Income Tax Accounting
Final Test Solutions
Course Introduction
Income Tax Accounting is a comprehensive course examining the principles, rules, and procedures involved in determining taxable income for individuals and business entities. The course covers the fundamentals of federal income tax law, including the identification and measurement of income, exclusions, deductions, credits, and the calculation of tax liability. Students will gain a working knowledge of tax forms, filing requirements, and the implications of various transactions from an accounting perspective. Through practical exercises and case studies, the course emphasizes compliance, ethical issues, and the role of tax planning in financial decision-making.
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) Virtually all state income tax returns contain checkoff boxes for donations to various causes.On what grounds has this procedure been criticized?
Answer: In many cases the procedure is overused (i.e.,a multiplicity of boxes).This overuse adds complexity to the return.Also,in most cases the donation is being drawn from any income tax refund that might be due.Thus,taxpayers may not fully appreciate that they are paying for such checkoffs.
Q2) Without obtaining an extension,Olivia files her income tax return 65 days after the due date.With her return,she pays an additional tax of $50,000.Disregarding any interest element,what is Olivia's penalty for failure to pay and to file?
Answer: $7,500.Disregarding the interest element,Olivia's total penalties are as follows: 11ea87f0_ad4f_a462_8b86_8fef5f86778b_TB4131_00
Q3) In preparing a tax return,all questions on the return must be answered. 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) The CPA examination is normally curved to produce a designated pass rate.
A)True
B)False
Answer: False
Q2) Texas is in the jurisdiction of the Eighth Circuit Court of Appeals.
A)True
B)False
Answer: False
Q3) The test for whether a child qualifies for dependency status is first conducted under the qualified child requirement.
A)True
B)False
Answer: True
Q4) The Internal Revenue Code was first codified in what year?
A) 1913.
B) 1923.
C) 1939.
D) 1954.
E) 1986.
Answer: C
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) Which,if any,of the following statements relating to the standard deduction is correct?
A) If a taxpayer dies during the year, his (or her) standard deduction must be prorated.
B) If a taxpayer is claimed as a dependent of another, his (or her) additional standard deduction is allowed in full (i.e., no adjustment is necessary).
C) If spouses file separate returns, both spouses must claim the standard deduction (rather than itemize their deductions from AGI).
D) If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed.
E) None of the above.
Answer: B
Q2) A taxpayer who itemizes must use Form 1040,and cannot use Form 1040EZ or Form 1040A.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
5
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) In January 2012,Tammy purchased a bond due in 24 months.The cost of the bond is $857 and its maturity value is $1,000.No interest is paid each year,but the compound interest rate on the bond is 8%.Tammy also purchased a Series EE United States Government bond for $558,with a maturity value in 10 years of $1,000.This is the only Series EE bond she has ever owned.The Series EE bond is sold to yield 6% interest.Tammy is 13 years old and has no other source of income.She is claimed as a dependent by her parents.Compute Tammy's gross income from the bond and Series EE bond for 2012.
Q2) Green,Inc.,provides group term life insurance for all of its employees.The coverage equals twice the employee's annual salary.Sam,a vice-president,worked all year for Green,Inc.and received $250,000 of coverage for the year at a cost to Green of $3,000.The Uniform Premiums (based on Sam's age)are $.30 per month for $1,000 of protection.How much must Sam include in gross income this year?
A) $0.
B) $720.
C) $900.
D) $3,000.
E) None of the above.
To view all questions and flashcards with answers, click on the resource link above.
Page 6
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) Ben was diagnosed with a terminal illness.His physician estimated that Ben would live no more than 18 months.After he received the doctor's diagnosis,Ben cashed in his life insurance policy and used the proceeds to take a trip to see relatives and friends before he died.Ben had paid $12,000 in premiums on the policy,and he collected $50,000,the cash surrender value of the policy.Henry enjoys excellent health,but he cashed in his life insurance policy to purchase a new home.He had paid premiums of $12,000 and collected $50,000 from the insurance company.
A) Neither Ben nor Henry is required to recognize gross income.
B) Both Ben and Henry must recognize $38,000 ($50,000 - $12,000) of gross income.
