Business Taxation Exam Practice Tests
Course Introduction
Business Taxation examines the fundamental principles, laws, and regulations governing the taxation of businesses. The course covers a range of topics including the structure of the tax system, determination of taxable income for various business structures (such as sole proprietorships, partnerships, and corporations), tax compliance, planning strategies, and the impact of taxes on business decisions. Emphasis is placed on understanding tax forms, filing requirements, and how taxation influences organizational strategy, business operations, and financial reporting. The course blends theoretical frameworks with practical applications using case studies and current tax codes to prepare students for real-world challenges in business taxation.
Recommended Textbook
Concepts in Federal Taxation 2017 24th Edition by Kevin E. Murphy
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16 Chapters
2073 Verified Questions
2073 Flashcards
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Chapter 1: Federal Income Taxation-An Overview
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Sample Questions
Q1) The value or amount that is subject to taxation.
A)Advalorem tax
B)Deduction
C)Excisetax
D)Exclusi on
E)Expense
F)Gain
G)Loss
H)Ordinary income
I)Pay-as-you-go concept
J)Personal property
K)Real property
L)Self-assessment
M)Standard deduction
N)Statute of limitations
O)Taxbase
P)Tax credit
Answer: O
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Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Frank rents an apartment to Pete and collects a cleaning deposit to be repaid at the end of the lease.Under the claim-of-right doctrine,Frank includes the deposit in income when collected.
A)True
B)False Answer: False
Q2) An individual can legally assign income to another individual,and the assignment relieves the owner of the income from paying tax on the income.
A)True
B)False Answer: False
Q3) The administrative convenience concept explains why some items are not treated consistently when the cost of implementing a concept exceeds the benefit of using it.
A)True
B)False
Answer: True
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Chapter 3: Income Sources
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Sample Questions
Q1) National Corporation allows an employee,Phyllis,to use a company car for her vacation to San Diego.
I.The employer/employee relationship indicates that the receipt of the use of the car is a type of compensation for services rendered.
II.Income recognition is not necessary in this case.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: A
Q2) Which of the following items is not a capital asset in the hands of the taxpayer?
A)Taxpayer has a set of wrenches he uses to work on his personal auto.
B)Taxpayer has a $6,000 wedding dress she keeps as a remembrance of her wedding.
C)Taxpayer owns city of Topeka bonds.
D)Taxpayer is an amateur golfer but has a set of championship golf clubs
E)All of the above items are capital assets.
Answer: E
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Page 5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Cindy is an employee of Silvertone Corporation.Silvertone pays the medical insurance premiums of all of its employees.Because of large deductible levels and limitations on the payment of certain medical expenses,the basic health insurance policy does not cover all medical costs.During the current year,Silvertone adopted a Cafeteria Plan funded entirely by Silvertone.The plan provides for $3,000 per employee,and Cindy elects $2,500 for her medical costs not covered by the basic policy.She takes the remaining $500 in cash.Actual payments for Cindy's medical care of $1,500 are made from the Cafeteria Plan.
I.Cindy's gross income is increased by the $1,000 of the $2,500 allocation not used for additional medical expenses.
II.Cindy's gross income is increased by the $1,500 paid out of the Cafeteria Plan.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Hank's employer gives him fishing gear that is worth $1,250 at his retirement party.
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Page 6
Chapter 5: Introduction to Business Expenses
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166 Verified Questions
166 Flashcards
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Sample Questions
Q1) Harold,a cash basis taxpayer,borrows $65,000 for his business on a 2-year note from First City Bank on December 1,2016.To close on the loan agreement,Harold is required to prepay interest of $4,800 on December 1.How much interest can Harold deduct in 2016?
A)$- 0 -
B)$200
C)$400
D)$2,400
E)$4,800
Q2) Which of the following is not deductible?
A)Expenses related to earning dividends on a portfolio of "blue chip" stocks.
B)Expenses related to interest income from municipal bonds.
C)Legal expenses related to rental real estate property.
D)Medical expenses of the taxpayer's dependent child.
Q3) Ona is a professional musician.She prepared her music teacher's tax return in exchange for music lessons.Since she is a cash basis taxpayer,she cannot take a deduction for the music lessons.
