Accounting for Income Taxes Exam Bank
Course Introduction
Accounting for Income Taxes is a course designed to provide students with an in-depth understanding of the principles and practices related to the accounting for income taxes, as governed by relevant accounting standards such as ASC 740 (FASB) and IAS 12 (IFRS). The course explores the recognition, measurement, presentation, and disclosure of income taxes in financial statements, emphasizing the differences between taxable income and accounting income, current and deferred tax assets and liabilities, and the impact of tax laws and rates on financial reporting. Students will also examine issues such as uncertainty in income tax positions, valuation allowances, and the implications of global tax environments on multinational enterprises. Practical applications and case studies ensure that students are prepared to address complex tax accounting situations in both corporate and public accounting settings.
Recommended Textbook
Concepts in Federal Taxation 2014 21st Edition by Kevin E. Murphy
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16 Chapters
2109 Verified Questions
2109 Flashcards
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Chapter 1: Federal Income Taxation - an Overview
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Sample Questions
Q1) Trang is in the 15% marginal tax bracket in the current year.She owes a $10,000 bill for business expenses.Since she reports taxable income on a cash basis,she can deduct the $10,000 in either this year or next year,depending on when she makes the payment.She can pay the bill at any time before January 31 of next year,without incurring the normal 12% interest charge.She expects to be in the 25% marginal bracket next year.Without considering the time value of money,what are her tax savings if she pays the bill after January 1?
A)Current year $1,000.
B)Current year $1,500.
C)Next year $1,000.
D)Next year $2,500.
E)Next year $1,500.
Answer: C
Q2) All tax practitioners are governed by the AICPA's Code of Professional Conduct.
A)True
B)False
Answer: False
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Chapter 2: Income Tax Concepts
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Sample Questions
Q1) According to the entity concept
I.each unit must keep separate records.
II.each unit reports the results of operations separate and apart from owners.
III.every unit is liable for tax on its income.
IV.each unit is classified as one of two basic entity types.
A)Statements I and II are correct.
B)Statements II and III are correct.
C)Only statement IV is correct.
D)Statements I, III, and IV are correct.
E)Statements I, II, and IV are correct.
Answer: E
Q2) Bethany bought a new suit to wear to work.She will not be able to deduct the cost of the suit even though she wears it to work.
A)True
B)False
Answer: True
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Chapter 3: Income Sources
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Sample Questions
Q1) Shasta has the following capital gains and losses and Qualified dividend income during the current year:
\(\begin{array}{lc}
\text { Short-term capital loss } &\$(4,000) \\
\text { Collectibles gain } &6,000 \\
\text {Long-term capital gain } &2,000\\
\text { Qualified dividend income }&3,000\\
\end{array}\)
If Shasta's marginal tax rate is 33%,what is the effect of the above on her taxable income and income tax liability?
\(\begin{array}{cc}
\text { Income } & \text { Tax Liability } \\
a.\$ 7,000 \text { increase } & \$ 1,050 \text { increase } \\
b.\$ 7,000 \text { increase } & \$ 1,310 \text { increase } \\
c.\$ 8,000 \text { increase } & \$ 1,590 \text { increase } \\
d.\$ 7,000 \text { increase } & \$ 1,960 \text { increase } \\
e.\$ 9,000 \text { increase } & \$ 1,850 \text { increase } \end{array}\)
Answer: B
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Chapter 4: Income Exclusions
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Sample Questions
Q1) During the current year,Eve receives the following interest payments:
\[\begin{array} { l r }
\text { City of Toronto, Ontario Bonds } & \$ 750 \\
\text { Florida Turnpike Authority B onds } & 420 \\
\text { Virgin Islands Transportation Authority Bonds } & 630 \\
\text { General Electric Corporate Bonds } & 850 \end{array}\]
How much gross income does Eve have from the interest payments?
A)$1,050
B)$1,480
C)$1,600
D)$1,800
E)$1,900
Q2) Myra's employer paid her health and accident insurance premium of $5,600.Since she had the option to take the cash and purchase her own insurance,the $5,600 must be included in income.
A)True
B)False
Q3) What are the differences between a cafeteria plan and a flexible benefits (salary reduction)plan?
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Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Which of the following payments are deductible?
I.Wilcox pays $1,000 to run an add in the program of the state Independent Party convention
II.Wilcox is in the construction business.In January,he sends his chief financial officer to Washington,D.C.,to monitor current legislation affecting the real estate industry.Expenses totaled $2,100.
III.In March,Wilcox personally travels to Washington,D.C.,to testify before the banking subcommittee on the effects of proposed legislation on the construction industry.Expenses totaled $2,300.
