information for this year:
Income:
Salary from part-time employment $ 16,000
Interest income from savings 1,000
Net long-term capital gain from investment
property 3,000
Deductions:
Net business loss
(sales of $100,000 less expenses of
$130,000) ($30,000)
Personal exemption ( 3,950)
Standard deduction ( 6,200)
Net-operating loss carryover from last year ( 3,000)
What is the amount of Harley's net operating loss for this year?
102) Businesses can recognize a loss on abandoned property. What types
of factors would indicate that propertyhad been abandoned?
103) What must an individual taxpayer prove to receive a worthless
security deduction?
104) Erin, a single taxpayer, has 1,000 shares of 1244 stockshe
purchased directly from AAA Corporation for $120,000 five years ago.
The stockhas a FMV of $30,000, and Erin is thinking of selling the
stock. She has no other capital gains or losses for the year. Discuss the
tax consequences and planning opportunities relating to selling the stock.
105) Why was Section 1244 enacted by Congress? Specifically, consider
and discuss someof the individual qualifying requirements of Sec. 1244.
106) Why did Congress enact restrictions and limitations on losses from
passive activities?
107) What is required for an individual to be considered as actively
participating in a real estate activity for purposes ofutilizing the $25,000
ceiling on rental real estate losses?

108) What is or are the standards that must be present to warrant a
casualty loss deduction?
109) A taxpayer suffers a casualty loss on personal-use property for
which he has insurance coverage. However, to avoid a premium
adjustment, the taxpayer fails to make a timely claim. In this situation is
the full deduction for the casualty, after the normal floors, available to the
taxpayer? Why or why not?
110) If a loan has been made to a related party, what are some
considerations for determining whether the loan is a bona fide debt or is,
in fact, merely a gift?
111) Distinguish between the accrual-method taxpayer and the cash-
method taxpayer with regard to basis in a receivable.
112) What are some factors which indicate that a debt may be worthless?

113) If an NOL is incurred, when would a taxpayer elect to forgo the
carryback period and only carry the loss deduction forward?
114) How is a claim for refund of taxes filed by an individual who carries
an NOL deduction back to a prior year?
Chapter 9 Employee Expenses and DeferredCompensation
1) Deferred compensation refers to methods of compensating employees
based upon their current service where the benefits are deferred until
future periods.
2) If an individual is self-employed, business-related expenses are
deductions for AGI.
3) Unreimbursed employee business expenses are deductions for AGI.
4) An employer-employee relationship exists where the employer has the
right to control and direct the individual providing services with regard to
the end result and the means by which the result is accomplished.
5) A nondeductible floor of 2% of AGI is imposed on unreimbursed
employee business expenses, investment expenses, and many other
miscellaneous itemized deductions such as tax preparation fees.
6) Gambling losses are miscellaneous itemized deductions subject to the
2% of AGI floor.

7) Personal travel expenses are deductible as miscellaneous itemized
deductions subject to the 2% of AGI floor.
8) The deduction for unreimbursed transportation expenses for employees
is subject to the 2% of AGI floor.
9) If an individual is not "away from home," expenses related to local
transportation are never deductible.
10) Jason, who lives in New Jersey, owns several apartment buildings in
Baltimore. His travel expenses to Baltimore to inspect his property are
tax deductible.
11) According to the IRS, a person's tax home is the location of the
family residence regardless of the location of the taxpayer's principal
place of employment.
12) In determining whether travel expenses are deductible, a general rule
is that if a personis reassigned for an indefinite period, the individual's
tax home shifts to the new location and travel expenses are not
deductible.
13) Travel expenses related to temporary work assignments of one year
or less are deductible.
14) If the purposeof a trip is primarily personal and only secondarily
related to business, the transportation costs to and from the destination
are deductible.
15) Incremental expenses of an additional night's lodging and additional
day's meals that are incurred to obtain "excursion" air fare rates with
respect to employees whose business travel extends over Saturday night
are not deductible business expenses.
16) Travel expenses for a taxpayer's spouseare deductible if the spouseis

an employee, the travel is for a bona fide purpose, and the expenses are
otherwise deductible.
17) Travel expenses related to foreign conventions are disallowed unless
the meeting is directly related to the taxpayer's business or is employment
related and it is reasonable for the meeting to be held outside of North
America.
18) Commuting to and from a job location is a deductible expense.
19) Transportation expenses incurred to travel from one job to another are
deductible if a taxpayer has more than one job.