A)True
B)False
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Chapter 6: Business Expenses
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Sample Questions
Q1) If an employer reimbursement plan is an accountable plan,for an expense that is fully reimbursed the employee does not have to report either the expense or the reimbursement .
A)True
B)False
Q2) Margaret is single and is a self-employed proprietor of a convenience store near the mall.During the current year,Margaret paid $4,000 for health insurance coverage for herself.She paid another $500 for coverage for her unrelated employee,Corky.How should Margaret deduct the health insurance cost?
I.Margaret takes $500 as a business expense.
II.Margaret takes the $4,000 as a deduction for AGI.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) A taxpayer may use either the actual cost method or the standard mileage rate for deducting auto expenses.
A)True
B)False
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Page 8
Chapter 7: Losses-Deductions and Limitations
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Sample Questions
Q1) Active participant
A)A loss that is generally not deductible.
B)The borrower is personally liable for the debt.
C)The loss is used to offset income in future periods.
D)A liability that is only secured by the underlying property.
E)The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business.
Q2) Why did Congress enact the at-risk rules?
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) In each of the following independent cases determine the total number of personal and dependency exemptions Ivan may claim.Assume that Ivan is single,32 years old and any dependency test not mentioned has been met.
a.Ivan provides 80% support of his nephew (age 17), who lives with him. During the year, the nephew has gross income of $4,800 and is a full time student.
b.Ivan and his two brothers each provide 20% of the support of their mother. The mother derives the remainder of her support from Social Security benefits of $9,300.
c.Ivan provides 60% support of his mother, age 69. His mother received dividend income of $3,350 and Social Security benefits of $8,500.
Q2) Hobby expenses of $2,500.Hobby income is $2,000.Amount $2,000,subject to 2% of AGI
Q3) Taxpayer's only passive activity is a rental activity that results in a loss of $8,000.Amount: $8,000,since AGI is less than $100,000
Q4) Explain the support test and the gross income test to be a qualifying relative.
Q5) Sale of stock results in a loss of $7,000.The only other capital transaction for the year results in a gain of $6,000.Amount: $7,000
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Page 10
Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Robert receives a car as a gift from his mother.The car's purchase price was $20,000,and it was used personally prior to the gift.Robert uses the car 80% of the time in his pizza business.The car's value at the date of the gift is $9,000.What is Robert's basis in the car for depreciation purposes?
A)$- 0 -
B)$7,200
C)$9,000
D)$16,000
E)$20,000
Q2) Mary inherits an interest in Laser Partnership from her Aunt Lillian during 2016.The fair market value of the interest as of the primary valuation date is $28,000.Aunt Lillian's adjusted basis was $16,000.What is Mary's initial basis and holding period in the partnership interest if she sells the interest seven months after inheriting it?
A)$16,000, short-term.
B)$16,000, long-term.
C)$28,000, short-term.
D)$28,000, long-term.
E)Both depend on whether it is sold at a gain or a loss.
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11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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110 Flashcards
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Sample Questions
Q1) In 2016,Sanford Corporation purchases and places in service $2,410,000 of equipment for its manufacturing business.What portion of the $2,410,000 may Sanford elect to treat as a Section 179 expense?
A)$-0-
B)$15,000
C)$20,000
D)$25,000
E)$90,000
Q2) Charles purchases an interest in a uranium mine for $2,500,000 on June 7,2016.Recoverable tonnage is estimated at 500,000.During 2016,25,000 tons are mined and sold for $800,000.Charles incurs $500,000 of expenses during 2016.The percentage depletion rate for uranium is 22%.What is the depletion deduction for 2016?
A)$125,000
B)$150,000
C)$176,000
D)$200,000
E)$250,000
Q3) Discuss why listed property gets special attention.
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Tonya purchased 500 shares of Home Depot,Inc.common stock on December 13,2013,at a cost of $3,600.She paid a commission of $150 on the purchase.On February 18,2015,she received 250 shares of Home Depot,Inc.common stock as a tax-free dividend.Tonya sells 600 shares for $3,700 on January 8,2016,and pays a $100 commission on the sale.Tonya's gain (loss)on the sale is characterized as:
A)Long-term capital gain of $600.
B)Long-term capital gain of $500; short-term capital gain of $100.