A)Only statement I is correct.
B)Only statement II is correct.
C)Only statement III is correct.
D)Statements II and III are correct.
E)Statements I and II are correct.
Q2) An expense that is incurred for the production of rent will be deducted for adjusted gross income.
A)True
B)False
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Chapter 6: Business Expenses
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Sample Questions
Q1) For each of the following situations,determine whether the item is deductible,how it would be deducted on the taxpayer's return (if there are alternatives possible,discuss the conditions which would determine the treatment)and any limitations that might be placed on the deduction.
a.Monica took a client out to dinner to discuss the tax aspects of the client's proposed acquisition of a rival company.After dinner,Monica took the client to see a play.
1.Assume Monica is self-employed
2.Assume Monica is an employee of GHQ Corporation.GHQ does not reimburse its employees for entertaining clients.
b.Sergio owes Edward $5,000.During the current year,Sergio files for bankruptcy.Sergio's attorney indicates that due to Sergio's poor financial condition his creditors will be lucky to get $.80 on the dollar for their debts.
1.Assume Sergio is a customer of Edward's (an accrual basis taxpayer)and the $5,000 debt is from an account receivable related to Edward's business.
2.Assume Sergio is a business associate of Edward's.Edward loans Sergio the $5,000 to pay off some gambling debts.Edward owns a meat packing plant.
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Chapter 7: Losses: Deductions and Limitations
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Sample Questions
Q1) Ford's automobile that he uses 100% for business is vandalized.The adjusted basis before the vandalism is $3,000.The fair market value of the car before the vandalism is $7,000,and the fair market value of the property after the vandalism is $2,000.Ford's insurance does not cover vandalism.What is Ford's loss deduction for the year?
A)$ - 0 -
B)$1,000
C)$2,000
D)$3,000
E)$5,000
Q2) A corporation has a net capital loss.The significance of a net capital loss in 2013 for a corporation is that it can be carried back 3 years and carried forward 5 years by a corporation to offset capital gains in other taxable years.
A)True
B)False
Q3) Why did Congress enact the at-risk rules?
Q4) Discuss the difference(s)between the real estate professional exception and the active participation exception when dealing with rental properties.
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Orrill is single and has custody of his 8-year-old son Jack.Orrill has gross income of $46,000,deductions for adjusted gross income of $2,200 and itemized deductions of $6,000.What is his tax liability for 2013?
A)$3,420
B)$4,039
C)$4,333
D)$4,431
E)$4,521
Q2) Debra and Ken refinance their personal residence on July 1,2013.They borrow $96,000 over a 20-year period and paid points of $1,920.For 2013,what amount of the points is deductible?
A)$ - 0 -
B)$ 48
C)$ 96
D)$ 480
E)$ 960
Q3) Explain the support test and the gross income test to be a qualifying relative.
Q4) Discuss why the distinction between deductions for adjusted gross income and deductions from adjusted gross income is important for individual taxpayers.
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Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Phyllis purchased an automobile for $3,000 down and a note for $15,000.During the year she paid interest of $1,000.Her basis is $18,000.
A)True
B)False
Q2) Dana purchases an automobile for personal use for $27,000.After using it for three years,Dana converts the automobile to business use when the fair market value is $19,000.After a few months of business use,Dana sells the automobile for $18,000.What is the amount of gain or loss recognized on the sale of the automobile?
A)No gain or loss
B)$1,000 loss
C)$8,000 loss
D)$9,000 loss
E)$8,000 gain
Q3) The split basis rules for business property prevent the deduction of the disallowed personal loss through depreciation or a loss from the sale of business property.
A)True
B)False
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Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Nonresidential commercial realty placed in service on March 2,2012,is depreciated over
A)27.5 years, 200%-declining-balance method, mid-year convention.
B)31.5 years, straight-line method, mid-month convention.
C)31.5 years, 200%-declining-balance method, mid-year convention.
D)39 years, straight-line method, mid-month convention.
E)40 years, straight-line method, mid-month convention.
Q2) Serena owns a van that she paid $22,000 for in 2010 and used exclusively for personal purposes until May 9,2013,when she began using the van in her plumbing business.On May 9,2013,a comparable van was selling for $13,000.Serena sells the van on October 28,2015.Assuming that the van is 5-year MACRS property,it is not listed property,and that Serena did not make the Section 179 election to expense on the van,what is her allowable depreciation deduction in 2015?
A)$ 749
B)$1,248
C)$1,267
D)$2,112
E)$2,496
Q3) Discuss why listed property gets special attention.