20) Taxpayers may use the standard mileage rate method when five
vehicles are used simultaneously for business.
21) If the standard mileage rate is used in the first year, the actual
expense method may not be used in future years.
22) A taxpayer goes out of town to a business convention. The 50%
reduction applies to the costof food, entertainment and transportation
expenses.
23) Self-employed individuals receive a for AGI deduction for 50% of
entertainment expenses paid or incurred in the trade or business.
24) If an employee incurs business-related entertainment expenses that
are fully reimbursed, it is the employer who is subject to the 50%
limitation.
25) A tax adviser takes a client to a major league hockey game following
the conclusion of a meeting involving the signing of a major planning
engagement. As it is not "directly related," the entertainment cannot be
deductible.

26) "Associated with" entertainment expenditures generally must occur
on the same day that business is discussed.
27) Dues paid to social or athletic clubs are deductible if they meet a
primary-use test, requiring that more than 50% of the use of the facility
be for business purposes.
28) Generally, 50% of the costof business gifts is deductible up to $25
per donee per year.
29) A gift from an employee to his or her superior does not qualify as a
business gift.
30) An accountant takes her client to a hockey game following a business
meeting. Because it is a playoff game, and the tickets were purchased
that day, a premium was paid. The deduction for the tickets is limited to
50% of the face value.
31) If an employee incurs travel expenditures and is fully reimbursed by
the employer, neither the reimbursement nor the deduction is reported on
the employee's tax return if reporting is pursuant to an accountable plan.

32) Kim currently lives in Buffalo and works in Rochester, a 60-mile
commute each way. Kim accepts a new job in a town outside of
Rochester, and the new commute is 75-miles each way. Kim decides the
commute for the new job is too long, and she moves to Rochester. Kim is
eligible to deducther moving expenses.
33) Deductible moving expenses include the costof moving household
goods and personal effects as well as temporary living expenses.
34) When a public schoolsystem requires advanced education for a
teacher to continue employment, the teacher's expenses are a deductible
education expense.
35) Educational expenses incurred by a CPA for courses necessary to
meet continuing education requirements are fully deductible.
36) Educational expenses incurred by a bookkeeperfor courses necessary
to sit for the CPA exam are fully deductible.
37) In-home office expenses are deductible if the office is used
exclusively on a regular basis as the principal place of business for any
trade or business of the taxpayer.

38) In addition to the general requirements for in-home office expenses,
employees must also prove that the exclusive use of the office is for the
convenience of the employer.
39) In-home office expenses for an office used by the taxpayer for
administrative or management activities of the taxpayer's trade or
business are never deductible.
40) In-home office expenses which are not deductible in the year in
which the costs were incurred due to limitations may be carried forward
to subsequent years.
41) An employer receives an immediate tax deduction for pension and
profit-sharing contributions made on behalf of employees.
42) In a defined contribution pension plan, fixed amounts are contributed
based upon a specific formula and retirement benefits are based on the
value of a participant's account at the time of retirement.
43) A qualified pension plan requires that employer-provided benefits
must be 100 percent vested after five years of service.

44) Under a qualified pension plan, the employer's deduction is usually
deferred until the employee recognizes income.
45) Nonqualified deferred compensation plans can discriminate in favor
of highly compensated executives.
46) Corporations issuing incentive stock options receive a tax deduction
for compensation expense.
47) Employees receiving nonqualified stock options recognize ordinary
income at the grant date or exercise date if there is a readily ascertainable
fair market value.
48) A sole proprietor establishes a Keogh plan. The highest effective
percentage of earned income she can contribute is 25 percent.
49) SIMPLE retirement plans allow a higher level of employer
contributions than do SEP IRAs.
50) The maximum tax deductible contribution to a traditional IRA in
2014 is $5,500 ($6,500 for a taxpayer age 50 or over).
51) The maximum tax deductible contribution to a Roth IRA in 2014 is
$5,500 ($6,500 for a taxpayer age 50 or over).
52) A contributor may make a deductible contribution to a Coverdell
Education Savings Account for a qualified designated beneficiary of up
to $2,000.
53) All taxpayers are allowed to contribute funds to Health Savings
Accounts to supplement their health insurance.
54) In which of the following situations is the individual is an
independent contractorrather than an employee?

