MC Qu. 10-52 Deirdre's business purchased two assets during the...
Deirdre's business purchased two assets during the current year (a full 12-month tax year). Deirdre placed in service computer equipment (5-year property) on January 20 with a basis of $15
$5,786.
The mid-quarter convention applies because more than 40% of the years' assets were placed in service in the fourth quarter of the tax year. The computer is 1st quarter property and the machinery is 4th quarter property. The calculations are $15,00
MC Qu. 10-45 How is the recovery period...
How is the recovery period of an asset determined?
Estimated useful life
Treasury regulation
Revenue Procedure 87-56
Revenue Ruling 87-56
None of the choices are correct.
Revenue Procedure 87-56
Revenue Procedure 87-56 helps taxpayers to determine the recovery period for assets.
MC Qu. 10-47 Which depreciation convention is the general rule ...
Which depreciation convention is the general rule for tangible personal property?
Full-month
Half-year
Mid-month
Mid-quarter
None of the choices are conventions for tangible personal prope
Half-year
The half-year convention is the general rule for tangible personal property, while the mid-quarter convention is the exception.
MC Qu. 10-58 Tom Tom LLC purchased a rental house and land duri...
Tom Tom LLC purchased a rental house and land during the current year for $150,000. The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land. The prope
The mid-month convention applies. Residential property has a 27.5-year recovery period. The depreciation is $2,273 ($100,000 ? 2.273%).
MC Qu. 10-53 Suvi, Inc. purchased two assets during the current...
Suvi, Inc. purchased two assets during the current year (a full 12-month tax year). Suvi placed in service computer equipment (5-year property) on August 10 with a basis of $20,000 and mac
The half-year convention applies. The calculations are $20,000 ? .2 = $4,000 and $10,000 ? .1429 = $1,429. The total is $5,429 ($4,000 + $1,429).
MC Qu. 10-70 Assume that Bethany acquires a competitor's assets...
Assume that Bethany acquires a competitor's assets on March 31st. The purchase price was $150,000. Of that amount, $125,000 is allocated to tangible assets and $25,000 is allocated to good
The full-month convention applies. �197 assets have a recovery period of 180 months. The amortization is $1,389 ($25,000/180) ? 10.
MC Qu. 10-37 Which of the following business assets is not depr...
Which of the following business assets is not depreciated?
Automobile
Building
Patent
Machinery
All of the assets are depreciated.
Patents are amortized rather than depreciated.
MC Qu. 10-75 Jorge purchased a copyright for use in his busines...
Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15th and the purchase price was $75,000. If the patent has a remaining life of 75 mon
The amortization is $6,000 ($75,000/75) ? 6. The amortization period on a purchased patent is the asset's remaining useful life.
MC Qu. 10-77 Santa Fe purchased the rights to extract turquoise...
Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recove
The depletion expense is $90,000 ($300,000/5,000) ? 1,500
MC Qu. 10-54 Wheeler LLC purchased two assets during the curren...
Wheeler LLC purchased two assets during the current year (a full 12-month tax year). Wheeler placed in service computer equipment (5-year property) on November 16 with a basis of $15,000 a
$2,714.
The mid-quarter convention applies because more than 40% of the years' assets were placed in service in the fourth quarter of the tax year. The computer is 4th quarter property and the furniture is 2nd quarter property. The calculations are $15,00
MC Qu. 11-54 Which of the following sections does not recapture...
Which of the following sections does not recapture or recharacterize a taxpayer's gain?
�1239.
�1250.
�1245.
�291.
None of the choices are correct.
None of the choices are correct.
(All of these sections recaptures or recharacterizes a taxpayer's gain)
MC Qu. 11-84 Which of the following is true regarding disallowe...
Which of the following is true regarding disallowed losses between related taxpayers?
The tax laws essentially treat related parties as the same taxpayer.
The holding period carries over t
The tax laws essentially treat related parties as the same taxpayer.
MC Qu. 11-81 Which of the following may qualify as an installme...
Which of the following may qualify as an installment sale?
Sale of inventory at a gain.
Sale of securities.
Sale of asset used in a business at a gain.
Land sold at a loss.
All of the choi
Sale of asset used in a business at a gain.
Assets used in a business qualify for installment sale treatment, although depreciation recapture is ineligible.
MC Qu. 11-45 The sale of machinery for more than the original c...
