Business Taxation
Midterm Exam
Course Introduction
Business Taxation provides an in-depth understanding of the principles and practices relevant to the taxation of businesses. The course covers fundamental concepts such as tax structures, compliance requirements, and the calculation of taxable income for various business entities, including sole proprietorships, partnerships, and corporations. It addresses topics like value-added tax, withholding tax, and other business-related taxes, as well as the deductions, allowances, and incentives available to businesses. Students will also explore the ethical, legal, and managerial aspects of tax planning and filing, equipping them with the analytical skills needed to make informed financial decisions within the framework of national taxation laws and regulations.
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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Page 2
Chapter 1: Federal Income Taxation - an Overview
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Sample Questions
Q1) Which of the following payments meets the IRS definition of a tax?
A)A fee paid on the value of property transferred from one individual to another by gift.
B)A one-time additional property tax assessment to add a sidewalk to the neighborhood.
C)A fee paid on the purchase of aerosol producing products to fund ozone research.
D)A fee for a sticker purchased from a city that must be attached to garbage bags before the city garbage trucks will pick up the bags.
E)All of the above meet the definition of a tax.
Answer: A
Q2) The statute of limitations is three years,six years if the taxpayer omits gross income in excess of 25%,and there is no statute of limitations if the taxpayer willfully defrauds the government.
A)True
B)False
Answer: True
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Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Duncan purchased State of Wisconsin general-purpose bonds at a cost of $3,400 in 2011.He receives $170 interest on the bonds in 2011,2012,and 2013.In 2013,he sells the bonds for $3,800.Duncan excludes the bond interest,but must include a $400 capital gain in his 2013 gross income.Which of the following Concepts,Constructs,and/or Doctrines help in forming the basis for this treatment?
I.Capital Recovery Concept.
II.Legislative Grace Concept.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: C
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
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4
Chapter 3: Income Sources
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Sample Questions
Q1) Donna owns a cleaning service.Reed,a customer,receives Donna's bill for October 2013 services of $65 on October 31,2013.Reed pays the $65 on January 4,2014.
I.If Donna is a cash-basis taxpayer,she recognizes the income in 2014.
II.If Donna is an accrual-basis taxpayer,she will recognize the $65 in 2013.
III.Donna will recognize the $65 in 2013 regardless of accounting method,because that is when she earned the income.
A)Only statement I is correct.
B)Only statement II is correct.
C)Only statement III is correct.
D)Statements I and II are correct.
E)Statements I and III are correct.
Answer: D
Q2) The holding period for receiving long-term capital gain treatment is 12 months or more.
A)True
B)False
Answer: False
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5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Moonglow,Inc.,purchases a group-term life insurance plan for all its employees.Harold receives $250,000 of insurance for the current year at a cost to the company of $2,500.The IRS Table of Premium values indicates that premiums are $1.08 annually per $1,000 of protection.How much gross income does Harold have from the purchase of the life insurance by Moonglow,Inc.?
A)$ 216
B)$ 270
C)$2,000
D)$2,270
E)$2,500
Q2) Jacob is experiencing cash flow problems during the current year.Rather than put the $80,000 business loan in default,his bank agrees to reduce the debt to $50,000.Prior to the debt reduction,Jacob's total assets were $500,000 and his total liabilities were $490,000.How much income must Jacob recognize from the reduction of his bank loan?
A)- 0 -
B)$10,000
C)$20,000
D)$30,000
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Chapter 5: Introduction to Business Expenses
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168 Flashcards
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Sample Questions
Q1) Profit motivated business expenses
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.
Q2) Andy lives in New York and rents his house for two weeks during the U.S.Open Tennis tournament for $3,500.He must include the rent in his income.
A)True
B)False
Q3) List the criteria necessary for an expenditure to be deductible as a trade or business expense or an expense for the production of income.
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Page 7
Chapter 6: Business Expenses
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Sample Questions
Q1) Walker,an employee of Lakeview Corporation,drives his automobile 18,000 business miles during 2013.He pays tolls of $145 while traveling on business.What amount can Walker deduct as unreimbursed transportation expenses before considering any limitations on itemized deductions?
A)$ 10,170 for AGI.
B)$ 10,315 for AGI.