C) Henry must recognize $38,000 ($50,000 - $12,000) of gross income, but Ben does not recognize any gross income.
D) Ben must recognize $38,000 ($50,000 - $12,000) of gross income, but Henry does not recognize any gross income.
E) None of the above.
Q2) What Federal income tax benefits are provided for college students?
Q3) 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) On January 2,2012,Fran acquires a business from Chuck.Among the assets purchased are the following intangibles: patent with a 7-year remaining life,a covenant not to compete for 10 years,and goodwill. Of the purchase price,$140,000 was paid for the patent and $60,000 for the covenant.The amount of the excess of the purchase price over the identifiable assets was $100,000.What is the amount of the amortization deduction for 2012?
A) $10,667.
B) $16,000.
C) $20,000.
D) $32,667.
E) None of the above.
Q2) Which of the following is incorrect?
A) Alimony is a deduction for AGI.
B) The expenses associated with royalty property are a deduction from AGI.
C) Contributions to a traditional IRA are a deduction for AGI.
D) Property taxes on taxpayer's personal residence are a deduction from AGI
E) All of the above are correct.
Q3) All employment related expenses are classified as deductions for AGI.
A)True
B)False
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) Taxpayer's home was destroyed by a storm in the current year and the area was declared a disaster area.If the taxpayer elects to treat the loss as having occurred in the prior year,it will be subject to the 10%-of-AGI reduction based on the AGI of the current year.
A)True
B)False
Q2) Several years ago,John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000.Last year,John sold one-half of his Red Corporation stock to Mike for $12,000.During the current year,John sold the remaining Red Corporation stock for $3,000.John has a $17,000 ($3,000 - $20,000)ordinary loss for the current year.
A)True
B)False
Q3) How is qualified production activities income (QPAI)calculated?
Q4) A business bad debt is a debt unrelated to the taxpayer's trade or business either when it was created or when it became worthless.
A)True
B)False
Q5) Discuss the effect of alimony in computing a net operating loss.
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) For personal property placed in service in 2012,the § 179 maximum deduction is limited to $139,000.
A)True B)False
Q2) Goodwill associated with the acquisition of a business cannot be amortized. A)True B)False
Q3) The basis of cost recovery property must be reduced by the cost recovery allowed. A)True
B)False
Q4) Orange Corporation begins business on April 2,2012.The corporation has startup expenditures of $54,000.If Orange Corporation elects § 195,determine the total amount that Orange may deduct in 2012.
A) $1,000.
B) $2,650.
C) $3,650.
D) $5,000.
E) None of the above.
Page 10
Q5) Discuss the reason for the inclusion amount with respect to leased automobiles.
To view all questions and flashcards with answers, click on the resource link above.
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) Marvin lives with his family in Alabama.He has two jobs: one in Alabama and one in North Carolina.Marvin's tax home is where he lives (Alabama).
A)True
B)False
Q2) After graduating from college with a degree in chemistry,Alberto obtains a job as a chemist with DuPont.Alberto's job search expenses qualify as deductions.
A)True
B)False
Q3) Jake performs services for Maude. If Jake provides his own helper and tools, this is indicative of independent contractor (rather than employee) status.
A)True
B)False
Q4) For self-employed taxpayers,travel expenses are not subject to the 2%-of-AGI floor.
A)True
B)False
Q5) Once set for a year,when might the IRS change the rate for the automatic mileage method?
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) A taxpayer pays points to obtain financing to purchase a personal residence.At the election of the taxpayer,the points can be deducted as interest expense for the year paid.
A)True
B)False
Q2) Chad pays the medical expenses of his son,James.James would qualify as Chad's dependent except that he earns $7,500 during the year.Chad may not claim James' medical expenses because he is not a dependent.
A)True
B)False
Q3) On December 31,2012,Lynette used her credit card to make a $500 contribution to the United Way,a qualified charitable organization.She will pay her credit card balance in January 2013.If Lynette itemizes,she can deduct the $500 in 2012. A)True
B)False
Q4) A medical expense does not have to relate to a particular ailment to be deductible. A)True B)False
Page 12
To view all questions and flashcards with answers, click on the resource link above.