The sale of machinery for more than the original cost basis (before depreciation), used in a trade or business, and held for more than one year results in the following types of gain or lo
�1245 and �1231.
Because the sales price exceeds the original basis, �1245 depreciation recapture and �1231 gain will be recognized.
MC Qu. 11-69 Which of the following is not true regarding...
Which of the following is not true regarding �1239?
It only applies to related taxpayers.
It only applies to gains on sales of depreciable property.
It only applies to gains on sales of non-resi
It only applies to gains on sales of non-residential real property
MC Qu. 11-85 Sadie sold 10 shares of stock to her brother, Geor...
Sadie sold 10 shares of stock to her brother, George, for $500 six months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700 six months later
$100 long-term capital gain.
Sadie's loss of $100 is deferred and her brother receives a dual basis in the stock. If he sells the stock at a gain, he receives a $600 carryover basis from Sadie. If he sells the stock at a loss he receives a $500 cost basis
MC Qu. 11-71 Mary traded furniture used in her business to a...
Mary traded furniture used in her business to a furniture dealer for some new furniture. Mary originally purchased the furniture for $45,000 and it had an adjusted basis of $20,000 at the tim
$24,000.
The exchange qualifies as a like-kind exchange. Since boot was given in the transaction, the fair market value of the boot given ($4,000) is added to the adjusted basis ($20,000) of the property given up.
MC Qu. 11-57 Bozeman sold equipment that it uses in its busines...
Bozeman sold equipment that it uses in its business for $80,000. Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense. What is the amount
$20,000 ordinary gain, and $5,000 �1231 gain.
�1245 recaptures the lesser of depreciation taken ($20,000) or gain ($25,000) as ordinary income. The remaining $5,000 gain would be �1231 gain.
MC Qu. 11-64 Brandon, an individual, began business four...
Brandon, an individual, began business four years ago and has never sold a �1231 asset. Brandon owned each of the assets for several years. In the current year, Brandon sold the following busines
$6,000 ordinary income and $2,100 tax liability.
The depreciation recapture of $7,000 becomes ordinary income. The $4,000 �1231 loss becomes an ordinary loss and offsets the $3,000 �1231 gain on the machinery. The $1,000 net �1231 loss becomes ordinary an
MC Qu. 11-78 Arlington LLC traded machinery used in its busines...
Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. Arlington originally purchased the machinery for $60,000 and it had an adjusted basis of $
$2,000.
The gain recognized is the lesser of the fair market value of the boot ($2,000 of office equipment) or realized gain of $9,000 ($35,000 fair market value plus $2,000 boot less $28,000 adjusted basis).
MC Qu. 12-69 Which of the following benefits cannot be excluded...
Which of the following benefits cannot be excluded as a no additional cost service fringe benefit?
Free tax return preparation from a client.
Complementary dry cleaning for employees at a
Free tax return preparation from a client.
The service must be provided at no additional cost by the employer.
MC Qu. 12-54 Which of the following pairs of items is not neede...
Which of the following pairs of items is not needed to calculate the after-tax proceeds for a same-day sale?
Strike price and market price on exercise date.
Strike price and market price o
Strike price and market price on grant date.
The market price on grant date is not needed.
MC Qu. 12-57 Tom recently received 2,000 shares of restricted s...
Tom recently received 2,000 shares of restricted stock from his employer, Independence Corporation, when the share price was $10 per share. Tom's restricted shares vested three years later
$28,000
2,000 ? $14 (market price on vesting date).
MC Qu. 12-44 Which of the following regarding the Form W-4 is i...
Which of the following regarding the Form W-4 is incorrect?
Determines an employee's income tax withholding.
Employees can claim more allowances than personal exemptions that will be claim
The form can only be adjusted at the beginning of year or start of employment.
Employees may adjust the Form W-4 throughout the year.
MC Qu. 12-70 Which of the following is not a requirement of a ...
Which of the following is not a requirement of a "qualified employee discount"?
The discount relates to goods or services of the employer.
The discount on services doesn't exceed 20 percent
The discount can be elected up to five times annually.
There is no limitation on the number of times the employees can use the discount.
MC Qu. 12-63 Bonnie's employer provides her with an annual dinn...
