Tax Law
Exam Answer Key
Course Introduction
Tax Law explores the principles, rules, and regulations governing the taxation system, focusing on federal, state, and local tax structures. The course covers topics such as the determination of taxable income, deductions, credits, tax compliance, and the rights and responsibilities of taxpayers and tax authorities. Students will analyze statutes, case law, and administrative guidance to understand how tax laws are interpreted and applied to individuals, businesses, and other entities. Through practical examples and case studies, the course aims to develop students' ability to navigate complex tax issues, evaluate tax planning strategies, and appreciate the policy considerations underlying the tax system.
Recommended Textbook
South western Federal Taxation 2017 Comprehensive Edition 40th Edition by William H. Hoffman
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28 Chapters
3604 Verified Questions
3604 Flashcards
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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159 Verified Questions
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Sample Questions
Q1) Sales made by mail order are not exempt from the application of a general sales (or use) tax.
A)True
B)False
Answer: True
Q2) A use tax is imposed by:
A)The Federal government and all states.
B)The Federal government and a majority of the states.
C)All states and not the Federal government.
D)Most of the states and not the Federal government.
E)None of the above.
Answer: D
Q3) In terms of Adam Smith's canons of taxation, how does the Federal income tax fare as far as equality is concerned?
Answer: Equality is present in the Federal income tax system if ability to pay is the key consideration.
Q4) Stealth taxes have the effect of generating additional taxes from all taxpayers.
A)True
B)False
Answer: False
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Chapter 2: Working With the Tax Law
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Sample Questions
Q1) House members have considerable latitude to make amendments on the House floor.
A)True
B)False
Answer: False
Q2) Which of the following types of Regulations has the lowest tax validity?
A)Finalized.
B)Legislative.
C)Proposed.
D)Temporary.
E)Procedural.
Answer: C
Q3) The following citation is correct: Larry G.Mitchell, 131 T.C.215 (2008).
A)True
B)False
Answer: True
Q4) The CPA examination is normally curved to produce a designated pass rate.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Computing the Tax
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Sample
Questions
Q1) Arnold is married to Sybil, who abandoned him in 2011.He has not seen or communicated with her since April of that year.He maintains a household in which their son, Evans, lives.Evans is age 25 and earns over $6,000 each year.For tax year 2012, Arnold's filing status is:
A)Married, filing jointly.
B)Head of household.
C)Married, filing separately.
D)Surviving spouse.
E)Single.
Answer: C
Q2) For tax purposes, married persons filing separate returns are treated the same as single taxpayers.
A)True
B)False
Answer: False
Q3) Once a child reaches age 19, the kiddie tax no longer applies.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) With respect to the prepaid income from services, which of the following is true?
A)The treatment of prepaid income is the same for tax and financial accounting.
B)A cash basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.
C)An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.
D)An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less.
E)None of the above.
Q2) Ted earned $150,000 during the current year.He paid Alice, his former wife, $75,000 in alimony.Under these facts, the tax is paid by the person who benefits from the income rather than the person who earned the income.
A)True
B)False
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6
Chapter 5: Gross Income: Exclusions
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Q1) The Royal Motor Company manufactures automobiles.Employees of the company can buy a new automobile for Royal's cost plus 2%.The automobiles are sold to dealers at cost plus 20%.Generally, employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealer's cost.Officers of Local Dealer are allowed to use a company vehicle (for personal use) at no cost.
A)None of the employees who take advantage of the fringe benefits described above are required to recognize income.
B)Employees of Royal are required to recognize as gross income 18% (20% - 2%) of the cost of the automobile purchased.
C)Employees of Local Dealer are required to recognize as gross income the gross profit Local Dealer loses as a result of the sale to the employees.
D)Local Dealer officers must recognize gross income from the personal use of the company vehicles.
E)None of the above.
Q2) If a tax-exempt bond will yield approximately .65 (1 - .35) times the yield on a taxable bond of equal risk, who benefits from the tax exemption: the Federal government, the state and local governments who issue the bonds, or the investors?
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Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) Because Scott is three months delinquent on the mortgage payments for his personal residence, Jeanette (his sister) is going to cover the arrearage. Based on past experience, she does not expect to be repaid by Scott. Which of the following statements is correct?
A)If Scott receives the money from Jeanette and pays the mortgage company, Jeanette can deduct the interest part.
B)If Jeanette pays the mortgage company directly, neither Scott nor Jeanette can deduct the interest part.