C)$ 10,170 from AGI.
D)$ 10,315 from AGI.
Q2) During 2012,Virginia,an architect,made a bona fide $7,500 loan to her friend Joe when he was in a time of need.Joe died in 2013.Virginia has been informed by Joe's estate that he was insolvent.Virginia should record the nonpayment of the loan as
A)An ordinary loss.
B)An itemized deduction.
C)A short-term capital loss.
D)A long-term capital loss.
E)Nothing. It cannot be deducted.
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8
Chapter 7: Losses: Deductions and Limitations
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Sample Questions
Q1) Samantha sells the following assets and realizes the following gains (losses)during the current year:
\[\begin{array} { l c }
\text { Home computer (personal) } & \$ ( 600 ) \\
\text { Municipal bonds } & 6,000 \\
\text { Stamp collection } & 3,000 \\
\text { Carpeting from residence } & ( 2,000 ) \\
1956 \text { Chevrolet auto } & 4,000 \end{array}\]
As a result of these sales,Samantha's adjusted gross income will:
A)Increase by $ 5,000.
B)Increase by $10,400.
C)Increase by $11,000.
D)Increase by $13,000.
E)Decrease by $ 600.
Q2) John discovers that termites have destroyed the front porch of his office building.The damage occurred over a 3-year period.He is eligible for a casualty loss deduction.
A)True
B)False
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Thomas has adjusted gross income of $228,000,total itemized deductions of $39,000 and claims 2 personal and 2 dependency exemptions.Which is his filing status?
A)Single.
B)Head of household.
C)Married filing a joint return.
D)Married filing separately.
Q2) Reggie and Ramona are married and have two children in college.Jason is a sophomore,and Justine is a senior.They pay $2,500 in tuition and fees for Jason,$900 for his books and $3,000 for his room and board.Justine's tuition and fees are $5,000,her book expense is $800,and her room and board expenses are $2,600.Their adjusted gross income is $170,000.What amount can they claim as a tax credit for the higher education expenses she pays?
A)$ -0-
B)$2,425
C)$3,125
D)$3,638
E)$4,850
Q3) Explain the support test and the gross income test to be a qualifying relative.
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Page 10
Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Sandi sells 100 shares of Gray Corporation stock on December 4,2013.She inherited the stock from Christine,who died on January 30,2013.The executor of the estate used the primary valuation date.Sandi's holding period for the stock is
A)Long-term.
B)Short-term.
C)Long-term if sold at a gain; short-term if sold at a loss.
D)Short-term if sold at a gain; long-term if sold at a loss.
Q2) Mary pays $25,000 and secures a mortgage note for $75,000 to purchase a vacation home.She pays $200 to her attorney for reviewing the purchase agreement and $1,500 in points to the mortgage company.Mary's initial basis in the vacation home is
A)$ - 0 -
B)$ 25,000
C)$ 26,700
D)$100,200
E)$101,700
Q3) Randall is given five acres of land in 2001.At the time of the gift,the land had a fair market value of $182,000,and its adjusted basis to the donor was $160,000.What is Randall's gain if he sells the land for $184,000?
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11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Charles purchases an interest in a uranium mine for $2,500,000 on June 7,2013.Recoverable tonnage is estimated at 500,000.During 2013,25,000 tons are mined and sold for $800,000.Charles incurs $500,000 of expenses during 2013.The percentage depletion rate for uranium is 22%.What is the depletion deduction for 2013?
A)$125,000
B)$150,000
C)$176,000
D)$200,000
E)$250,000
Q2) Amortization
A)Computers, and automobiles.
B)Used to recover the investment in intangible assets.
C)Used to recover the investment in long-lived tangible business-use assets.
D)An attempt to stimulate capital investment by small businesses.
E)Used to recover the investment in assets that waste away through extraction.
Q3) The mid-year convention is used for personal property only.
A)True
B)False
Q4) Discuss why listed property gets special attention.
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Chapter 11: Property Dispositions
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Sample Questions
Q1) All of the gain from the sale of qualified small business stock,purchased between 9/27/2010 and 1/1/2014,and held more than five years is excluded from tax.
A)True
B)False
Q2) When her property was fully depreciated and was still encumbered by a mortgage of $6,000,Jamelle sells it subject to the mortgage to David for $1,000.What is Jamelle's realized gain or loss?
