Tax Accounting Review Questions
Course Introduction
Tax Accounting is a comprehensive course that introduces students to the principles, regulations, and practical applications of taxation as they relate to individuals and business entities. The course covers key topics such as income tax laws, tax planning strategies, compliance requirements, and the preparation of federal and state tax returns. Students will develop an understanding of taxable income, tax deductions and credits, and the ethical responsibilities of tax professionals. Emphasis is placed on interpreting tax codes, applying tax concepts to real-world scenarios, and utilizing tax software tools for accurate reporting.
Recommended Textbook
Fundamentals of Taxation 2018 Edition 11th Edition by
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Page 2
Ana M. Cruz Dr
Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040EZ
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Q1) The U.S.individual income tax system is an example of a progressive tax rate structure.
A)True
B)False
Answer: True
Q2) The tax liability for a single individual with taxable income of $68,312 is:
A)$12,817.
B)$9,316.
C)$12,820.
D)$11,334.
Answer: C
Q3) The U.S.individual income tax system is an example of a proportional tax rate structure.
A)True
B)False
Answer: False
Q4) A married couple has taxable income of $83,125.Determine their marginal tax rate and their average tax rate.(Round your answers to 2 decimal places)
Answer: Their marginal tax rate is 25%.Their average tax rate is 14.75%.
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Chapter
2:
Expanded Tax Formula, forms 1040A and 1040, and Basic Concepts
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Q1) Most taxpayers make payments to the IRS through income tax withholdings and quarterly estimated tax payments.
A)True
B)False
Answer: True
Q2) The IRS can impose a ________ penalty on any portion of understatement of tax that is attributable to fraud.
A)25%
B)75%
C)50%
D)5%
Answer: B
Q3) What is the amount of the tax liability for a qualifying widow(er)with a dependent child and having taxable income of $121,600? All answers should be rounded to the nearest dollar.
A)$25,234.
B)$21,878.
C)$30,400.
D)$27,665.
Answer: B
Page 4
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) Provisional income is calculated by starting with Adjusted Gross Income (AGI)before social security benefits and adding back specific items.One of these items is:
A)Qualified dividends.
B)Deducted interest on educational loans.
C)Capital gains.
D)Wages.
Answer: B
Q2) Employers can reimburse employees for up to ________ per year of educational assistance,whether or not job-related.
A)$5,250
B)$5,150
C)$5,000
D)$5,520
Answer: A
Q3) Does forgiveness of debt result in taxable income to the taxpayer (borrower)?
Answer: Generally,if a lender fully or partially forgives a loan,the taxpayer has income to the extent of the forgiveness.However,he or she does not report income if payment of the debt would have given rise to a deduction.
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) The self-employment tax is calculated on:
A)Form 1040.
B)Schedule C.
C)Form SE.
D)Schedule D.
Q2) For the moving expense distance test,the new job location must be at least 100 miles farther from the taxpayer's old residence than was the old job location.
A)True
B)False
Q3) What are the two limitations associated with the deduction for health insurance for self-employed individuals?
Q4) To be eligible to fund a Health Savings Account (HSA),a taxpayer must be self-employed,or an employee (or spouse)of an employer who maintains a high deductible health plan,or an employee of a company that offers no health coverage and the employee has purchased a high deductible health plan on his or her own.
A)True
B)False
Q5) Define each of the following: alimony,child support,and a property settlement.
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Page 6
Chapter 5: Itemized Deductions
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Q1) Sonia's car was completely destroyed in an accident that was her fault.Her loss was $8,500 and her insurance company reimbursed her $6,500.What amount of casualty loss can Sonia claim on her return (before deduction limitations)?
A)$0
B)$2,000
C)$6,500
D)$8,500
Q2) Some charitable contributions are limited to 50% of the taxpayer's AGI,others may be limited to a lower % of AGI.Deductions to which of the following organizations are subject to the 50% limitation on deductible contributions?
A)Churches and conventions of organizations of churches and educational organizations.
B)Hospitals and certain medical research organizations associated with these hospitals.
C)Rotary,Elks,and Lions Clubs who raise money for public causes.
D)Both churches and conventions of organizations of churches and educational organizations and hospitals and certain medical research organizations associated with these hospitals.
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Q1) Which of the following individuals can deduct his or her education expenses?