C)If Jeanette pays the mortgage company directly, she cannot deduct the interest part.
D)Only b.and c.are correct.
E)a., b., and c.are correct.
Q2) If a vacation home is rented for less than 15 days during a year, the only expenses that can be deducted are mortgage interest, property taxes, and personal casualty losses.
A)True
B)False
Q3) Are there any circumstances under which lobbying expenditures are deductible?
Q4) Are all personal expenses disallowed as deductions?
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Page 8
Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.
A)True
B)False
Q2) James is in the business of debt collection. He purchased a $20,000 account receivable from Green Corporation for $15,000. During the year, James collected $17,000 in final settlement of the account. James can take a $2,000 bad debt deduction in the current year.
A)True
B)False
Q3) When a nonbusiness casualty loss is spread between two taxable years, the loss in the second year is reduced by 10% of adjusted gross income for the first year.
A)True
B)False
Q4) For tax years beginning in 2012, the domestic production activities deduction (DPAD) for a sole proprietor is calculated by multiplying 9% times adjusted gross income.
A)True
B)False
Page 9
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Sample Questions
Q1) On May 30, 2012, Jane signed a 20-year lease on a factory building to use for her business. The lease begins on June 1, 2012. In August 2012, Jane paid $300,000 for qualified leasehold improvements to the building. Jane takes additional first-year depreciation. Determine Jane's total deduction with respect to the leasehold improvements for 2012.
A)$2,890.
B)$150,000.
C)$151,445.
D)$300,000.
E)None of the above.
Q2) A purchased trademark is a § 197 intangible.
A)True
B)False
Q3) For personal property placed in service in 2012, the § 179 maximum deduction is limited to $139,000.
A)True
B)False
Q4) Land improvements are generally not eligible for cost recovery.
A)True
B)False
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Sample Questions
Q1) Tired of her 60 mile daily commute, Margaret purchases a condo that is only five miles from her job.Margaret's moving expenses to her new condo are allowed and can be claimed by her as a deduction.
A)True
B)False
Q2) Carolyn is single and has a college degree in finance.She is employed as a loan officer at a bank; her yearly AGI approximates $50,000.During the year, she enrolled in a weekend MBA program and incurred the following nonreimbursed expenses: $3,900 (tuition), $300 (books), $200 (other school supplies), and $200 (transportation to and from campus).Disregarding the 2%-of-AGI limitation, as to the MBA program, Carolyn has a:
A)Deduction for and deduction from AGI of $0.
B)Deduction for AGI of $4,000 and deduction from AGI of $600.
C)Deduction for AGI of $3,900 and deduction from AGI of $700.
D)Deduction for AGI of $4,100 and deduction from AGI of $500.
E)None of the above.
Q3) Myra's classification of those who work for her as independent contractors is being questioned by the IRS. It is the position of the IRS that these workers are really employees. What type of factors can Myra utilize to justify her classification?
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Phyllis, a calendar year cash basis taxpayer who itemized deductions, overpaid her 2011 state income tax and is entitled to a refund of $400. Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2012. She is required to recognize that amount as income in 2012.
A)True
B)False
Q2) In 2012, Allison drove 800 miles to volunteer in a project sponsored by a qualified charitable organization in Utah.In addition, she spent $250 for meals while away from home.In total, Allison may take a charitable contribution deduction of $112 (800 miles ´ $.14).
A)True
B)False
Q3) 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
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Page 12
Chapter 11: Investor Losses
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Sample Questions
Q1) Jackson Company incurs a $50,000 loss on a passive activity during the year.The company has active income of $34,000 and portfolio income of $24,000.If Jackson is a personal service corporation, it may deduct $34,000 of the passive loss.
A)True
B)False
Q2) Ken has a $40,000 loss from an investment in a partnership in which he does not materially participate. He paid $30,000 for his interest. How much of the loss is disallowed by the at-risk rules? How much is disallowed by the passive loss rules?
Q3) 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?
Q4) What special passive loss treatment is available to real estate activities?
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Page 13
Chapter 12: Tax Credits and Payments
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Sample Questions
Q1) 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
Q2) Cardinal Corporation hires two persons certified to be eligible employees for the work opportunity tax credit under the general rules (e.g., food stamp recipients), each of whom is paid $9,000 during the year.As a result of this event, Cardinal Corporation may claim a work opportunity credit of:
A)$1,440.
B)$2,880.
C)$4,800.
D)$7,200.
