Federal Tax Accounting Exam Solutions
Course Introduction
Federal Tax Accounting examines the principles and procedures underlying the determination of taxable income and the computation of federal income tax for individuals, partnerships, and corporations in the United States. The course covers gross income, exclusions, deductions, credits, accounting methods, and periods relevant to tax reporting. It also explores the Internal Revenue Code and related Treasury regulations, focusing on compliance requirements, tax planning strategies, and practical applications in preparing tax returns and supporting documentation. Students will gain a strong foundation in tax concepts, critical thinking skills for resolving tax issues, and awareness of ethical considerations in federal tax practice.
Recommended Textbook
South Western Federal Taxation 2014 Individual Income Taxes 37th Edition by William Hoffman
Available Study Resources on Quizplus
20 Chapters
2434 Verified Questions
2434 Flashcards
Source URL: https://quizplus.com/study-set/3603
Page 2
Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
Available Study Resources on Quizplus for this Chatper
155 Verified Questions
155 Flashcards
Source URL: https://quizplus.com/quiz/71544
Sample Questions
Q1) A fixture will be subject to the ad valorem tax on realty rather than the ad valorem tax on personalty.
A)True
B)False
Answer: True
Q2) Morgan inherits her father's personal residence including all of the furnishings.She plans to add a swimming pool and sauna to the property and rent it as a furnished house.What are some of the ad valorem property tax problems Morgan can anticipate? Answer: The real estate taxes probably will increase for several reasons.The capital improvements and the conversion from residential to rental will trigger the increase.Furthermore,the furnishings may generate an ad valorem tax on personalty.(Depending on applicable law,furniture might not be subject to tax unless used for business purposes-such as in this case.)
Q3) The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Working With the Tax Law
Available Study Resources on Quizplus for this Chatper
83 Verified Questions
83 Flashcards
Source URL: https://quizplus.com/quiz/71533
Sample Questions
Q1) What administrative release deals with a proposed transaction rather than a completed transaction?
A) Letter Ruling.
B) Technical Advice Memorandum.
C) Determination Letter.
D) Field Service Advice.
E) None of the above.
Answer: A
Q2) Subtitle A of the Internal Revenue Code covers which of the following taxes?
A) Income taxes.
B) Estate and gift taxes.
C) Excise taxes.
D) Employment taxes.
E) All of the above.
Answer: A
Q3) Technical Advice Memoranda deal with completed transactions.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Tax Formula and Tax Determination; an
Overview of Property Transactions
Available Study Resources on Quizplus for this Chatper
153 Verified Questions
153 Flashcards
Source URL: https://quizplus.com/quiz/71531
Sample Questions
Q1) A child who has unearned income of $1,900 or less cannot be subject to the kiddie tax.
A)True
B)False
Answer: True
Q2) The additional standard deduction for age and blindness is not the same amount for single as for married taxpayers.
A)True
B)False
Answer: True
Q3) For tax purposes,married persons filing separate returns are treated the same as single taxpayers.
A)True
B)False
Answer: False
Q4) Currently,the top income tax rate in effect is not the highest it has ever been.
A)True
B)False
Answer: True
Page 5
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Gross Income: Concepts and Inclusions
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/71530
Sample Questions
Q1) The annual increase in the cash surrender value of a life insurance policy:
A) Is taxed when the individual dies and the heirs collect the insurance proceeds.
B) Must be included in gross income each year under the original issue discount rules.
C) Reduces the deduction for life insurance expense.
D) Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value.
E) None of the above.
Q2) Barney painted his house which saved him $3,000.According to the realization requirement,Barney must recognize $3,000 of income.
A)True
B)False
Q3) If a lottery prize winner transfers the prize to a qualified government unit or nonprofit organization,then the prize is excluded from the winner's gross income if the amount of the prize does not exceed 30% of the winner's AGI.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Gross Income: Exclusions
Available Study Resources on Quizplus for this Chatper
115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/71529
Sample Questions
Q1) Mother participated in a qualified state tuition program for the benefit of her son.She contributed $15,000.When the son entered college,the balance in the fund satisfied the tuition charge of $20,000.When the funds were withdrawn to pay the college tuition for her son,Mother must include $5,000 ($20,000 - $15,000)in her gross income.
A)True
B)False
Q2) Jena is a full-time undergraduate student at State University and is claimed by her parents as a dependent.Her only source of income is a $10,000 athletic scholarship ($1,000 for books,$5,500 tuition,$500 student activity fee,and $3,000 room and board).Jena's gross income for the year is:
A) $10,000.
B) $4,000.
C) $3,000.
D) $500.
E) None of the above.
Q3) What Federal income tax benefits are provided for college students?
