Introduction to Taxation Exam Bank
Course Introduction
Introduction to Taxation offers a comprehensive overview of tax systems, principles, and practices with a focus on both individual and business taxation. The course introduces students to the legal framework governing taxation, the objectives and types of taxes, and fundamental concepts such as taxable income, deductions, credits, and tax rates. Emphasis is placed on understanding the administrative processes, taxpayer obligations, ethical considerations, and the implications of tax policies on society and economic behavior. Through real-world examples and practical exercises, students gain foundational knowledge necessary for further study or application in accounting, finance, and public administration.
Recommended Textbook
McGraw Hills Taxation of Business Entities 2019 Edition 10th Edition by Brian C. Spilker
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14 Chapters
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Chapter 1: Business Income, Deductions, and Accounting Methods
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Sample Questions
Q1) Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?
A) Selling expenditures
B) Cost of manufacturing labor
C) Compensation of managers who supervise production
D) Cost of raw materials
E) All of the choices are subject to capitalization under the UNICAP rules
Answer: A
Q2) A short tax year can end on any day of any month other than December.
A)True
B)False
Answer: False
Q3) Individual proprietors report their business income and deductions on:
A) Form 1065.
B) Form 1120S.
C) Schedule C.
D) Schedule A.
E) Form 1041.
Answer: C
Page 3
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Chapter 2: Property Acquisition and Cost Recovery
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Q1) Anne LLC purchased computer equipment (5-year property) on August 29 for $30,000 and used the half-year convention. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense. (Use MACRS Table 1)
A) $432.
B) $1,728.
C) $1,874.
D) $3,456.
E) None of the choices are correct.
Answer: B
Q2) The §179 immediate expensing election phases out based upon a taxpayer's taxable income.
A)True
B)False
Answer: False
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Chapter 3: Property Dispositions
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Q1) The amount realized is the sale proceeds less the adjusted basis.
A)True
B)False
Answer: False
Q2) Which of the following is not True regarding an asset's adjusted basis?
A) Tax adjusted basis is usually greater than book adjusted basis.
B) Tax adjusted basis is usually less than book adjusted basis.
C) Adjusted basis is cost basis less cost recovery deductions.
D) Tax adjusted basis may change over time.
Answer: A
Q3) How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?
A) The like-kind property to be received must be identified within 45 days.
B) The like-kind property to be received must be identified by the earlier of 45 days or the last day of the taxpayer's taxable year.
C) The like-kind property to be received must be identified within 180 days.
D) There is no deadline for the identification of replacement property.
E) All of the choices are correct.
Answer: A
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Chapter 4: Entities Overview
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Sample Questions
Q1) Which legal entity is correctly paired with the party that bears the ultimate responsibility for paying the legal entity's liabilities?
A) LLC - LLC members.
B) Corporation - Corporation.
C) General Partnership - Partnership.
D) Limited Partnership - General partner.
E) Corporation - Corporation and Limited Partnership - General partner.
Q2) The deduction for qualified business income applies to income of all but which of the following tax entity types?
A) Sole proprietorship.
B) Entity taxed as a partnership.
C) S corporation.
D) C corporation.
Q3) On which tax form do LLCs with more than one owner generally report their income and losses?
A) Form 1120.
B) Form 1120S.
C) Form 1065.
D) Form 1040, Schedule C.
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Chapter 5: Corporate Operations
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Q1) Over what time period do corporations amortize purchased goodwill for tax purposes?
A) 180 months.
B) 150 months.
C) 60 months.
D) None of the choices are correct.
Q2) Pure Action Cycles Inc., a bicycle manufacturer, has a net capital loss in 2018 of $(64,000). It had net capital gains of $21,500 in 2017, $45,000 in 2016, $10,000 in 2015 (but suffered a net operating loss in 2015), and $8,000 of net capital gain in 2014. What is the net capital gain in 2017 after the carryback is applied?
Q3) Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?
A) $0.
B) $2,000.
C) $4,000.
D) $5,000.
E) None of the choices is correct.
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Chapter 6: Accounting for Income Taxes
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Q1) Angel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Angel subtracted a dividends received deduction of $25,000 in computing its current year taxable income. Angel's hypothetical tax expense in its reconciliation of its income tax expense is:
A) $210,000.
B) $204,750.
C) $194,250.
D) $189,000.
Q2) Weber Corporation reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $100,000, unfavorable temporary differences of $300,000, and unfavorable permanent differences of $200,000. Compute the Company's book equivalent of taxable income. Use this number to compute the Company's total income tax provision or benefit.
Q3) Purple Rose Corporation reported pretax book income of $500,000. Tax depreciation exceeded book depreciation by $300,000. In addition, the company received $250,000 of tax-exempt life insurance proceeds. The prior year tax return showed taxable income of $100,000. Compute Purple Rose's current income tax expense or benefit.
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Chapter 7: Corporate Taxation: Nonliquidating Distributions
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Sample Questions
Q1) Which of the following individuals is not considered "family" for purposes of applying the stock attribution rules to a stock redemption?
A) Parents.
B) Grandchildren.
C) Grandparents.
D) Spouse.
Q2) Viking Corporation is owned equally by Sven and his wife Olga, each of whom hold 100 shares in the company. Viking redeemed 75 shares of Sven's stock in the company on December 31, 20X3. Viking paid Sven $2,000 per share. His income tax basis in each share is $1,000. Viking has total E&P of $500,000. What are the tax consequences to Sven because of the stock redemption?
A) $75,000 capital gain and a tax basis in each of his remaining shares of $1,000.
B) $75,000 capital gain and a tax basis in each of his remaining shares of $2,000.