E)None of the above.
Q3) How does the FICA tax compare to the self-employment tax? How are these two taxes similar and how do they differ?
Q4) All taxpayers are eligible to take the basic research credit.
A)True
B)False
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Chapter 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable
Exchanges-Part 1
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Sample Questions
Q1) A realized loss whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.
A)True
B)False
Q2) If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency, the basis of the replacement property will be more than its cost (cost plus realized gain).
A)True
B)False
Q3) Shari exchanges an office building in New Orleans (adjusted basis of $700,000) for an apartment building in Baton Rouge (fair market value of $900,000).In addition, she receives $100,000 of cash.Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).
A)True
B)False
Q4) The basis of property received by gift is always a carryover basis.
A)True
B)False
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Chapter 13: Property Transactions:
Determination of Gain or Loss, Basis Considerations, and Nontaxable
Exchanges-Part 2
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Sample Questions
Q1) Discuss the treatment of losses from involuntary conversions.
Q2) Boyd acquired tax-exempt bonds for $430,000 in December 2012.The bonds, which mature in December 2017, have a maturity value of $400,000.Boyd does not make any elections regarding the amortization of the bond premium.Determine the tax consequences to Boyd when he redeems the bonds in December 2017.
Q3) Janet, age 68, sells her principal residence for $500,000.She purchased it twenty-two years ago for $150,000.Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000.Janet's objective is to minimize the taxes she must pay associated with the sale.Calculate her recognized gain.
Q4) Libby's principal residence is destroyed by a tornado. She is single and her realized gain is $360,000. Is it possible for Libby's recognized gain to be $0?
Q5) 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.
Q6) Define qualified small business stock under § 1045.
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Chapter 14: Property Transactions: Capital Gains and Losses,
1231, Recapture Provisions
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Q1) The § 1245 depreciation recapture potential does not reduce the amount of the charitable contribution deduction under § 170.
A)True
B)False
Q2) The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain.
A)True
B)False
Q3) An individual taxpayer received a valuable painting from his uncle, a famous painter. The painter did not create the painting, but had purchased it from another artist. After the taxpayer held the painting for two years, he sold it for a $400,000 gain. The gain is a long-term capital gain.
A)True
B)False
Q4) For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.
A)True
B)False
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Chapter 15: Alternative Minimum Tax
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Q1) If Jessica exercises an ISO and disposes of the option in the same tax year, are any AMT adjustments required?
Q2) If a gambling loss itemized deduction is permitted for regular income tax purposes, there will be no AMT adjustment associated with the gambling loss.
A)True
B)False
Q3) Ashly is able to reduce her regular income tax liability from $47,000 to $43,500 as the result of the alternative tax on net capital gain.Ashly's tentative AMT is $51,000.
A)Ashly's tax liability is reduced by $3,500 as the result of the alternative tax calculation on net capital gain.
B)Ashly's AMT is increased by $3,500 as the result of the alternative tax calculation on net capital gain.
C)Ashly's tax liability is $43,500.
D)Ashly's tax liability is $47,000.
E)None of the above.
Q4) Can AMT adjustments and preferences be both positive and negative?
Q5) Why is there no AMT adjustment for charitable contributions?
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Page 18
Chapter 16: Accounting Periods and Methods
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Q1) A retailer must actually receive a claim for refund from the customer before a deduction can be taken for the refund.
A)True
B)False
Q2) Generally, an advantage to using the cash method of accounting, as compared to the accrual method, is that under the cash method income is not recognized until it is collected, rather than being taxed as soon as the taxpayer has the right to collect the income.
A)True
B)False
Q3) Taylor sold a capital asset on the installment basis and did not charge interest on the deferred payment due in three years.
A)Interest will be imputed, thus increasing the total gross income from the transactions.
B)Interest will be imputed, thus decreasing the capital gain.
C)Interest will not be imputed because the contract is for less than five years.
D)Interest will be imputed, thus increasing the buyer's basis in the asset.
E)None of the above.
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Chapter 17: Corporations: Introduction and Operating Rules
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Q1) Schedule M-3 is similar to Schedule M-1 in that the form is designed to reconcile net income per books with taxable income. However, an objective of Schedule M-3 is more transparency between financial statements and tax returns than that provided by Schedule M-1.
A)True
B)False
Q2) Norma formed Hyacinth Enterprises, a proprietorship, in 2012.In its first year, Hyacinth had operating income of $400,000 and operating expenses of $240,000.In addition, Hyacinth had a long-term capital loss of $10,000.Norma, the proprietor of Hyacinth Enterprises, withdrew $75,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2012?