A) a nurse who is directly supervised by doctors in an office
B) a computer programmer who is instructed as to what projects to
undertake, programming language and format, and hours of work
C) a nurse who travels to several different patients. She sets her own
hours and is responsible for the delivery of nursing care and end result
D) a teacher whose hours, classroom responsibilities, content and
methods of instruction are established by the school
55) Which of the following statements regarding independent contractors
and employees is true (ignore temporary provisions)?
A) Independent contractors pay Social Security and Medicare tax of
15.3%.
B) Employees must pay unemployment taxes.
C) Independent contractors and employees pay the same Social Security
and Medicare tax rates.
D) Independent contractors deducttheir business expenses "from AGI."

56) West's adjusted gross income was $90,000. During the current year
he incurred and paid the following:
Publications (unreimbursed and related to
employment) $2,000
Tax return preparation fee 1,000
Dues to professional organizations 1,500
Fees for will preparation (no tax advice) 800
Life insurance premiums 1,400
Assuming he can itemize deductions, how much should West claim as
miscellaneous itemized deductions (after limitations have been applied)?
A) $2,700
B) $4,500
C) $3,500
D) $5,300
57) Allison, who is single, incurred $4,000 for unreimbursed employee
expenses, $10,000 for mortgage interest and real estate taxes on her
home, and $500 for investment counseling fees. Allison's AGI is $80,000.
Allison's allowable deductions from AGI are (after limitations have been
applied)
A) $10,500.
B) $12,900.
C) $14,000.
D) $14,500.
58) All of the following are allowed a "For AGI" deduction except:
A) Cora owns her own CPA firm and travels from Lafayette, LA. to
Washington, D.C. to attend a tax conference.
B) Jennifer, who lives in Houston, is the owner or several apartment
buildings in Salt Lake City and travels there to inspect and manage her
investments.
C) Alan is self-employed and is away from home overnight on job-related
business.
D) Alison is an employee who is required to travel to company facilities
throughout the U.S. in the conductof her management responsibilities.
She is not reimbursed by her employer.
59) Ronis a university professorwho accepts a visiting position at
another university for six months and
obtains a leave of absence from his current employer. Ron rents an
apartment near the university and purchases his food. These living

expenses incurred by Ron while visiting the university will be
A) deductible for AGI.
B) deductible from AGI, without application of a floor.
C) deductible from AGI, subject to the 2% of AGI floor.
D) nondeductible.
60) Gwen traveled to New York City on a business trip for her employer.
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 was not reimbursed by her employer for any
expenses. Her AGI for the year is $50,000 and she itemizes but has no
other miscellaneous itemized deductions. Gwen may deduct(after
limitations)
A) $570.
B) $890.
C) $1,890.
D) $1,570.

61) Norman traveled to San Francisco for four days on vacation, and
while there spent another two days conducting business for his employer.
Norman's plane fare for the trip was $500; meals cost$150 per day;
hotels cost$300 per day; and a rental car cost$150 per day that was used
for all six days. Norman was not reimbursed by his employer for any
expenses. Norman's AGI for the year is $40,000 and he did not have any
other miscellaneous itemized deductions. Norman may deduct (after
limitations)
A) $250.
B) $800.
C) $1,050.
D) $1,200.
62) Gayle, a doctorwith significant investments in the stockmarket,
traveled on a cruise ship to Bermuda. Investment specialists provided
daily seminars which Gayle attended. The costof the cruise for four days
is $2,500. Gayle can deduct(before application of any floors)
A) $0.
B) $1,250.
C) $2,000.
D) $2,500.

