Tax Accounting
Solved Exam Questions
Course Introduction
Tax Accounting is a course that examines the fundamental principles and practices of taxation as they apply to individuals and business entities. Students will gain an understanding of tax laws, regulations, and compliance issues, focusing on the preparation of income tax returns, tax planning, and the treatment of various types of income and deductions. The course also explores the ethical responsibilities of tax professionals, the impact of taxation on financial decision-making, and key differences between financial accounting standards and tax accounting rules. Through case studies and practical exercises, students develop the analytical skills necessary to address complex tax issues and maintain accurate tax records in accordance with current legislation.
Recommended Textbook
Fundamentals of Taxation 2018 Edition 11th Edition by Ana M. Cruz Dr
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Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040EZ
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Q1) Describe the various courts that hear tax cases.Include both trial courts and appellate courts in your discussion.
Answer: Three different trial courts hear tax cases: (1)the U.S.Tax Court; (2)U.S.District Courts;and (3)the U.S.Court of Federal Claims.Decisions by the Tax Court and the District Courts may be appealed to the U.S.Court of Appeals and then to the Supreme Court.U.S.Court of Federal Claims cases can be appealed to the U.S.Court of AppealsFederal Claims and then to the Supreme Court.
Q2) One major disadvantage the taxpayer has when filing a petition with the Tax Court is that the IRS's proposed tax assessment must be paid prior to trial.
A)True
B)False
Answer: False
Q3) Which of the following would disqualify a taxpayer from filing a Form 1040EZ?
A)Has total taxable income under $100,000.
B)Has no dependents.
C)Be age 68 and not blind.
D)Has interest income less than $1,500.
Answer: C
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Chapter 2: Expanded Tax Formula, forms 1040A and 1040, and Basic Concepts
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Q1) What is the amount of the standard deduction for Evelyn who is a full-time student and claimed as a dependent by her parents? She earned $2,700 in wages in 2017.
Answer: Evelyn's standard deduction is $3,050.When a taxpayer can be claimed as a dependent on another return,the basic standard deduction for the taxpayer is limited to the greater of (a)$1,050,or (b)the taxpayer's earned income plus $350,but not more than the amount of the basic standard deduction.
Q2) Personal exemptions are for the taxpayer and spouse.
A)True
B)False
Answer: True
Q3) The tax liability for a single taxpayer with taxable income of $67,350 is: Use the appropriate Tax Tables or Tax Rate Schedules.
A)$12,700.
B)$10,103.
C)$12,638.
D)$12,583.
Answer: D
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Page 4
Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) If Alex,an attorney,agrees to provide legal services to a friend in exchange for the friend agreeing to fix his car,Alex and his friend will have to report income on this transaction at fair market value.
A)True
B)False
Answer: True
Q2) The following fringe benefit provided by the employer is not taxable to the employee: A)Vacation pay.
B)Employer-paid premiums on group-term life insurance with coverage of $40,000 per person.
C)Educational assistance for up to $10,000 per person.
D)Sick pay.
Answer: B
Q3) If a taxpayer is economically better off because of a transaction,the person must normally record income.
A)True
B)False
Answer: True
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5
Chapter 4: Adjustments for Adjusted Gross Income
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Q1) The determination for the deduction of the self-employment tax is based upon the:
A)net earnings of the business.
B)gross earnings of the business.
C)total of 7.65% of FICA taxes.
D)total of itemized deductions.
Q2) An eligible educator,in the K through 12 educational system,for purposes of the educator's expense deduction is:
A)A teacher.
B)A counselor.
C)A principal.
D)All of these.
Q3) In lieu of making cash payments of alimony directly to a former spouse,payments to a third party on behalf of the former spouse can qualify as alimony.
A)True
B)False
Q4) What is meant by a penalty on early withdrawal of savings and under what circumstances is it deductible?
Q5) What is a Health Savings Account (HSA)?
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Chapter 5: Itemized Deductions
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Q1) Which of the deductions listed below is subject to the phase-out of the total dollar amount of certain itemized deductions that may be claimed by high-income individuals?
A)Charitable contributions.
B)Investment interest expense.
C)Medical costs.
D)Personal casualty losses.
Q2) Explain the key exception to the general rule concerning the charitable deduction for the contribution of tangible personal property.
Q3) In order to deduct a charitable contribution,taxpayers must itemize on their return.