Page 12
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Chapter 11: Property Dispositions
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Sample Questions
Q1) George regularly invests unneeded business cash in Eli Lilly common stock.He has bought 200 shares of stock on May 1 of each year from 1983 through 2009.Because of an urgent need for cash,he sells 100 shares of the stock at an $850 gain on March 28,2013.Because the stock is held in a brokerage account,he did not have any paper shares of stock to surrender.He merely told his broker to sell 100 shares.
A)Long-term capital
B)Short-term capital
C)Collectible gain
D)Section 1231
E)Section 1245
F)Section 1250
G)Ordinary income/loss
H)Nontaxable/nondeductible
Q2) Net collectibles gains are taxed at a maximum rate of 28%.
A)True
B)False
Q3) Discuss the general differences between Section 1245 and Section 1250 property.
Q4) Discuss the general differences between Section 1245 and Section 1250 recapture provisions.
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Chapter 12: Nonrecognition Transactions
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Sample Questions
Q1) Farm land for an office building and its land.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q2) Which of the following exchanges of property are like-kind exchanges?
I.Convenience store owner trades several cases of potato chips for a cash register.
II.A completely rented apartment building traded for a parts supply warehouse to use in business.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Which of the following qualifies as a like-kind exchange of property?
I.Inventory for inventory.
II.Office equipment for a delivery van.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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Chapter 13: Choice of Business Entity - General Tax and
Nontax Factorsformation
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Sample Questions
Q1) S corporation status is attained when a qualifying corporation elects this status.
A)True
B)False
Q2) Assume a corporation's status as an S corporation is revoked or terminated.How many years must the corporation wait before making a new S corporation election,in absence of IRS consent to an earlier election?
A)1
B)3
C)5
D)7
E)A new election is not permitted.
Q3) A limited partner
I.Can lose any or all of their investment in the partnership.
II.Can participate in the management of the partnership.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q4) Discuss the characteristics of a personal service corporation (PSC).
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Chapter 14: Choice of Business Entity - Operations and Distributions
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Sample Questions
Q1) Cornell and Joe are equal partners in Jones Company.For the current year,Jones reports the following items of income and expense: \(\begin{array}{lr}
\text { Sales revenues } & \$ 500,000 \\
\text { Long-term capital gains } & 14,000 \\
\text { Short-term capital losses } & (10,000) \\
\text { Trade and business expenses } & (200,000) \\
\text { Limited partnership loss } & \underline { (50,000) }\\
\text { Taxable income } & \underline {\$ 254,000} \\ \end{array}\)
In addition to his Jones earnings,Joe has other net taxable income of $45,000.Included in the $45,000 is $10,000 in income from a passive activity.Joe's income is:
A)$152,000
B)$157,000
C)$162,000
D)$167,000
E)$182,000
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Chapter 15: Choice of Business Entity - Other Considerations
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Sample Questions
Q1) For the current year,Salvador's regular tax liability is $17,000,and his tentative alternative minimum tax is $19,000.Salvador has $16,250 withheld from his salary.
I.Salvador has a tax due of $750.
II.Salvador's alternative minimum tax is $0.
III.Salvador has a tax due of $2,750.
IV.Salvador's total tax liability is $19,000
A)Statements I and II are correct.
B)Statements II and III are correct.
C)Statements I, II and IV are correct.
D)Statements III and IV are correct.
E)Statements II, III and IV are correct
Q2) Cary is an employee with the Bayview Corporation.Bayview maintains a defined contribution plan for all its employees.Determine the maximum deductible contribution Bayview can make to the pension plan in each of the following situations:
a.Cary's salary is $90,000.
b.Cary's salary is $210,000.
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Chapter 16: Tax Research
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Sample Questions
Q1) The Tax Court strictly follows the precedent of prior decisions of the Court of Appeals for a particular circuit when
A)the taxpayer requests it to do so.
B)the IRS requests it to do so.
C)the taxpayer resides in the United States.
D)the taxpayer resides in that circuit.
Q2) A disadvantage of electing to use the small claims division of the Tax Court is that
A)it is a more formal proceeding.
B)the decision is final and can not be appealed.
C)it tends to be more expensive.
D)it can cause many delays.
E)All of the above.
Q3) Which regulation deals with Code Section 170?
A)Reg. Sec. 1.170-5
B)Reg. Sec. 170.162-5
C)Reg. Sec. 1.5-170
D)Reg. Sec. 170
E)Reg. Sec. 170.25-5
Q4) Describe the steps of the tax research process.
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