Q4) What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Deductions and Losses: in General
Available Study Resources on Quizplus for this Chatper
154 Verified Questions
154 Flashcards
Source URL: https://quizplus.com/quiz/71528
Sample Questions
Q1) Abner contributes $1,000 to the campaign of the Tea Party candidate for governor,$750 to the campaign of the Tea Party candidate for senator,and $500 to the campaign of the Tea Party candidate for mayor.Can Abner deduct these political contributions?
Q2) Graham,a CPA,has submitted a proposal to do the annual audit for a municipality.Owen,the city treasurer,tells Graham that for a $1,000 fee,he will use his influence to have the audit awarded to Graham.What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?
Q3) In a related party transaction where realized loss is disallowed,when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction,can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?
Q4) If a vacation home is classified as primarily rental use,a deduction for all of the rental expenses is allowed.
A)True
B)False
Q5) What losses are deductible by an individual taxpayer?
Q6) Under what circumstance can a bribe be deducted?
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
Available Study Resources on Quizplus for this Chatper
115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/71527
Sample Questions
Q1) Al,who is single,has a gain of $40,000 on the sale of §1244 stock (small business stock)and a loss of $80,000 on the sale of § 1244 stock.As a result,Al has a $40,000 ordinary loss.
A)True
B)False
Q2) A loss from a worthless security is always treated as a short-term capital loss.
A)True
B)False
Q3) Which of the following events would produce a deductible loss?
A) Erosion of personal use land due to rain or wind.
B) Termite infestation of a personal residence over a several year period.
C) Damages to personal automobile resulting from a taxpayer's negligence.
D) A misplaced diamond ring.
E) None of the above.
Q4) Discuss the treatment,including the carryback and carryforward periods,of casualty losses incurred with personal use property.
Q5) Losses on rental property are classified as deductions from AGI (itemized deductions).
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Depreciation, cost Recovery, amortization, and Depletion
Available Study Resources on Quizplus for this Chatper
116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/71526
Sample Questions
Q1) On May 2,2012,Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs.The vehicle is used 60% for business and 40% for personal use.Determine the cost recovery for 2012.Karen wants to maximize her deductions.
A) $2,200.
B) $3,060.
C) $25,000.
D) $27,200.
E) None of the above.
Q2) Audra acquires the following new five-year class property in 2012:
Audra elects § 179 for Asset C.Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction.Audra takes additional first-year depreciation.Determine her total cost recovery deduction (including the § 179 deduction)for the year.
Q3) Under the MACRS straight-line election for personalty,the mid-quarter convention is applicable.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 10
Q4) Discuss the reason for the inclusion amount with respect to leased automobiles.
Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
Available Study Resources on Quizplus for this Chatper
140 Verified Questions
140 Flashcards
Source URL: https://quizplus.com/quiz/71525
Sample Questions
Q1) In November 2012,Katie incurs unreimbursed moving expenses to accept a new job.Katie cannot deduct any of these expenses when she timely files her 2012 income tax return since she has not yet satisfied the 39-week time test.
A)True
B)False
Q2) A deduction for parking and other traffic violations is allowed under the actual cost method but not the automatic mileage method.
A)True
B)False
Q3) The tax law specifically provides that a taxpayer cannot be temporarily away from home for any period of employment that exceeds one year.
A)True
B)False
Q4) Both traditional and Roth IRAs possess the advantage of tax-free accumulation of income within the plan.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Deductions and Losses: Certain Itemized
Deductions
Available Study Resources on Quizplus for this Chatper
106 Verified Questions
106 Flashcards
Source URL: https://quizplus.com/quiz/71543
Sample Questions
Q1) During the year,Eve (a resident of Billings,Montana)spends three consecutive weeks in Louisville,Kentucky.One week is spent representing the Billings First Christian Church at the national convention,and two weeks are spent vacationing with relatives.One third of Eve's travel expenses will qualify as a charitable deduction.
A)True
B)False
Q2) Emily,who lives in Indiana,volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization).She was in Louisiana for three weeks.She normally makes $500 per week as a carpenter's assistant and plans to deduct $1,500 as a charitable contribution.In addition,she incurred the following costs in connection with the trip: $600 for transportation,$1,200 for lodging,and $400 for meals.What is Emily's deduction associated with this charitable activity?
A) $600.
B) $1,200.
C) $1,800.
D) $2,200.
E) $3,700.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Investor Losses
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/71542
Sample Questions
Q1) Lucy dies owning a passive activity with an adjusted basis of $90,000.Its fair market value at that date is $145,000.Suspended losses relating to the property were $75,000.Which of the following statements is true?
A) The heir's adjusted basis is $145,000, and Lucy's final deduction is $20,000.
B) The heir's adjusted basis is $145,000, and Lucy's final deduction is $75,000.
C) The heir's adjusted basis is $90,000, and Lucy's final deduction is $75,000.