A)True
B)False
Q4) If an accountant in public accounting seeks work as a controller in private industry,the expenses of job hunting may be deductible.
A)True
B)False
Q5) Donations to what types of organizations are tax deductible?
Q6) Define a personal casualty loss.
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Q1) Patricia,a professional gambler,had the following income and expenses in her business: \(\begin{array}{lr}
\text { Gambling winnings}&\$275,000\\
\text {Expenses }&\\
\text {Fees paid for illegal information }&18,000\\
\text {Travel costs }&\$8,000\\
\text {Office expenses }&5,000\\
\text {Supplies }&3,000\\
\text {Business long-distance phone charges }&1,000\\
\text {Tickets for illegal parking }&900\\ \end{array}\)
How much net income must Patricia report from this business?
A)$0.
B)$239,100.
C)$240,000.
D)$258,000.
Q2) The standard mileage rate includes parking fees,tolls,and property taxes on the vehicle.
A)True
B)False
Page 8
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Chapter 7: Capital Gains and Other Sales of Property
Schedule D and Form 4797
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Q1) Keeley purchased 1,000 shares in FAM Inc. ,for $10,000 on December 19,2016.The company went bankrupt on July 10,2017 with no hope of recovery for the shareholders.
a.On what date is the stock deemed to be worthless?
b.What is the nature of the loss?
Q2) Respond to the following independent situations:
a.Rosalva and Francisco,husband and wife,filing jointly,earn $475,000 in salaries and do not have any net investment income.
How much in surtax will Rosalva and Francisco be assessed on their Form 1040 for 2017?
b.Rosalva and Francisco,husband and wife,filing jointly,earn $325,000 in salaries and $60,000 in capital gains,$40,000 in dividends,for a total MAGI of $375,000.
How much in surtax will Rosalva and Francisco be assessed on their Form 1040 for 2017?
c.Rosalva and Francisco,husband and wife,filing jointly earn $330,000 in income including $100,000 in capital gains.
How much in surtax will Marie and Jim be assessed on their Form 1040 for 2017?
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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) Rental income is generally reported on Schedule C.
A)True
B)False
Q2) Darius and Chantal own a cabin in Lake Arrowhead,California.During the year,they rented it for 45 days for $10,000 and used it for 12 days for personal use.The house remained vacant for the remainder of the year.The expenses for the house included $9,000 in mortgage interest,$2,000 in property taxes,$1,000 in utilities,$600 in maintenance,and $3,000 in depreciation.What is their net 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 dollar. )
A)$0
B)$2,316 net loss
C)$5,600 net loss
D)$10,000 net income
Q3) Generally,a taxpayer uses Schedule C to report royalty income.
A)True
B)False
Q4) What are the different types of income that may be reported on Schedule E?
Q5) Explain what is considered personal use of a rental property.
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Chapter
Credits Form
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Q1) Which of the following statements regarding adoption credits is true?
A)The maximum credit allowed per adopted child is $16,000.
B)Qualified expenses may include reimbursements from employer programs.
C)Adoption of foreign children does not qualify for the credit.
D)The adoption credit may be limited if AGI amounts exceed certain levels.
Q2) Which of the following statements is true about education credits?
A)A taxpayer may be eligible to claim the education credits regardless of their AGI amount.
B)A taxpayer can use the same qualifying expenses for both the American opportunity tax and lifetime learning credits.
C)A taxpayer cannot claim an American opportunity tax credit or lifetime learning credit in the same year he/she takes a tax-free distribution from a Coverdell Education Savings Account.
D)The lifetime learning credit may be limited by AGI levels and may completely phase out when modified AGI exceeds a certain amount (the amount depending on the tax year).
Q3) Enrique and Anna filed a joint tax return and reported modified AGI of $112,000.They have one qualifying child.What is the amount of their child tax credit?
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Chapter 10: Payroll Taxes
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Q1) Kathy received a commission of $12,000 from her employer and she also earns semimonthly wages of $2,500.Which of the following federal withholding methods is incorrect?
A)If taxes have already been withheld from Kathy's wages separately,the commission is added to the wages and federal taxes are withheld as if the total were a single payment.Subtract the tax already withheld and withhold the remaining tax from the supplemental wages.
B)If taxes have already been withheld from Kathy's wages,the commission is taxed at a flat rate of 28%.