63) Chelsea, who is self-employed, drove her automobile a total of
20,000 business miles in 2014. This represents about 75% of the auto's
use. She has receipts as follows:
Parking (business
only) $500
Tolls (business
only) 200
Repairs $1,000
Chelsea has an AGI for the year of $50,000. Chelsea uses the standard
mileage rate method. After application of any relevant floors or other
limitations, she can deduct
A) $10,900.
B) $11,900.
C) $11,750.
D) $12,900.
64) Brittany, who is an employee, drove her automobile a total of 20,000
business miles in 2014. This represents about 75% of the auto's use. She
has receipts as follows:
Parking (business
only) $500
Tolls (business
only) 200
Repairs $1,000
Brittany's AGI for the year of $50,000, and her employer does not
provide any reimbursement. She uses the standard mileage rate method.
After application of any relevant floors or other limitations, Brittany can
deduct
A) $10,900.
B) $11,900.
C) $10,750.
D) $12,900.

65) Rajiv, a self-employed consultant, drove his auto 20,000 miles this
year, 15,000 to meetings with clients and 5,000 for commuting and
personal use. The costof operating the auto for the year was as follows:
Gasoline and
repairs $7,000
Insurance 1,000
Depreciation 4,000
Rajiv's AGI is $100,000 before considering the auto costs. Rajiv has
used the actual costmethod in the past. What is Rajiv's deduction for the
use of the auto after application of all relevant limitations?
A) $8,325
B) $9,000
C) $6,325
D) $7,000
66) Jordan, an employee, drove his auto 20,000 miles this year, 15,000 to
meetings with clients and 5,000 for commuting and personaluse. The
costof operating the auto for the year was as follows:
Gasoline and
repairs $7,000
Insurance 1,000
Depreciation 4,000
Jordan submitted appropriate reports to his employer, and the employer
paid a reimbursement of $ .50 per mile. Jordan has used the actual cost
method in the past. Jordan's AGI is $50,000. What is Jordan's deduction
for the use of the auto after application of all relevant limitations?
A) $1,500
B) $500
C) $1,000
D) $8,000

67) Sarah incurred employee business expenses of $5,000 consisting of
$3,000 business meals and $2,000 customer entertainment. She provided
an adequate accounting to her employer's accountable plan and received
reimbursement for one-half of the total expenses. How much of the meals
and entertainment will be deductible by Sarah without consideration of
the 2% of AGI limit?
A) $0
B) $1,250
C) $2,500
D) $5,000
68) Austin incurs $3,600 for business meals while traveling for his
employer, Tex, Inc. Austin is reimbursed in full by Tex pursuant to an
accountable plan. What amounts can Austin and Tex deduct?
A)
Austin Tex
$0 $1,800
B)
Austin Tex
$0 $3,600
C)
Austin Tex
$1,800 $1,800
D)
Austin Tex
$3,600 $0

69) Joe is a self-employed tax attorney who frequently entertains his
clients at his country club. Joe's club expenses include the following:
Annual dues $ 5,400
Initiation fees 1,200
Charges for personal meals with his family 3,100
Meal and entertainment charges related to
business use 4,000
Assuming the business meals and entertainment qualify as deductible
entertainment expenses, Joe may deduct
A) $2,000.
B) $4,700.
C) $5,300.
D) $4,000.
70) Shane, an employee, makes the following gifts, none of which are
reimbursed:
Shane's manager $30
Shane's personal assistant 40
4 customers ($27 each) 108
What amount of the gifts is deductible before application of the 2% of
AGI floor for miscellaneous itemized deductions?
A) $125
B) $150
C) $75
D) $178

71) Steven is a representative for a textbook publishing company. Steven
attends a convention which will also be attended by many potential
customers. During the week of the convention, Steven incurs the
following costs in entertaining potential customers.
Meal costs $ 1,500
Entertainment of
customers 3,500
Having recently been to a company seminar on the new tax laws, Steven
makes sure that business is discussed at the various dinners, and that the
entertainment is on the same day as the meetings with customers. Steven
is reimbursed $2,000 by his employer under an accountable plan. Steven's
AGI for the year is $50,000, and while he itemizes deductions, he has no
other miscellaneous itemized deductions. What is the amount and
character of Steven's deduction after any limitations?
A) $500 from AGI
B) $500 for AGI
C) $2,000 from AGI
D) $2,000 for AGI
72) Matt is a sales representative for a local company. He entertains
customers as part of his job. During the current year he spends $3,000 on
business entertainment. The company provides him an expense
allowance of $2,000 under a nonaccountable plan. How will Matt treat
the $2,000 partial reimbursement and the $3,000 entertainment expense?
A) He will deductthe $1,000 net expense as a miscellaneous itemized
deduction, subject to the 2% of AGI floor.
B) He will deduct$500 of the net expense as a miscellaneous itemized
deduction, subject to the 2% of AGI floor.
C) He will recognize $2,000 of income and deduct $3,000 as a
miscellaneous itemized deduction, subject to the 2% of AGI floor.
D) He will recognize $2,000 of income and deduct $1,500 as a
miscellaneous itemized deduction, subject to the 2% of AGI floor.