D) The heir's adjusted basis is $220,000, and Lucy has no final deduction.
E) None of the above.
Q2) Pat sells a passive activity for $100,000 that has an adjusted basis of $55,000.During the years of her ownership,$60,000 of losses have been incurred that were suspended under the passive activity loss rules.In addition,the passive activity generated tax credits of $10,000 that were not utilized and suspended.Determine the tax treatment to Pat on the disposition of the property.
Q3) Describe the general rules that limit the deduction of investment interest expense.
Q4) When a taxpayer disposes of a passive activity by death,what happens to any unused passive losses?
Q5) Describe the types of activities and taxpayers that are subject to the at-risk rules.
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: Alternative Minimum Tax
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/71541
Sample Questions
Q1) The deduction for personal and dependency exemptions is allowed for regular income tax purposes,but is disallowed for AMT purposes.This results in a positive AMT adjustment.
A)True
B)False
Q2) All of a C corporation's AMT is available for carryover as a minimum tax credit regardless of whether the adjustments and preferences originate from timing differences or AMT exclusions.
A)True
B)False
Q3) In 2012,Sean incurs $90,000 of mining exploration expenditures,and deducts the entire amount for regular income tax purposes.Which of the following statements is correct?
A) For AMT purposes, Sean will have a positive adjustment of $81,000 in 2012.
B) Sean will have a negative AMT adjustment of $9,000 in 2017.
C) Over a 10-year period, positive and negative adjustments will net to zero.
D) Only a. and c. are correct.
E) a., b., and c. are correct.
Q4) What effect do deductible gambling losses for regular income tax purposes have in calculating AMTI?
Page 14
To view all questions and flashcards with answers, click on the resource link above.
Chapter 13: Tax Credits and Payment Procedures
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/71540
Sample Questions
Q1) During the year,Purple Corporation (a U.S.Corporation)has U.S.-source income of $900,000 and foreign income of $300,000.The foreign-source income generates foreign income taxes of $75,000.The U.S.income tax before the foreign tax credit is $408,000.Purple Corporation's foreign tax credit is:
A) $56,250.
B) $75,000.
C) $102,000.
D) $408,000.
E) None of the above.
Q2) Several years ago,Sarah purchased a structure for $150,000 that was originally placed in service in 1929.In the current year,she incurred qualifying rehabilitation expenditures of $200,000.The amount of the tax credit for rehabilitation expenditures,and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts:
A) $20,000 credit, $180,000 basis.
B) $20,000 credit, $200,000 basis.
C) $20,000 credit, $350,000 basis.
D) $40,000 credit, $160,000 basis.
E) None of the above.
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Property Transactions: Determination of Gain or
Loss and Basis Considerations
Available Study Resources on Quizplus for this Chatper
154 Verified Questions
154 Flashcards
Source URL: https://quizplus.com/quiz/71539
Sample Questions
Q1) If a husband inherits his deceased wife's share of jointly owned property in a common law state,both the husband's original share and the share inherited from the deceased wife are stepped-up or down to the fair market value at the date of the wife's death.
A)True
B)False
Q2) Under what circumstances will a distribution by a corporation to its only shareholder result in a capital gain?
Q3) Katie sells her personal use automobile for $15,000.She purchased the car four years ago for $31,000.What is Katie's recognized gain or loss?
A) $0.
B) $15,000.
C) ($16,000).
D) ($31,000).
E) None of the above.
Q4) Define a bargain purchase of property and discuss the related tax consequences.
Q5) For gifts made after 1976,when will part of the gift tax paid by the donor be added to the donee's basis?
Q6) What is the general formula for calculating the adjusted basis of property?
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Property Transactions: Nontaxable Exchanges
Available Study Resources on Quizplus for this Chatper
139 Verified Questions
139 Flashcards
Source URL: https://quizplus.com/quiz/71538
Sample Questions
Q1) Virginia,who is single,sells her principal residence (adjusted basis of $150,000)on January 5,2012,for $380,000.She has owned and occupied it as her principal residence for 20 years.She incurs a realtor's commission of $22,000 and legal fees of $5,000.On January 3,2012,Virginia purchases a townhouse for $300,000 and uses it as her principal residence.Because it was not near a convenience store,she sells the townhouse on December 20,2012,for $330,000.She incurs a realtor's commission of $18,000 and legal fees of $4,000.She buys a house on December 1,2012,for $250,000 and uses it as her principal residence.What is Virginia's recognized gain on the sale of each house and her adjusted basis for the house purchased on December 1,2012?
A) $0; $0; and $250,000.
B) $0; $8,000; and $250,000.
C) $203,000; $0; and $250,000.
D) $0; $8,000; and $47,000.
E) None of the above.
