Tax Accounting
Textbook Exam Questions
Course Introduction
Tax Accounting examines the principles and practices governing the preparation, analysis, and reporting of income taxes for individuals, businesses, and other entities. The course explores the legal framework of tax systems, interpretation of tax codes, and the application of accounting standards in tax planning, compliance, and reporting. Students learn about different types of taxes, tax return preparation, tax deductions, credits, and the implications of tax regulations on business decisions. The curriculum also covers current tax issues, ethical considerations, and strategies for minimizing tax liabilities while ensuring adherence to laws and regulations.
Recommended Textbook
Income Tax Fundamentals 2017 35th Edition by Gerald
E. Whittenburg
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12 Chapters
1259 Verified Questions
1259 Flashcards
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Chapter 1: The Individual Income Tax Return
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) Karen is single and earns wages of $250,000 in 2016. She has no other income. How much is her ACA Medicare surtax on earned income?
Answer: $450 = 0.9% x ($250,000 - $200,000)
Q2) Which of the following is not a capital asset?
A)Inventory
B)Stocks
C)A personal automobile
D)Gold
E)Land
Answer: A
Q3) Bob owns a rental property that he bought several years ago for $250,000. He has taken depreciation on the house of $35,000 since buying it. He sells it in 2016 for $290,000. His selling expenses were $12,000 for the year. What was Bob's realized gain on the sale?
A)$18,000
B)$53,000
C)$63,000
D)$77,000
E)None of the above
Answer: C
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Chapter 2: Gross Income and Exclusions
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) Karina receives a scholarship of $10,000 to a college. She is also given a job which pays $5,000 a year to help with her expenses. $7,000 of the scholarship is earmarked for tuition and $3,000 is for room and board. How much of the money from the scholarship and the job are taxable to Karina?
Answer: The $5,000 earnings from the job are taxable, as is $3,000 of the scholarship. There is no exclusion for payments made for room and board. $7,000 is not taxable, since scholarships for tuition are specifically excluded from taxable income.
Q2) Which of the following is classified as nontaxable income?
A)Unemployment compensation
B)Dividend income
C)Income from real estate rental property
D)Welfare payments
E)None of the above
Answer: D
Q3) Lottery winnings
A)Included
B)Excluded
Answer: A
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Chapter 3: Business Income and Expenses Part I
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) The taxpayer must use either the FIFO or LIFO method of valuing inventory, depending upon which method reflects the actual goods the taxpayer has on hand.
A)True
B)False
Answer: False
Q2) Which of the following would be a business bad debt if it were uncollectible?
A)A taxpayer loans his father $1,000 to start a business.
B)A taxpayer loans his son $10,000 to purchase a rental house.
C)A dentist, using the accrual basis of accounting, records income when it is earned and extends credit to a patient for services provided.
D)A taxpayer loans his brother $3,000 to purchase a truck for use in his brother's business.
E)None of the above.
Answer: C
Q3) The expense of travel as a form of education is not deductible.
A)True
B)False
Answer: True
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Chapter 4: Business Income and Expenses Part II
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) For the current year, Robert, a single taxpayer, earned wages of $235,000 from Big Shot Corporation. He also received interest income of $1,000 from Little Credit Union. Robert had a $9,000 loss from his rental property which he actively manages. $2,000 of income was also reported on his Schedule K-1 from ABC Limited Partnership. Neither the rental property nor the partnership investment has passive losses carried over from prior years. Since Robert is not an active participant in a retirement plan, he decides to contribute $5,500 to his IRA.
a.Calculate Robert's adjusted gross income using the above information.
b.How much is Robert's unallowed loss from his passive investments?
c.What happens to the unallowed passive loss?
d.Calculate Robert's adjusted gross income assuming his wages were only $35,000.
Q2) Wages are considered "active income."
A)True
B)False
Q3) Earnings on nondeductible IRA contributions are allowed to accumulate tax-free until they are withdrawn.
A)True
B)False
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Chapter 5: Itemized Deductions and Other Incentives
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) An accountable expense reimbursement plan:
A)Requires the employee only to substantiate expenses with receipts.
B)Does not require the employee to return any excess reimbursement.
C)Requires the employee to report business expenses as itemized deductions.
D)Requires the employee to substantiate expenses with receipts and to return any excess reimbursement.
Q2) Glenda heard from a friend that prescriptions drugs were considerably cheaper overseas and purchases her regular prescription over the internet from a foreign company for $500. Though technically illegal, Glenda saves quite a bit and is pretty sure "everyone is doing it." Glenda can include the $500 cost of the prescription as a deductible medical expense.
A)True
B)False
Q3) The investment interest expense deduction is limited to the taxpayer's net investment income.
A)True
B)False
Q4) The cost of a chiropractor's services qualifies as a medical deduction.
A)True
B)False
Page 7
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Chapter 6: Credits and Special Taxes
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107 Flashcards
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Sample Questions
Q1) Margo and her spouse have health insurance for the entire year through the state health care exchange. Margo will need to pay her spouse's individual shared responsibility.
A)True
B)False
Q2) Maxine is a 29-year-old single mother. Her tax liability before credits is $1,000 and her earned income credit is $2,500. How much earned income credit will be refunded to Maxine? Explain.
Q3) The use of the earned income credit could result in a taxpayer receiving a refund even though he or she has not paid any income taxes.
A)True
B)False
Q4) New York is a community property state.
A)True
B)False
Q5) Amounts paid to a relative generally do not qualify as child care expenses.