Bonnie's employer provides her with an annual dinner club membership costing $5,000. Her marginal tax rate is 25 percent. Her employer has a marginal tax rate of 35 percent. What is Bonnie
$3,750
The after-tax benefit is the $5,000 benefit less the $1,250 ($5,000 ? 25 percent) of tax.
MC Qu. 12-52 Maren received 10 NQOs (each option gives her the ...
Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share. When the sha
$500 gain and $100 tax.
The gain realized is $500 (100 shares ? $20) less basis (100 shares ? $15 exercise price). The tax is calculated as follows: $500 ? 20% (preferential rate).
MC Qu. 12-67 Rachel receives employer provided health insurance...
Rachel receives employer provided health insurance. The employer's cost of the health insurance is $6,000 annually. What is her employer's after-tax cost of providing the health insurance,
$3,900
The after-tax cost is the $6,000 outflow less the $2,100 ($6,000 ? 35 percent) of income tax benefit.
MC Qu. 12-58 Tom recently received 2,000 shares of restricted s...
Tom recently received 2,000 shares of restricted stock from his employer, Independence Corporation, when the share price was $10 per share. Tom's restricted shares vested three years later
$4,000 loss
$4,000 loss is $24,000 (2,000 shares ? $12 market value on sale date) of sales proceeds less $28,000 (2,000 shares ? $14 market price on vesting date) basis.
MC Qu. 12-53 How is the bargain element for a stock option calc...
How is the bargain element for a stock option calculated?
The difference between the strike price and the market price on the date of grant.
The difference between the market price on the
The difference between the market price on the exercise date and the strike price.
The bargain element is simply the difference between the market price on the exercise date and the strike price
MC Qu. 13-76 Which of the following is true concerning SEP IRAs...
Which of the following is true concerning SEP IRAs?
SEP IRAs are difficult to set up and have high administrative costs.
Taxpayers may contribute unlimited amounts to SEP IRAs.
Employees o
Taxpayers with a SEP IRA must contribute for their employees.
MC Qu. 13-78 Kathy is 60 years of age and self-employed. During...
Kathy is 60 years of age and self-employed. During 2016 she reported $100,000 of revenues and $40,000 of expenses relating to her self-employment activities. If Kathy has no other retireme
$11,152.
Her maximum contribution is the lesser of (1) $53,000 or (2) $11,152 [($60,000 ? (60,000 ? .9235 ? .153 ? .5)) ? 20%]. There is no catch-up contribution for taxpayers at least 50 years of age at the end of the year.
MC Qu. 13-82 Kathy is 48 years of age and self-employed. During...
Kathy is 48 years of age and self-employed. During the year she reported $100,000 of revenues and $40,000 of expenses relating to her self-employment activities. If Kathy has no other reti
$29,152.
She may contribute the lesser of (1) $53,000 (2) $29,152 [[($60,000 ? (60,000 ? .9235 ? .153 ? .5)) ? 20%] + $18,000]. Because she is not at least 50 years of age at the end of the year, she does not qualify for a catch-up contribution.
MC Qu. 13-40 Which of the following describes a defined contrib...
Which of the following describes a defined contribution plan?
Provides guaranteed income on retirement to plan participants.
Employers and employees generally may contribute to the plan.
G
Employers and employees generally may contribute to the plan.
MC Qu. 13-48 Shauna received a $100,000 distribution from her 4...
Shauna received a $100,000 distribution from her 401(k) account this year. Assuming Shauna's marginal tax rate is 25%, what is the total amount of tax and penalty Shauna will be required t
$35,000
She must pay $25,000 of income tax on the distribution and a 10% early distribution penalty because she was not 59? on the date of the distribution and she had not yet retired.
MC Qu. 13-71 Tyson (48 years old) owns a traditional IRA with a...
Tyson (48 years old) owns a traditional IRA with a current balance of $50,000. The balance consists of $30,000 of deductible contributions and $20,000 of account earnings. Tyson's marginal
$12,500 income tax; $1,250 penalty.
The distribution from the traditional IRA is fully taxable ($50,000 ? 25%). Tyson must pay a 10% penalty on the portion of the distribution that he did not contribute to a Roth IRA ($12,500 ? 10%).
MC Qu. 13-46 Which of the following best describes distribution...
Which of the following best describes distributions from a traditional defined contribution plan?
Distributions from defined contribution plans are fully taxable to the recipient as ordina
Distributions from defined contribution plans are fully taxable to the recipient as ordinary income.