C)If taxes have not already been withheld from Kathy's regular wage,the commission is added to the wages and withheld as if the total were a single payment.
D)If taxes have already been withheld from Kathy's wages separately,the commission is subject to backup withholding of 25%.
Q2) Copy A of the Form W-2 is a red scannable form that is sent directly to the Internal Revenue Service to track all wages for federal income tax and social security purposes.
A)True
B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) Benjamin and Ester file a joint return and have AGI of $165,000.Both are active participants in their employer's pension plan.They have one child,Emily,who is age 8.Emily's grandparents contributed $1,000 to a Coverdell Education Savings Account for Emily in 2017.What is the maximum permitted Coverdell Education Savings Account contribution that Benjamin and Ester can make in 2017?
A)$0.
B)$1,000.
C)$2,000.
D)$5,500.
Q2) Charlotte is age 52,married,and reported AGI of $105,000 in tax year 2017.She is an active participant in her employer's pension plan.What is the disallowed portion of her deductible IRA contribution in 2017?
A)$6,500.
B)$0.
C)$1,950.
D)$4,550.
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.
Page 13
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Chapter 12: Special Property Transactions
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Q1) Jasmine sold land for $250,000 in 2017.The land had a basis of $118,000 and she incurred selling expenses of $10,000.Jasmine received $50,000 cash down in 2017 and will receive five additional annual payments of $40,000 each.What is Jasmine's gross profit percentage on the sale?
A)47.2%.
B)48.8%.
C)51.2%.
D)100.0%.
Q2) If a taxpayer trades a personal-use asset for another asset,the exchange does not qualify as a like-kind exchange.
A)True
B)False
Q3) If one spouse sells a home and excludes the gain on the sale,the gain on the sale of a residence by the other spouse is:
A)Never excluded.
B)Excluded up to $500,000.
C)Excluded up to $250,000.
D)Excluded up to $250,000 plus any gain exclusion not used by the first spouse.
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) AMT depreciation of personal property is calculated using which method?
A)Straight-line method.
B)150% declining balance method.
C)200% declining balance method.
D)Sum-of-the-years digits method.
Q2) The term "active participation" is used to determine:
A)Whether an activity is considered passive.
B)Whether a taxpayer is a material participant.
C)Whether a taxpayer is eligible for the $25,000 rental offset.
D)None of these.
Q3) Tax preference items for AMT:
A)Can be positive or negative.
B)Can only result in a positive addition to AMTI.
C)Do not affect the AMT calculation.
D)None of these.
Q4) What form must a taxpayer file if he or she is at-risk in an activity?
A)Form 6198.
B)Form 4797.
C)Form 8582.
D)Form 1040,Schedule D.
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Chapter 14: Partnership Taxation
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Q1) If Jake contributes land to a partnership with a basis of $12,000 and a FMV of $18,000,the partnership will have a basis in the asset of $12,000.
A)True
B)False
Q2) A partner's share of recourse liabilities increases the partner's basis in his or her partnership interest.
A)True
B)False
Q3) Rich is a partner in RKW partnership.Rich owned 50% through January 1,2017 through April 30,2017,when he bought Kevin's 25% interest.He owned 75% for the rest of the year (assume a 365-day year).The partnership had ordinary income of $150,000 and $25,000 in long-term capital gains.Barring any special allocations in a partnership agreement,Rich's share of the income items is (round the answers up to the nearest whole dollar):
A)$75,000 ordinary income;$12,500 capital gain.
B)$100,172 ordinary income;$16,696 capital gain.
C)$112,500 ordinary income;$18,750 capital gain.
D)$150,000 ordinary income;$25,000 capital gain.
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Chapter 15: Corporate Taxation
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Q1) A capital loss carryforward will create a reconciling item on Schedule M-1,but a capital loss carryback will not.
A)True
B)False
Q2) Benedict transfers land with a FMV of $900,000 to a newly-formed corporation in exchange for all of the stock.The land has a basis of $500,000 and debt of $300,000.The basis of the land,in the hands of the corporation is:
A)$300,000.
B)$400,000.
C)$500,000.
D)$900,000.
Q3) Aqua Company has net income for financial statement purposes of $100,000.On its financial statements it recorded a charitable contribution of $20,000 and federal income tax expense of $30,000.What is Aqua's taxable income?
Q4) A corporation must file Form 1120 2½ months after the end of its fiscal year.
A)True
B)False
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