A)True
B)False
Q6) What is the purpose of the alternative minimum tax?
Page 8
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Chapter 7: Accounting Periods and Methods and Depreciation
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111 Flashcards
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Sample Questions
Q1) Bev is the sole owner of Bev & Associates, an accrual basis corporation. In 2016, Bev & Associates has a bad year and Bev lends the corporation $50,000 to meet expenses. The corporation accrues interest expense of $5,000 on the loan from Bev, but does not pay the interest to her in cash.
How much of the $5,000 in accrued interest expense can Bev & Associates deduct on its 2016 corporate tax return? Explain.
Q2) Which of the following is true about the MACRS depreciation system?
A)No salvage value is used before depreciation percentages are applied to depreciable real estate.
B)Residential rental buildings are depreciated straight-line over 20 years .
C)Commercial real estate buildings are depreciated over 39 years using accelerated depreciation.
D)No matter when equipment is purchased during the month, it is considered to have been purchased mid-month for MACRS depreciation purposes.
Q3) Depreciation refers to the physical deterioration or loss of value of an asset.
A)True
B)False
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Chapter 8: Capital Gains and Losses
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109 Flashcards
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Sample Questions
Q1) If a capital asset acquired on October 27, 2008 is sold on April 30, 2016 for a gain, the gain is a long-term capital gain.
A)True
B)False
Q2) After 4 years of life in the slow lane, Doug decided to give up his goat ranch and move back to the big city. He sold the goat milking machine for $1,000. The machine originally cost $1,200 and had $820 of accumulated depreciation at the time of sale.
a.What is the total gain or loss on the sale of the goat milking machine?
b.Is the gain or loss treated as capital or ordinary? Explain.
Q3) Which one of the following qualifies as a like-kind exchange?
A)A chicken held by a farmer exchanged for medical services.
B)A home owned and lived in by a taxpayer exchanged for a new personal residence.
C)IBM stock exchanged for Exxon stock.
D)A Dodge Ram pickup truck used in business traded in for a new Ford F-250 pickup truck also intended for business use.
E)None of the above are like-kind property.
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Page 10
Chapter 9: Withholding Estimated Payments and Payroll Taxes
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82 Flashcards
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Sample Questions
Q1) For purposes of the new additional 0.9% Medicare surtax on earned income, a single taxpayer having earned income of more than $200,000 is generally subject to the tax.
A)True
B)False
Q2) An employee is reimbursed for travel and other ordinary and necessary expenses. Under what circumstances would income tax be withheld from the employee on these amounts?
Q3) For 2016, Randy, an unmarried taxpayer, has wages of $45,000. He has a significant amount of income from dividends and interest and therefore expects to have a federal income tax liability of $18,000. His total federal income tax withholding for the year is $9,500. Randy had $100,000 of adjusted gross income and a federal tax liability of $11,000 on his 2015 return. To avoid a penalty for underpayment of estimated taxes, what is the minimum amount of total estimated tax that Randy must pay in 2016? Assume the payments are made on a timely basis.
Q4) If an employee does not complete a Form W-4, the employer must withhold tax as if the employee were single with no exemptions.
A)True
B)False
Page 11
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Chapter 10: Partnership Taxation
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81 Flashcards
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Sample Questions
Q1) The basis of a partner's interest in a partnership is increased by losses of the partnership allocated to the partner.
A)True
B)False
Q2) Which of the following liabilities would be considered nonrecourse?
A)A bank loan for which the taxpayer is personally liable.
B)Credit card debt.
C)A $20,000 real estate loan which allows the bank to take the real estate if the taxpayer stops making payments on the loan.
D)All of the above are nonrecourse liabilities.
Q3) Losses are disallowed for transactions between a partnership and a partner who has a 50 percent interest in the partnership.
A)True
B)False
Q4) The "at-risk" rule applies, with limited exceptions, to all taxable activities.
A)True
B)False
Q5) List three advantages of an LLC.
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Chapter 11: The Corporate Income Tax
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80 Flashcards
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Sample Questions
Q1) For the year ended June 30, 2016, the Rosaceae Corporation, a regular C corporation, has a long-term capital loss of $25,000.
a.
Assuming that in addition to the capital loss, the corporation has taxable income, before capital gains and losses, of $25,000 for 2016, calculate the corporation's tax liability before any credits.
b.
Assuming that in addition to the long-term capital loss of $25,000 the corporation has taxable income, before capital gains and losses, of $90,000 and a short-term capital gain of $10,000 for 2016, calculate the corporation's tax liability before any credits.
Q2) The original due date for a tax return of a corporation filing a Form 1120 with a calendar tax year-end falls before the original due date of a return for an individual taxpayer with the same tax year.
A)True
B)False
Q3) What is the purpose of Schedule M-1?
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Page 13
Chapter 12: Tax Administration and Tax Planning
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Sample Questions
Q1) The Discriminant Function System is designed to identify tax returns that may contain errors.
A)True
B)False
Q2) Stephanie has taxable income of $48,200 and a tax liability of $7,828. If Stephanie's income increases by $4,000, her tax liability will be $8,828.
a.What is her average tax rate on the $48,200 of income?
b.What is her marginal tax rate?
Q3) Tax evasion involves the use of illegal methods to reduce or avoid income tax. A)True
B)False
Q4) The statute of limitations for the deduction of a worthless security is 5 years. A)True
B)False
Q5) The tax law is administered by the Federal Trade Commission. A)True B)False
Q6) What is the difference between tax avoidance and tax evasion?
Page 14
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