Q2) The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Property Transactions: Capital Gains and Losses
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/71537
Sample Questions
Q1) The 2011 "Qualified Dividends and Capital Gain Worksheet" is used:
A) To calculate the tax using the alternative tax method on 0%/15% net capital gain and qualified dividends.
B) To calculate the tax using the alternative tax method on 0%/15% net capital gain, but not on qualified dividends.
C) To calculate the tax using the alternative tax method on 0%/15% capital gain, 25% capital gain, and 28% capital gain, but not on qualified dividends.
D) To calculate the tax using the alternative tax method on 0%/15% capital gain, 25% capital gain, 28% capital gain, and qualified dividends.
E) None of the above.
Q2) An accrual basis taxpayer accepts a note receivable from a retail customer with a weak credit rating.The taxpayer immediately sells the note to a bank for less than the note's stated value.The taxpayer has a capital loss.
A)True
B)False
Q3) What characteristics must the seller of a patent have in order to be classified as a holder?
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Property Transactions: Section 1231 and Recapture Provisions
Available Study Resources on Quizplus for this Chatper
74 Verified Questions
74 Flashcards
Source URL: https://quizplus.com/quiz/71536
Sample Questions
Q1) Depreciable personal property was sold at a gain in 2011.On what 2011 form would this transaction be reported,where initially in that form,and what will the form most likely do with the gain?
Q2) Section 1231 gain that is treated as long-term capital gain carries from the 2011 Form 4797 to the 2011 Form 1040,Schedule D,line ____.
A) 8.
B) 9.
C) 10.
D) 11.
E) None of the above.
Q3) Section 1231 lookback losses may convert some or all of § 1250 gain into ordinary income.
A)True
B)False
Q4) Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?
Q5) Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.
Page 19
To view all questions and flashcards with answers, click on the resource link above.
Chapter 18: Accounting Periods and Methods
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/71535
Sample Questions
Q1) In 2012,George used the FIFO lower of cost or market inventory method.As of December 31,2011,the inventory cost was $50,000 and its market price was $40,000.At the time of filing his 2012 income tax return,George changed to the LIFO method.The ending inventory at cost on December 31,2012,was $75,000 and the market price of the goods totaled $35,000.Which of the following statements is correct?
A) The beginning inventory for 2012 is $50,000, and George must spread a $10,000 adjustment ($50,000 - $40,000) evenly over 2012, 2013, and 2014.
B) The beginning inventory for 2012 is $40,000.
C) The beginning inventory for 2012 is $50,000, and George must spread a $10,000 adjustment over the three previous years.
D) The change is invalid since the taxpayer did not apply for the change by the end of the tax year of change.
E) None of the above.
Q2) The company has consistently used the LIFO inventory method and has deferred over $1 million of income from using that method.However,in the last two years,the prices it pays for goods has been decreasing.Therefore,the company is considering changing to the FIFO inventory method.What would be some tax consequences of the change?
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Deferred Compensation
Available Study Resources on Quizplus for this Chatper
104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/71534
Sample Questions
Q1) Yvonne exercises incentive stock options (ISOs)for 100 shares of Apple Corporation stock at the option price of $100 per share on May 21,2012,when the fair market value is $120 per share.She holds the stock for only seven months and sells the shares for $140 per share.Determine the recognized gain on the sale and classify it as capital or ordinary.
A) $2,000 ordinary income and $2,000 STCG.
B) $2,000 ordinary income and $2,000 LTCG.
C) $4,000 ordinary income.
D) $4,000 LTCG.
E) None of the above.
Q2) Saysha is an officer of a local bank that merges with a national bank,resulting in a change of ownership.She loses her job as a result of the merger,but she receives a cash settlement of $390,000 from her employer under her golden parachute.Her average annual compensation for the past five tax years is $110,000.What amount,if any,is deductible by the bank?
A) $0.
B) $50,000.
C) $110,000.
D) $390,000.
E) Some other amount.
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Corporations and Partnerships
Available Study Resources on Quizplus for this Chatper
165 Verified Questions
165 Flashcards
Source URL: https://quizplus.com/quiz/71532
Sample Questions
Q1) Some corporations (e.g.,personal service corporations)cannot use a calendar year for tax purposes.
A)True
B)False
Q2) Which of the following,if any,correctly characterize the check-the-box Regulations?
A) A one-owner business is a sole proprietorship if default (no election is made) occurs.
B) A one-owner business cannot elect to be taxed as a corporation.
C) If default (no election is made) occurs, a limited liability company is taxed as a corporation.
D) The check-the-box Regulations can apply to entities that are already incorporated under state law.
E) None of the above.
Q3) A corporation with a fiscal year of July 1-June 30 has a due date for filing its Federal income tax return of October 15.
A)True
B)False
Q4) How can the Subchapter S election be lost?
To view all questions and flashcards with answers, click on the resource link above.