The full amount of distributions from defined contribution plans is taxable as ordinary income.
MC Qu. 13-33 Which of the following describes a defined benefit...
Which of the following describes a defined benefit plan?
Provides fixed income to the plan participants based on a formula.
Distribution amounts determined by employee and employer contrib
Provides fixed income to the plan participants based on a formula.
(Defined benefit plans pay a fixed income or benefit to the employee. This amount is usually based on the average income of the employee and the years of service. These plans are set up an
MC Qu. 13-34 Which of the following statements regarding define...
Which of the following statements regarding defined benefit plans is false?
The benefits are based on a fixed formula.
The vesting period can be based on a graded or cliff schedule.
Employ
Employees bear the investment risks of the plan.
(Employees do not bear the risk of the plan's investment.)
MC Qu. 13-73 Which of the following is not a self-employed reti...
Which of the following is not a self-employed retirement account?
SEP IRA.
SEM 403(c).
Individual 401(k).
None of the choices are correct. All of the choices are self-employed retirement a
SEM 403(c).
MC Qu. 14-60 Patricia purchased a home on January 1, year 1 for...
Patricia purchased a home on January 1, year 1 for $1,200,000 by making a down payment of $100,000 and financing the remaining $1,100,000 with a 30-year loan, secured by the residence, at
$66,000
Interest deductible on $1,000,000 of acquisition indebtedness and $100,000 of home equity indebtedness.
MC Qu. 14-54 What is the maximum amount of gain on the sale of ...
What is the maximum amount of gain on the sale of principal residence a married couple may exclude from gross income?
$0.
$25,000.
$250,000.
$500,000.
$500,000
MC Qu. 14-45 Which of the following statements regarding the ex...
Which of the following statements regarding the exclusion of gain on the sale of a principal residence is correct?
A taxpayer may not exclude gain if the taxpayer is renting the residence
A taxpayer may simultaneously own two homes that are eligible for the home sale exclusion.
MC Qu. 14-70 On March 31, year 1, Mary borrowed $200,000 to buy...
On March 31, year 1, Mary borrowed $200,000 to buy her principal residence. Mary paid 3 points to reduce her interest rate from 6 percent to 5 percent. The loan is for a 30-year period. Wh
$200,000 ? 3% = $6,000
MC Qu. 14-84 For a home to be considered a rental (nonresidence...
For a home to be considered a rental (nonresidence) property, a taxpayer must:
Rent the property for 15 days or more during the year.
Use the property for personal purposes for no more tha
Rent the property for 1 day or more during the year and use the property for personal purposes for no more than the greater of (a) 14 days or (b) 10 percent of the total days rented.
MC Qu. 14-76 On July 1 of year 1, Elaine purchased a new home f...
On July 1 of year 1, Elaine purchased a new home for $400,000. At the time of the purchase, it was estimated that the property tax bill on the home for the year would be $8,000 ($400,000 ?
$4,500
Elaine is allowed to deduct taxes only for the portion of the year she owned the home. Because she owned the home for half a year she can deduct half of the taxes even though she paid all of the taxes.
MC Qu. 14-74 Which of the following statements regarding deduct...
Which of the following statements regarding deductions for real property taxes is incorrect?
A taxpayer is not allowed to deduct property taxes as the taxpayer makes monthly mortgage payme
An individual deducts real property taxes on her principal residence as a for AGI deduction.
MC Qu. 14-63 Jessica purchased a home on January 1, year 1 for ...
Jessica purchased a home on January 1, year 1 for $500,000 by making a down payment of $200,000 and financing the remaining $300,000 with a 30-year loan, secured by the residence, at 6 per
$28,000
All of the debt is counted as acquisition indebtedness.
MC Qu. 14-43 In order to be eligible to exclude gain on the sal...
In order to be eligible to exclude gain on the sale of a principal residence, the taxpayer must meet which of the following test(s)?
Rental test.
Use test.
Ownership test.
Business use tes
Ownership and use test.
MC Qu. 14-89 Which of the following statements regarding limita...
Which of the following statements regarding limitations on the deductibility of home office expenses of employees is correct?
Deductible home office expenses of employees are miscellaneous
Deductible home office expenses of employees are miscellaneous itemized deductions subject to the 2 percent of AGI floor.