A)$ - 0 -
B)$1,000 gain
C)$5,000 gain
D)$6,000 gain
E)$7,000 gain
Q3) If an individual sells depreciable real estate at a gain
I.the entire gain is taxed at a maximum rate of 15%.
II.the gain due to depreciation is taxed as a long-term capital gain.
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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Page 13
Chapter 12: Nonrecognition Transactions
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Sample Questions
Q1) Charlotte's apartment building that has an adjusted basis of $200,000 is destroyed by fire.Early the following year,Charlotte receives a $425,000 insurance check and reinvests $400,000 of the proceeds in an apartment building.What is the basis in the new building?
A)$ - 0 -
B)$425,000
C)$400,000
D)$200,000
E)$175,000
Q2) Which of the following is/are correct regarding the sale of a principal residence?
I.A taxpayer who is single and fails to meet the ownership or use test due to change in employment is entitled to a pro rata share of the $250,000 exclusion.
II.A single taxpayer can exclude up to $250,000 of the gain on the sale of a vacation home.
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) Nontax characteristics that should be considered in choosing an entity form include which of the following?
I.Number of owners.
II.Limited liability for owners.
III.Ability to participate in management.
IV.Transferability of ownership interests.
A)Only statement I is correct.
B)Only statement II is correct.
C)Statements II and IV are correct.
D)Statements I, II, and IV are correct.
E)Statements I, II, III, and IV are correct.
Q2) Does the selection of a corporate entity ever make sense based on a desire for lower marginal tax rates? Discuss.
Q3) Danube Corporation operates a theatrical costume shop.Taxable income for the current year is $1,000,000.What is Danube's income tax liability?
A)$ - 0 -
B)$340,000
C)$373,250
D)$390,000
Page 15
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Chapter 14: Choice of Business Entity - Operations and Distributions
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Sample Questions
Q1) Joline operates Adventure Tours as a sole proprietorship.For the year,Adventure Tours has the following income and expense items:
\(\begin{array}{lr}
\text {Sales revenues } &\$ 325,000 \\
\text { Short-term capital gains } &5,000 \\
\text { Short-term capital losses } &(9,000) \\
\text { Trade and business expenses } &\underline {(185,000)} \\
\text { Taxable income } &\$ 136,000
\end{array}\)
If Joline has other income of $6,000,what is her adjusted gross income?
A)$141,000
B)$142,000
C)$143,000
D)$146,000
Q2) The amount of the dividend on a nonliquidating corporate distribution of property is the fair falue of the property.
A)True
B)False
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Chapter 15: Choice of Business Entity - Other
Considerations
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Sample Questions
Q1) Alex is 37 years old,single and employee of Ellis Company.
I.If Alex is an active participant in the company's pension plan,he is allowed to make a contribution to his IRA account only if his adjusted gross income is less than $59,000.
II.If Alex is an active participant in the company's pension plan,and has adjusted gross income of $64,000,he is allowed to contribute $5,500 to his IRA account,but he is only allowed a deduction of $2,750 for the contribution because his adjusted gross income is between $59,000 - $69,000.
A)Only statement I is correct
B)Only statement II is correct
C)Both statements are correct.
D)Neither statement is correct.
Q2) Peter opened his IRA in 2003and withdrew money to purchase a house in 2012.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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Chapter 16: Tax Research
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Sample Questions
Q1) All judicial citations follow the same format: case name,volume number of the reporter in which the case is published,name of the reporter,and the page of the reporter on which the case begins.
A)True
B)False
Q2) Which of the following is/ are trial level courts for tax cases?
I.U.S.Court of Federal Claims.
II.U.S.Supreme Court.
III.U.S.Court of Appeals for the Federal Circuit.
IV.U.S.Court of Appeals for the Tenth Circuit.
V.U.S.District Court.
A)Only statement V is correct.
B)Only statement II is correct.
C)Statements I and V are correct.
D)Statements II, III, and IV are correct.
E)Statements I, II, III, IV, and V are correct.
Q3) The first step in tax research is to locate the relevant legal authorities.
A)True
B)False
Q4) Describe the steps of the tax research process.
Page 18
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