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) Vail owns interests in a beauty salon,a natural foods store,and a tanning salon.Several full-time employees work at each of the enterprises.As of the end of November of the current year,Vail has worked 180 hours in the beauty salon,220 hours at the natural foods store,and 80 hours at the tanning salon.These three ventures collectively will produce income.Vail also owns one other passive activity that is producing a loss (a limited partnership in which she has reported no participation).How should Vail plan her activities for the remainder of the year?
Q2) List the taxpayers that are subject to the passive loss rules and summarize the general impact of these rules on these taxpayers.
Q3) Tom participates for 300 hours in Activity A and 250 hours in Activity B,both of which are nonrental businesses.Both activities are active.
A)True
B)False
Q4) Anne sells a rental house for $100,000 (adjusted basis of $55,000).During her ownership,$60,000 of losses have been suspended under the passive activity loss rules.Determine the tax treatment to Anne on the disposition of the property.
Q5) What special passive loss treatment is available to real estate activities?
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) If the taxpayer elects to capitalize intangible drilling costs and to amortize them over a 10-year period for regular income tax purposes,there is no adjustment or preference for AMT purposes.
A)True
B)False
Q2) The AMT adjustment for mining exploration and development costs can be avoided if the taxpayer elects to write off the expenditures in the year incurred for regular income tax purposes,rather than writing off the expenditures over a 10-year period for regular income tax purposes.
A)True B)False
Q3) Interest on a home equity loan may be deductible for AMT purposes.
A)True B)False
Q4) Prior to the effect of tax credits,Wayne's regular income tax liability is $175,000 and his tentative AMT is $150,000.Wayne has nonrefundable business tax credits of $40,000.Wayne's tax liability is $135,000.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 14
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) Bradley has two college-age children,Clint,a freshman at State University,and Abigail,a junior at Northwest University.Both Clint and Abigail are full-time students.Clint's expenses during the 2012 fall semester are as follows: $2,400 tuition,$250 books and course materials,and $1,600 room and board.Abigail's expenses for the 2012 calendar year are as follows: $10,200 tuition,$1,200 books and course materials,and $3,600 room and board.Tuition and the applicable room and board costs are paid at the beginning of each semester.Bradley is married,files a joint tax return,claims both children as dependents,and has a combined AGI with his wife of $114,000 for 2012.Determine Bradley's available education tax credit for 2012.
Q2) Phil and Audrey,husband and wife,are both employed by Laurel Corporation.Phil earns $112,000 in salary in 2012,and Audrey earns $70,000.How much FICA tax must they pay for 2012?
Q3) If a taxpayer is required to recapture any tax credit for rehabilitation expenditures,the recapture amount need not be added to the adjusted basis of the rehabilitation expenditures.
A)True
B)False
Q4) Discuss the treatment of unused general business credits.
Q5) Describe the withholding requirements applicable to employers.
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) Lynn purchases a house for $52,000.She converts the property to rental property when the fair market value is $115,000.After deducting depreciation (cost recovery)expense of $1,130,she sells the house for $120,000.What is her recognized gain or loss?
A) $0.
B) $6,130.
C) $37,630.
D) $69,130.
E) None of the above.
Q2) If the alternate valuation date is elected by the executor in 2012,the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.
A)True
B)False
Q3) The holding period of nontaxable stock rights includes the holding period of the stock on which the rights were distributed.
A)True
B)False
Q4) What is the general formula for calculating the adjusted basis of property?
Page 16
To view all questions and flashcards with answers, click on the resource link above.
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) What effect do the assumption of liabilities have on a § 1031 like-kind exchange?
Q2) Patty's factory building,which has an adjusted basis of $325,000,is destroyed by fire on March 5,2012.Insurance proceeds of $475,000 are received on May 1,2012.She has a new factory building constructed for $450,000,which she occupies on October 1,2012.Assuming Patty's objective is to minimize the tax liability,calculate her recognized gain or loss and the basis of the new factory building.