73) Donald takes a new job and moves to a new residence. The distances
are as follows:
Old residence to new job 70 miles
Old residence to old job 8 miles
By how many miles does the move exceed the minimum distance
requirement for the moving expense deduction?
A) 12 miles
B) 20 miles
C) 62 miles
D) none of the above
74) In which of the following situations is the taxpayer not allowed a
deduction for moving expenses?
A) Pam moves from Phoenix to Los Angeles to take a new job. She
works at the Los Angeles job for 45 weeks before starting a new job in
Las Vegas.
B) Paul moves from Bostonto Miami to start a new business selling t-
shirts. The business is not successfuland Paul returns to Bostonafter 52
weeks.
C) Phyllis opens a coffee bar after moving from Seattle to San Francisco.
She still owns the coffee bar and lives in San Francisco 90 weeks after
her move.
D) Marva moves from Dallas to Washington D.C. in her job as an IRS
agent. She is still working at the IRS Washington office after one year.

75) Bill obtained a new job in Boston. He incurred the following moving
expenses:
Transportation of household goods and
personal effects $2,600
Costof transporting Bill's family 2,000
House-hunting trip 1,700
Payments to lessor to cancel a lease 500
Assuming Bill is entitled to deduct moving expenses, what is the amount
of the deduction?
A) $2,600
B) $4,600
C) $6,300
D) $6,800
76) Ronobtained a new job and moved from Houston to Washington. He
incurred the following moving expenses:
Transportation of household
goods $3,200
House-hunting trips 1,500
Temporary living expenses (20
days) 3,400
Commissions on new lease 500
Costs ofsettling old lease 250
Mileage for personal
automobile 1,400 miles
Assuming Ron is eligible to deduct his moving expenses, what is the
amount of the deduction?
A) $3,529
B) $6,600
C) $9,179
D) $3,984

77) Edward incurs the following moving expenses:
Direct moving expenses $4,000
Indirect moving expense 6,000
The employer reimburses Edward for the full $10,000. What is the
amount to be reported as income by Edward?
A) $0
B) $4,000
C) $6,000
D) $10,000
78) All of the following may deducteducation expenses except:
A) Richard is a self-employed dentist who incurs expenses to attend a
convention on new techniques in oral surgery.
B) Paige is an accountant who incurs expenses to take a CPA exam
review course.
C) Hope is a business executive who incurs expenses to pursue an MBA
degree.
D) Marvin is a high schoolteacher who incurs expenses for education
courses to meet new courserequirements to maintain his job.

79) 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, who is an employee of Montgomery Electrical, is provided an
office at the work but does significant administrative work at home. Her
employer does not require her to do extra work but she feels it is
necessary.
Who is entitled to a home office deduction?
A) Dr Austin
B) Dr. Austin and June
C) Cassie and June
D) All of the taxpayers are entitled to a deduction.
80) Alex is a self-employed dentist who operates a qualifying office in
his home. Alex has $180,000 gross income from his practice and
$160,000 of expenses directly related to the business, i.e., non-home
office expenses. Alex's allocable home office expenses for mortgage
interest expenses and property taxes are $14,000 and other home office
expenses are $9,000. What is Alex's total allowable home office
deduction?
A) $9,000
B) $14,000
C) $20,000
D) $23,000

