Which of the following must be capitalized by a business? [removed] a. Amount paid for a covenant  not  to compete [removed] b. Replacement of a windshield of a business truck which was broken in an accident [removed] c. Repair of a roof of a building used in business [removed] d. Only "Repair of a roof of a building used in business" and "Amount paid for a covenant  not  to compete" must be capitalized. [removed] e. "Replacement of a windshield of a business truck which was broken in an accident", "Repair of a roof of a building used in business", and "Amount paid for a covenant  not  to compete" can be expensed rather than capitalized. Jed is an electrician. Jed and his wife are accrual basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement. Jed was able to collect the judgement but not the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year? [removed] a. $5,000 [removed] b. $3,000 [removed] c. $2,000 [removed] d. $0 [removed] e. None of these choices are correct. Jack, age 30 and married with no dependents, is a self-employed individual. For 2016, his self-employed business sustained a net loss from operations of $10,000. The following additional information was obtained from his personal records for the year: Nonbusiness long-term capital gain $ 2,000 Interest income 6,000 Itemized deductions—consisting of taxes and interest (12,000) Based on the above information, what is Jack's net operating loss for 2016 if he and his spouse file a joint return? [removed] a. ($14,000) [removed] b. ($11,000) [removed] c. ($10,000) [removed] d. ($2,000) [removed] e. ($8,000) On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery? [removed] a. $70,000 [removed] b. $120,000 [removed] c. $140,000 [removed] d. $90,000 [removed] e. None of these choices are correct. James purchased a new business asset (three-year personalty) on July 23, 2016, at a cost of $40,000. James takes additional first-year depreciation but does not elect Section 179 expense on the asset. Determine the cost recovery deduction for 2016. [removed] a. $8,333 [removed] b. $26,666 [removed] c. $33,333 [removed] d. $41,665 [removed] e. None of these choices are correct.  Jordan performs services for Ryan. Which, if any, of the following factors indicate that Jordan is an independent contractor, rather than an employee? [removed] a. Jordan files a Form 2106 with his Form 1040. [removed] b. Jordan is paid based on tasks performed. [removed] c. Ryan provide.

1. Which of the following must be capitalized by a business?
[removed]
a.
Amount paid for a covenant
not
to compete
[removed]
b.
Replacement of a windshield of a business truck which was
broken in an accident
[removed]
c.
Repair of a roof of a building used in business
[removed]
d.
Only "Repair of a roof of a building used in business" and
"Amount paid for a covenant
not
to compete" must be capitalized.
[removed]
e.
"Replacement of a windshield of a business truck which was
broken in an accident", "Repair of a roof of a building used in
business", and "Amount paid for a covenant
not
to compete" can be expensed rather than capitalized.
Jed is an electrician. Jed and his wife are accrual basis
taxpayers and file a joint return. Jed wired a new house for
Alison and billed her $15,000. Alison paid Jed $10,000 and
refused to pay the remainder of the bill, claiming the fee to be
exorbitant. Jed took Alison to Small Claims Court for the
unpaid amount and was awarded a $2,000 judgement. Jed was
able to collect the judgement but not the remainder of the bill
from Alison. What amount of loss may Jed deduct in the current

2. year?
[removed]
a.
$5,000
[removed]
b.
$3,000
[removed]
c.
$2,000
[removed]
d.
$0
[removed]
e.
None of these choices are correct.
Jack, age 30 and married with no dependents, is a self-employed
individual. For 2016, his self-employed business sustained a net
loss from operations of $10,000. The following additional
information was obtained from his personal records for the year:
Nonbusiness long-term capital gain
$ 2,000
Interest income
6,000
Itemized deductions—consisting of taxes and interest
(12,000)
Based on the above information, what is Jack's net operating
loss for 2016 if he and his spouse file a joint return?
[removed]
a.
($14,000)
[removed]
b.
($11,000)
[removed]

3. c.
($10,000)
[removed]
d.
($2,000)
[removed]
e.
($8,000)
On June 1 of the current year, Tab converted a machine from
personal use to rental property. At the time of the conversion,
the machine was worth $90,000. Five years ago Tab purchased
the machine for $120,000. The machine is still encumbered by a
$50,000 mortgage. What is the basis of the machine for cost
recovery?
[removed]
a.
$70,000
[removed]
b.
$120,000
[removed]
c.
$140,000
[removed]
d.
$90,000
[removed]
e.
None of these choices are correct.
James purchased a new business asset (three-year personalty) on
July 23, 2016, at a cost of $40,000. James takes additional first-
year depreciation but does not elect Section 179 expense on the
asset. Determine the cost recovery deduction for 2016.
[removed]

4. a.
$8,333
[removed]
b.
$26,666
[removed]
c.
$33,333
[removed]
d.
$41,665
[removed]
e.
None of these choices are correct.
Jordan performs services for Ryan. Which, if any, of the
following factors indicate that Jordan is an independent
contractor, rather than an employee?
[removed]
a.
Jordan files a Form 2106 with his Form 1040.
[removed]
b.
Jordan is paid based on tasks performed.
[removed]
c.
Ryan provides the tools used.
[removed]
d.
Ryan sets the work schedule.
[removed]
e.
None of these choices are correct.
During the year, John went from Milwaukee to Alaska on