Q3) Wyatt sells his principal residence in December 2012 and qualifies for the § 121 exclusion.He sells another principal residence in October 2013.Under certain circumstances Wyatt can qualify for the § 121 exclusion on the sale of the second residence.
A)True
B)False
Q4) Amy's manufacturing plant is destroyed by fire on the afternoon of October 25,2012.The adjusted basis is $550,000.The insurance company offers a settlement of $520,000.After protracted negotiations,Amy receives $575,000 on June 20,2013.Amy is a fiscal year taxpayer whose tax year ends on June 30th.What is the latest date that Amy can invest the proceeds in qualifying replacement property and elect to defer the gain under § 1033?
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) To compute the holding period,start counting on the day the property was acquired and include the day of disposition.
A)True
B)False
Q2) A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee.The tenant wanted to get out of its lease so it could move to a different building.The lessor had held the lease for three years before it was canceled.The lessor had a zero tax basis for the lease.The lessor has received:
A) Ordinary income of $45,000.
B) Long-term capital gain of $45,000.
C) Short-term capital gain of $45,000.
D) Neither gain nor loss.
E) None of the above.
Q3) Samuel,head of household with two dependents,has 2012 wages of $26,000,paid alimony of $3,000,has taxable interest income of $2,000,and a $12,000 0%/15% net long-term capital gain.Samuel uses the standard deduction and is age 38.What is his 2012 taxable income and the tax on the taxable income?
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) Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.
Q2) Which of the following real property could be subject to § 1250 depreciation recapture?
A) Leasehold improvements placed in service in 2012 on which § 168(k) additional first-year depreciation was taken.
B) A building acquired in 1997 on which straight-line depreciation was taken.
C) Equipment on which accelerated depreciation was taken.
D) Land which was not depreciated.
E) a. and b.
Q3) 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.
To view all questions and flashcards with answers, click on the resource link above.
Page 19
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) Aspen stores is a large retail chain.The company has four warehouses that are located in various parts of the country.The goods are stored at the warehouses and then moved to the retail stores for sale.
A) The costs of operating the warehouses can be deducted in the year the costs are incurred because it is a loss incurred from not selling goods.
B) The costs of operating the warehouses can be deducted in the year the costs are incurred because they did not add to the value of the goods.
C) The costs of operating the warehouses can be capitalized or expensed by electing one method or the other.
D) The warehouses are on-sight storage facilities and, therefore, their costs must be added to the cost of goods on hand.
E) None of the above.
Q2) A C corporation's selection of a tax year,generally,is independent of the tax year of its principal shareholders.
A)True
B)False
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) Samuel,age 53,has a traditional deductible IRA with an account balance of $112,000.Of this amount,$82,000 represents contributions and $30,000 represents earnings.In 2012,he converts his traditional IRA into a Roth IRA.What amount must Samuel include in his gross income,if any,in 2012?
Q2) Sammy,age 31,is unmarried and is not an active participant in a qualified retirement plan.His modified AGI is $55,000 in 2012.The maximum amount that Sammy can deduct for a contribution to a traditional IRA is:
A) $2,800.
B) $3,500.
C) $4,000.
D) $5,000.
E) None of the above.
Q3) The $1 million limitation for deductible executive compensation does not apply to the alternative minimum tax.
A)True
B)False
Q4) A qualified pension and profit sharing plan must satisfy which requirements?
Q5) What is a profit sharing plan?
Q6) What is a defined contribution plan?
Page 21
To view all questions and flashcards with answers, click on the resource link above.
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) Schedule M-2 of Form 1120 reconciles unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at year-end.
A)True
B)False
Q2) In completing Schedule M-1 (reconciliation of income per books with income per tax return)of Form 1120,to net income per books:
A) Add tax-exempt interest.
B) Add excess of capital loss over capital gain.
C) Add proceeds of term life insurance received by the corporation due to the death of a key employee.
D) Subtract Federal income tax.
E) None of the above.
Q3) Is there a logical explanation why S corporations are not allowed a dividends received deduction when computing taxable income?
Q4) When forming a corporation under § 351,recognized gain is the greater of realized gain or the amount of boot received.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.