81) Charles is a self-employed CPA who maintains a qualifying office in
his home. Charles has $110,000 gross income from his practice and
incurs $88,000 in salaries, supplies, computer services, etc. Charles's
mortgage interest and real estate taxes allocable to the office total
$10,000. Other expenses total $14,000 and consist of depreciation,
utilities, insurance, and maintenance. What is Charles' total home office
expense deduction?
A) $10,000
B) $14,000
C) $22,000
D) $24,000
82) In a contributory defined contribution pension plan, all of the
following are true with the exception of
A) a separate account is established for each participant.
B) both the employee and employer can make contributions to the plan.
C) amounts are contributed to the plan based upon a specific formula.
D) retirement benefits are a fixed amount based on the level of
compensation earned by the employee during the working years.
83) Characteristics of profit-sharing plans include all of the following
with the exception of:
A) A predetermined formula is used to allocate employer contributions to
individual employees and to establish benefit payments.
B) Forfeitures of benefits under the plan may be reallocated to the
remaining participants.
C) The company must make contributions to the plan if it has profits
during the year.
D) Annual employer contributions are not required, but substantial,
recurring contributions must be made to satisfy the requirement that the
plan be permanent.

84) Ross works for Houston Corporation, which has a contributory
defined contribution pension plan. The employer's monthly contribution
to the plan is 8 percent of each participating employee's monthly salary,
while the employee contributes only 6 percent. Ross's monthly salary is
$3,000. Which of the following statements bestdescribes the benefits of
the plan?
A) Houston receives a deduction for its contributions to the plan when
Ross receives a distribution from the plan.
B) While Ross is taxed on the employer's contributions to the plan, his
own contributions are not taxed until he receives a distribution from the
plan.
C) Ross may deduct his own contributions to the pension plan, and Ross
reports income from the plan each year until he receives distributions
from the plan.
D) The earnings on amounts contributed to the plan are not taxed to Ross
until he retires or receives a distribution from the plan.
85) Sam retired last year and will receive annuity payments for life from
his employer's qualified
retirement plan of $30,000 per year starting this year. During his years of
employment, Sam contributed $130,000 to the plan on an after-tax basis.
Based on IRS tables, his life expectancy is 260 months. All of the
contributions were on a pre-tax basis. This year, Sam will include what
amount in income?
A) 0
B) $6,000
C) $24,000
D) $30,000
86) Hunter retired last year and will receive annuity payments for life
from his employer's qualified retirement plan of $30,000 per year starting
this year. During his years of employment, Hunter contributed $130,000
to the plan. Based on IRS tables, his life expectancy is 260 months. All
of the contributions were on a pre-tax basis. This year, Hunter will
include what amount in income?
A) $0
B) $6,000
C) $24,000
D) $30,000

87) Which of the following statements is incorrect regarding unfunded
deferred compensation plans?
A) The employee is not taxed on the compensation amount when it is
deposited in an escrowaccount.
B) An accrual-basis employer can deductthe compensation amount when
it is accrued in the year service.
C) An employee is taxed when the amount is actually paid or made
available.
D) A 20% excise tax will apply if the employee can voluntarily elect to
receive payment early.
88) Tobeyreceives 1,000 shares of YouDog! stockas part of his
compensation package. Tobey's employment contract with YouDog!, Inc.
states that if he leaves before completion of three years of employment,
he will forfeit the stock. The stockcurrently has a fair market value of
$12 per share. Which of the following statements regarding Tobey's
choices is not true?
A) Tobey does not have to recognize any income from receiving the
stockuntil his rights to the stockare fully vested.
B) Tobey must report $12,000 as income due to the receipt of the stockin
the current year.
C) Tobey may elect to report the $12,000 FMV of the stockas ordinary
income in the current year.
D) If Tobey elects to report $12,000 as income in the current year and the
stockprice falls to $5 per share when his rights to the stockare vested,
Tobeyis not allowed to deducta loss.
89) All of the following characteristics are true of an incentive stock
option with the exception of
A) the option price must be equal to or greater than the stock's FMV on
the option's grant date.
B) the employee cannot own more than ten percent of the voting power of
the employer corporation's stockimmediately prior to the option's grant
date.
C) the option must be granted within ten years from the date the plan is
adopted and the employee must exercise the stock option within ten years
from the grant date.
D) there is no limit to the value of the options that becomeexercisable to
an employee in a single year.

Acc 555 week 11 final exam – strayer new

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