5. business. Preceding a five-day business meeting, he spent four
days vacationing at the beach. Excluding the vacation costs, his
expenses for the trip are:
Air fare
$3,200
Lodging
900
Meals
800
Entertainment
600
Presuming no reimbursement, deductible expenses are:
[removed]
a.
$5,500
[removed]
b.
$3,200
[removed]
c.
$4,800
[removed]
d.
$3,900
[removed]
e.
None of these choices are correct.
In contrasting the reporting procedures of employees and self-
employed persons regarding job-related transactions, which of
the following items involve self-employed?
[removed]
a.
Schedule C of Form 1040.
[removed]
b.

6. Schedule A of Form 1040.
[removed]
c.
Form 2106.
[removed]
d.
Form W-2.
[removed]
e.
None of these choices are correct.
Problem 3-36 (LO. 3, 4)
Determine whether the individuals will qualify as the taxpayer's
dependent in each of the following independent scenarios.
Specify whether the dependency exemption would come under
the qualifying child category, the qualifying relative category,
or "not applicable" (if the individual does not qualify as a
dependent).
a.
Andy maintains a household that includes a cousin (age 12), a
niece (age 18), and a son (age 26). All are full-time students.
Andy furnishes all of their support.
Cousin
Niece
Son
b.
Minerva provides all of the support of a family friend's son (age
20), who lives with her. She also furnishes most of the support
of her stepmother, who does not live with her.
Family friend's son

7. Stepmother
c.
Raul, a U.S. citizen, lives in Costa Rica. Raul's household
includes a friend, Helena, who is age 19 and a citizen of Costa
Rica. Raul provides all of Helena's support.
Adopted daughter
d.
Karen maintains a household that includes her ex-husband, her
mother-in-law, and her brother-in-law (age 23 and not a full-
time student). Karen provides more than half of all their
support. Karen is single and was divorced last year.
Ex-husband
Mother-in-law
Brother-in-law
Problem 4-45 (LO. 4)
Nell and Kirby are in the process of negotiating their divorce
agreement. What should be the tax consequences to Nell and
Kirby if the following, considered individually, became part of
the agreement?
a.
In consideration for her one-half interest in their personal
residence, Kirby will transfer to Nell stock with a value of
$200,000 and $50,000 of cash. Kirby's cost of the stock was

8. $150,000, and the value of the personal residence is $500,000.
They purchased the residence three years ago for $300,000.
The transfer of the property is a
event.
Nell's basis for the stock is $[removed].
Kirby's basis in the house is $[removed].
b.
Nell will receive $1,000 per month for 120 months. If she dies
before receiving all 120 payments, the remaining payments will
be made to her estate.
The payments
as alimony and are
Nell's gross income as they are received.
c.
Nell is to have custody of their 12-year-old son, Bobby. She is
to receive $1,200 per month until Bobby (1) dies or (2) attains
age 21 (whichever occurs first). After either of these events
occurs, Nell will receive only $300 per month for the remainder
of her life.
$[removed] per month is alimony that is
Nell's gross income, and the remaining $[removed] per month
is considered
and is
to Nell.
Problem 5-35 (LO. 2)
Leigh sued an overzealous bill collector and received the
following settlement:
Damage to her automobile that the collector attempted to
repossess

9. $3,300
Physical damage to her arm caused by the collector
$15,000
Loss of income while her arm was healing
$6,000
Punitive damages
$80,000
a.
Regarding Leigh's settlement, classify the following as either
"Included in" or "Excluded from" her gross income.
Included in/Excluded from
Income
•
Damage to her automobile that the collector attempted to
repossess
•
Physical damage to her arm caused by the collector
•
Loss of income while her arm was healing
•
Punitive damages
b.
Assume that Leigh also collected $25,000 of damages for
slander to her personal reputation caused by the bill collector
misrepresenting the facts to Leigh's employer and other
creditors. Is this $25,000 included in Leigh's gross income?

10. Problem 6-33 (LO. 1)
Amos is a self-employed tax attorney. He and Monica, his
employee, attend a conference in Dallas sponsored by the
American Institute of CPAs. The following expenses are
incurred during the trip:
Amos
Monica
Conference registration
$900
$900
Airfare
1,200
700
Taxi fares
100
0
Lodging in Dallas
$750
$300
Amos pays for all of these expenses.
a.
What is the tax effect of these expenses for Amos?
The expenses are
b.
Calculate the total amount of deductible expenses (for both
Amos and Monica).

11. Conference registration
$[removed]
Airline tickets
[removed]
Taxi fares
[removed]
Lodging
[removed]
Total
$[removed]
c.
If the American Bar Association had sponsored the conference,
calculate the total amount of deductible expenses (for both
Amos and Monica).
$[removed]