A)An accountant who attends law school to get a law degree.
B)A medical doctor who attends a review course to obtain a financial consultant license.
C)A lawyer who goes to law school to get a specialized tax degree.
D)An accounting bookkeeper that takes a CPA review course to pass the CPA exam and become a CPA.
Q2) In June 2017,Kelly purchased new equipment for $26,000 to be used in her business.Assuming Kelly has net income from her business of $75,000 prior to the deduction,what is the maximum amount of cost recovery Kelly can deduct rounded to the nearest dollar,assuming she does not elect §179 expense or bonus depreciation?
A)$3,715.
B)$13,000.
C)$14,858.
D)$26,000.
Q3) Beau earned $35,000 of net earnings from a tax preparation business that he runs during tax season.He also earned a salary of $100,000 from his full-time job.How much self-employment tax must he pay for 2017? (Round calculations to the nearest dollar)
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Page 8
Chapter 7: Capital Gains and Other Sales of Property
Schedule D and Form 4797
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Q1) Section 1221 assets are any asset used in a trade or business.
A)True
B)False
Q2) Oliver purchased the following stock of Doggie Treats Inc. , \(\begin{array}{ll}
2015 & 10 \text { shares@ } \$ 10 \\
2016 & 10 \text { shares @ } \$ 12 \\
2017 & 20 \text { shares @ } \$ 14
\end{array}\) If Oliver sold 25 shares of stock in 2017 for $265,what is the loss on the sale of the stock? Assume the shares purchased in 2015 and 2016 were held for more than one year.
A)$9.50 short-term loss and $38.00 long-term loss.
B)$9.50 long-term loss and $38.00 short-term loss.
C)$8.00 short-term loss and $17.00 long-term loss.
D)$8.00 long-term loss and $17.00 short-term loss.
Q3) To figure the gain or loss from the sale of property received as a gift,the donee must know the donor's adjusted basis as well as the FMV at the date of the gift.
A)True
B)False
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Chapter 8: Rental Property, Royalties, and Income From
Flow- Through Entities Line 17, form 1040, and Schedule E
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Q1) Which of the following statements is true with regard to the reporting of royalty income?
A)It must be reported on Schedule C only
B)It must be reported on Schedule E only
C)It can be reported on Schedule C but generally on Schedule E
D)Royalty income reported on Schedule E is subject to self-employment tax
Q2) Robert and Melissa own a home in Big Bear Lake,California.During the year,they rented it for 55 days for $11,000 and used it for 12 days for personal use.The expenses for the house included $12,000 in mortgage interest,$2,000 in property taxes,$1,000 in utilities,$600 in maintenance,and $4,000 in depreciation.What is their income or loss from their cabin (without considering the passive loss limitation)? Use the IRS method for allocation of expenses.(Round your answer to the nearest whole number)
A)$0.
B)$2,947 net loss.
C)$5,090 net loss.
D)$11,000 net income.
Q3) A taxpayer may use a Schedule C or a Schedule E to report royalty income.
A)True
B)False
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Chapter
9: Tax
Credits Form
1040,lines 48 Through 54 and Lines 66A Through 73
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Q1) Max paid $2,500 in foreign income taxes to Peru.His total income was $65,000,which included $9,000 of foreign income.His U.S.tax liability is $17,750.How much can Max claim as foreign tax credit? (Do not round interim calculations. )
A)$2,458.
B)$2,500.
C)$3,350.
D)$9,000.
Q2) There are two types of education credits available,the American opportunity tax credit and the lifetime learning credit.
A)True
B)False
Q3) In the case of the adoption credit,what special rules apply when adopting a child who is a citizen of another country?
Q4) In order to be eligible for the credit for the elderly or the disabled,the taxpayer must be age 55 or older or have retired on permanent disability.
A)True
B)False
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Chapter 10: Payroll Taxes
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Q1) Harry has two jobs.He earns $127,700 from his first job and $10,000 from his second job.How much total FICA withholding will Harry have withheld from his wages from working two jobs?
A)$9,833.15.
B)$10,530.05.
C)$10,503.05.
D)$10,534.05.
Q2) The credit against "payroll taxes" for providing COBRA premium assistance to eligible individuals is recorded using Form 941-X.