C)Long-term capital loss of $50.
D)Short-term capital gain of $600.
Q2) When a security becomes worthless
I.no loss can be deducted because a realization has not occurred.
II.the measure of the loss is the adjusted basis of the securities.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) George's wife sells stock she purchased 10 months ago at a gain of $212.
Q4) Discuss the general differences between Section 1245 and Section 1250 property.
Q5) What incentive provisions or preferential treatments exist for capital gains?
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Chapter 12: Non-Recognition Transactions
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Sample
Questions
Q1) Lindsey exchanges investment real estate parcels with Donna.Lindsay's adjusted basis in the property is $400,000,and it is encumbered by a mortgage liability of $200,000.Donna assumes the mortgage.Donna's property is appraised at $1,000,000 and is subject to a $100,000 liability.Lindsey assumes the liability.If no cash is exchanged,what is Lindsey's basis in the new real estate?
A)$- 0 -
B)$100,000
C)$200,000
D)$400,000
E)$600,000
Q2) When two qualified assets are exchanged and their fair market values are not equal,additional nonqualifying property referred to as "boot" can be used to equalize the transaction without disqualifying the nonrecognition transaction.
A)True
B)False
Q3) A business use automobile for a personal use automobile.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
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14
Chapter 13: Choice of Business Entity-General Tax and
Nontax
Factorsformation
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Sample Questions
Q1) A sole proprietor
I.Can be an employee of the business.
II.Has limited liability for the debts of the business.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Continuity of life refers to whether an entity continues to operate or technically dissolves and ceases to exist in its present form when a change occurs in the ownership structure.
A)True
B)False
Q3) Discuss the characteristics of a personal service corporation (PSC).
Q4) A corporation in which the performance of personal activities is the principal pursuit,services are performed by owner-employees,and the owner-employees own 95% or more of the stock is taxed at a flat rate of 35%.
A)True
B)False
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Sample Questions
Q1) Byron is a partner in the Dowdy Group.At the close of the current year,Byron's basis in the partnership is $34,000.At that time,the partnership distributes cash of $8,000 and property with a basis of $9,000 and a fair market value of $13,000 to each partner.What is Byron's basis in the partnership after the distribution?
A)$13,000
B)$17,000
C)$26,000
D)$34,000
Q2) Passive activity loss limitation rules do not apply to I.Publicly-held corporations.
II.Personal service corporations.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Discuss two tax-planning techniques that can be used by a 100% owner-employee to reduce his/her tax liability.
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Chapter 15: Choice of Business Entity-Other Considerations
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Sample Questions
Q1) Kelly purchases a warehouse for her sole proprietorship on January 5,2016 for $1,000,000.She claims MACRS depreciation of $25,641 for the year.The depreciation under the Alternative Depreciation System (ADS)is $25,000.What is the amount of Kelly's AMT adjustment for depreciation on the warehouse?
A)no adjustment is necessary
B)a positive $ 641
C)a negative $ 641
D)a positive $25,641
E)a negative $25,641
Q2) The adjustment for three-fourths of the excess adjusted current earnings (ACE)over AMTI before the ACE adjustment applies only to corporations.
A)True
B)False
Q3) Peter opened his IRA in 2003 and withdrew money to purchase a house in 2016.Since the distribution qualified as a "qualified first-time-homebuyer expenses," it is not subject to the 10% early withdrawal penalty.
A)True
B)False
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17
Chapter 16: Tax Research
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Sample Questions
Q1) Which of the following is (are)secondary sources of tax law?
I.Revenue Ruling.
II.The Tax Adviser.
III.Murphy and Higgins' Concepts in Federal Taxation.
IV.Tax Treaty with Denmark.
A)Statements I, II, and III are correct.
B)Statements I and II are correct.
C)Statements II and III are correct.
D)Only statement IV is correct.
E)Only statement III is correct.
Q2) All of the following are advantages of computer-assisted tax research (CATR),except
A)CATR sources use search engines that allow quick retrieval of sources.
B)CATR sources are available on the Internet.
C)CATR sources contain only secondary sources of tax law.
D)CATR sources require less space and maintenance than print services.
Q3) The first step in tax research is to locate the relevant legal authorities.
A)True
B)False
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