C) $150,000 dividend and a tax basis in each of his remaining shares of $1,000.
D) $150,000 dividend and a tax basis in each of his remaining shares of $4,000.
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Chapter 8: Corporate Formation, Reorganization, and Liquidation
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Sample Questions
Q1) Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is Roy's tax basis in the stock received in the exchange?
A) $800
B) $750
C) $700
D) $500
Q2) A taxpayer always will have a tax basis in boot received in a section 351 transaction equal to its fair market value.
A)True
B)False
Q3) A liquidated corporation will always recognize gain in a complete liquidation.
A)True
B)False
Q4) Tax considerations are always the primary reason for structuring an acquisition.
A)True
B)False
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Chapter 9: Forming and Operating Partnerships
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Q1) This year, Reggie's distributive share from Almonte Partnership includes $8,000 of interest income, $4,000 of dividend income, and $60,000 ordinary business income.
A. Assume that Reggie materially participates in the partnership. How much of his distributive share from Almonte Partnership is potentially subject to the Medicare contribution tax?
B. Assume that Reggie does not materially participate in the partnership. How much of his distributive share from Almonte Partnership is potentially subject to the Medicare contribution tax?
Q2) What form does a partnership use when filing an annual informational return?
A) Form 1040.
B) Form 1041.
C) Form 1065.
D) Form 1120.
Q3) A partnership with a C corporation partner must always use the accrual method as its accounting method.
A)True
B)False
Q4) What is the difference between a partner's tax basis and at-risk amount?
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Chapter 10: Dispositions of Partnership Interests and Partnership Distributions
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Q1) Catherine is a 30% partner in the ACW Partnership with an outside basis of $20,000. ACW distributes land with a basis of $12,000 and fair value of $18,000 to Catherine in complete liquidation of her interest. Catherine recognizes a capital loss of $2,000 on the distribution.
A)True
B)False
Q2) Inventory is substantially appreciated if the fair market value of all inventory items exceeds 100% of their basis to the partnership.
A)True
B)False
Q3) A partner's debt relief from the sale of a partnership interest will decrease his outside basis.
A)True
B)False
Q4) A disproportionate distribution is a distribution in which the partner's share of the partnership's hot assets either increases or decreases as a result of the distribution.
A)True
B)False
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Chapter 11: S Corporations
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Q1) An S corporation shareholder's allocable share of business income that is determined to be from a passive activity is considered net investment income for purposes of the Net Investment Income tax.
A)True
B)False
Q2) At the beginning of the year, Clampett, Inc. had $100,000 in its AAA, $60,000 of earnings and profits from prior C corporation years. During the year, Clampett, Inc.
Earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders. Assume that J. D. owns 25% of Clampett, Inc., his basis in Clampett, Inc. at the beginning of the year is $30,000, and his share of the distribution was $50,000. What is J. D.'s basis in the Clampett, Inc. stock after these transactions?
A) $0.
B) $5,000.
C) $12,500.
D) $15,000.
E) None of the choices are correct.
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Chapter 12: State and Local Taxes
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Q1) Failure to collect and remit sales taxes by a seller often results in a larger tax liability than failure to pay income taxes.
A)True
B)False
Q2) All 50 states impose a sales and use tax system.
A)True
B)False
Q3) Which of the following is not a general rule for allocating nonbusiness income?
A) Interest and dividends to the state of commercial domicile.
B) Rental income for investment property to state of commercial domicile.
C) Rental income for business property to state where property is located.
D) Capital gains from rental property to state where property is located.
Q4) The sales and use tax base varies from state to state.
A)True
B)False
Q5) Most states have shifted away from an equally weighted three-factor to a heavily-weighted sales apportionment formula.
A)True
B)False
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Chapter 13: The US Taxation of Multinational Transactions
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Sample Questions
Q1) Janet Mothra, a U.S. citizen, is employed by Caterpillar Corporation, a U.S. corporation. In May 2018, Caterpillar relocated Janet to its operations in Spain for the remainder of 2018. Janet was paid a salary of $200,000. As part of her compensation package for moving to Spain, Janet received a housing allowance of $40,000. Janet's salary was earned ratably over the twelve-month period. During 2018 Janet worked 280 days, 168 of which were in Spain and 112 of which were in the United States. How much of Janet's total compensation is treated as foreign source income for 2018?
Q2) Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in 2018. Boca also received a dividend of $100,000 from the corporation's 100 percent owned subsidiary in Italy. The Italian government imposed a withholding tax of $5,000 on the dividend. Compute Boca Corporation's net U.S. tax liability for 2018.
A) $231,000
B) $227,000
C) $210,000
D) $205,000
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Chapter 14: Transfer Taxes and Wealth Planning
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Q1) The estate and gift taxes share several common features. Which of the following characteristics is common to both the estate and gift taxes?
A) A marital deduction and a deduction for casualty losses.
B) A marital deduction for transfers of all terminable interests.
C) The tax rate schedule for calculating gross transfer taxes.
D) A charitable deduction and an annual exclusion.
E) None of these choices list characteristics common to both the gift and the estate tax.
Q2) Which of the following statements is (are) True for both gratuitous and testamentary transfers?
A) An applicable credit of up to $15,000 per donee per year reduces the tax on any transfer.
B) An annual exclusion offsets any transfer up to $15,000.
C) An election can be made to split a transfer between spouses.
D) A charitable and a marital deduction are allowed in computing the taxable transfer.
E) All of the choices are True.
Q3) Ricardo transferred $1,000,000 of cash to State University for a new sports complex. Calculate the amount of the taxable gift.
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