A)True
B)False
Q3) Mahmet earned wages of $128,700 during 2017.He is single and claims two withholding allowances.How much FICA tax is Mahmet's employer responsible to remit in 2017?
A)$18,136.30.
B)$19,425.60.
C)$19,436.80.
D)$19,505.10.
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) Valerie and Marty are both age 51 and file a joint return.They have one child who is age 17.They have combined AGI in 2017 of $180,000.What is their maximum permitted contribution to a Coverdell Education Savings Account for 2017 assuming no other persons make contributions?
A)$0.
B)$2,000.
C)$5,500.
D)$6,500.
Q2) For 2017,the maximum annual contribution to a Simplified Employee Pension (SEP)plan for an employee under the age of 50 is:
A)$5,500
B)$12,500
C)$18,000
D)$54,000
Q3) Retirement plans can be categorized into employer-sponsored plans and individual-based plans.What is the distinction? Give examples of plans in both categories.
Q4) Pension plan distributions are reported to taxpayers on a Form 1099-P.
A)True
B)False
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Chapter 12: Special Property Transactions
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Q1) Richard's business is condemned by the state on July 10,2017,as part of a plan to add a highway loop around the city.His adjusted basis in his business is $500,000.He receives condemnation proceeds of $610,000 on August 30,2017.He purchases another business for $575,000 on September 15,2017.
a.What is Richard's realized and recognized gain or loss?
b.What is Richard's basis in the new business?
Q2) A warehouse with an adjusted basis of $125,000 was destroyed by a tornado on April 15,2018.On June 15,2018,the insurance company paid the owner $195,000.The owner reinvested $170,000 in a warehouse.What is the basis of the new warehouse if non-recognition of gain from an involuntary conversion is elected?
Q3) The receipt of boot in a like-kind exchange causes the recognition of a realized gain.
A)True
B)False
Q4) Related parties include the taxpayer's spouse,ancestors,lineal descendants,but not brothers and sisters.
A)True
B)False
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Page 14
Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) After computing all tax preferences and AMT adjustments,Adam and his wife Cindy have AMTI of $290,000.If Adam and Cindy file a joint tax return,what exemption amount can they claim for AMT for 2017?
A)$0.
B)$52,225.
C)$53,900.
D)$84,500.
Q2) Gifts to charity are not allowed for AMT purposes.
A)True
B)False
Q3) Rene owns four small businesses.Rene spends the following number of hours this year working in those businesses: Business A,105 hours;Business B,130 hours;Business C,120 hours;Business D,99 hours.Which of the following statements is correct?
A)Businesses A,B,and C are material participation activities.
B)Businesses A,B,C,and D are all significant participation activities.
C)Businesses A,B,and C are significant participation activities.
D)Both businesses A,B,and C are material participation activities and businesses A,B,and C are significant participation activities are correct.
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Chapter 14: Partnership Taxation
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Q1) If a personal-use asset is contributed to a partnership for business use,the partnership's basis in the asset is always the FMV of the asset.
A)True
B)False
Q2) Jeremy and Juan are equal partners in the JJ Partnership.Jeremy receives a guaranteed payment of $120,000.In addition to the guaranteed payment,Jeremy withdraws $30,000 from the partnership.The partnership has $78,000 in ordinary income during the year.
a.How much income must Jeremy report from JJ partnership?
b.What is the effect on Jeremy's partnership basis?
Q3) Nondeductible partnership items do not decrease a partner's basis in the partnership interest.
A)True
B)False
Q4) When a partner is released of a partnership liability,the partner is treated as receiving a money distribution,which reduces his or her partnership basis.
A)True
B)False
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16
Chapter 15: Corporate Taxation
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Q1) Certain items of income or expense are not included in income of a Subchapter S corporation but,instead,are separately stated on Schedule K-1.List some items that are separately stated.
Q2) A domestic corporation can receive a deduction for dividend income it receives from another domestic corporation.
A)True
B)False
Q3) Grape Corporation makes a nonliquidating distribution of appreciated property to its shareholders.
A)The shareholders will report a gain.
B)The corporation will report a gain.
C)The shareholders will report dividend income equal to the basis of the property distributed.
D)The corporation will report dividend expense equal to the fair value of the property distributed.
Q4) When are estimated income tax payments due for a corporation with a fiscal year-end of November? What if the fiscal year-end is June?
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