A)Increases Norma's taxable income by $157,000 ($160,000 ordinary business income$3,000 long-term capital loss).
B)Increases Norma's taxable income by $150,000 ($160,000 ordinary business income$10,000 long-term capital loss).
C)Increases Norma's taxable income by $75,000.
D)Increases Norma's taxable income by $160,000.
E)None of the above.
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Page 20
Chapter 18: Corporations: Organization and Capital Structure
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Q1) Carmen and Carlos form White Corporation. Carmen transfers cash of $100,000 for 100 shares in White. Carlos transfers property (basis of $20,000 and fair market value of $80,000) and agrees to serve as manager of White Corporation for one year; in return, Carlos receives 100 shares in White. The value of Carlos's services is $20,000. White Corporation can deduct $20,000 as compensation expense for the value of the services Carlos will render.
A)True
B)False
Q2) In determining whether § 357(c) applies, assess whether the liabilities involved exceed the bases of all assets a shareholder transfers to the corporation.
A)True
B)False
Q3) Rita forms Finch Corporation by transferring land (basis of $125,000; fair market value of $750,000) which is subject to a mortgage of $375,000. Two weeks prior to incorporating Finch, Rita borrows $125,000 for personal purposes and gives the lender a second mortgage on the land. Finch Corporation issues stock worth $250,000 to Rita and assumes the two mortgages on the land. What are the tax consequences to Rita and to Finch Corporation?
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Chapter 19: Corporations: Distributions Not in Complete Liquidation
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Q1) For tax purposes, all stock redemptions are treated as dividend distributions.
A)True
B)False
Q2) Finch Corporation distributes property (basis of $225,000, fair market value of $300,000) to a shareholder in a distribution that is a qualifying stock redemption.The property is subject to a liability of $160,000, which the shareholder assumes.The basis of the property to the shareholder is:
A)$0.
B)$140,000.
C)$225,000.
D)$300,000.
E)None of the above.
Q3) A distribution in excess of E & P is treated as capital gain by shareholders. A)True
B)False
Q4) A corporate shareholder that receives a constructive dividend cannot apply a dividends received deduction to the distribution.
A)True
B)False
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) Pursuant to a liquidation, Coral Corporation distributes to Lucinda, a shareholder, land (basis of $90,000, fair market value of $200,000). The land is subject to a $75,000 liability. Lucinda will have a basis of $125,000 in the land.
A)True
B)False
Q2) Which of the following statements is correct with respect to the § 338 election?
A)The parent corporation makes the § 338 election.
B)A qualified stock purchase occurs when a corporation acquires, in a taxable transaction, at least 80% of the stock (voting power and value) of another corporation within a 18-month period.
C)The subsidiary corporation must be liquidated pursuant to the § 338 election.
D)Gain, but not loss, is recognized by the subsidiary as a result of a deemed sale of its assets.
E)None of the above.
Q3) A parent corporation must make the § 338 election by the fifteenth day of the third month following the close of the tax year in which a qualified stock purchase occurs.
A)True
B)False
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Chapter 21: Partnerships
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Q1) A partnership has accounts receivable with a basis of $0 and a fair market value of $20,000 and depreciation recapture potential of $30,000.All other assets of the partnership are either cash, capital assets, or § 1231 assets.If a purchaser acquires a 40% interest in the partnership from another partner, the selling partner will be required to recognize ordinary income of $20,000.
A)True
B)False
Q2) Morgan and Kristen formed an equal partnership on August 1 of the current year.Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000.Kristen contributed equipment with a basis of $42,000 and a value of $100,000.Kristen and Morgan each have a basis of $100,000 in their partnership interests.
A)True
B)False
Q3) Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.
A)True
B)False
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Page 24
Chapter 22: S: Corporations
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Q1) Which item is not included in an S corporation's nonseparately computed income?
A)Net sales.
B)Cost of goods sold.
C)Dividends received.
D)Depreciation recapture.
Q2) During 2012, Rasic, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2011, Rasic's stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. Calculate the amount and type of income that Rasic recognizes in 2012, assuming that there is no C corporation AEP.
Q3) The § 1202 exclusion of gain is available on disposition of S corporation stock.
A)True
B)False
Q4) Stock basis first is increased by income items, then ____________________ by distributions, and finally decreased by ____________________.
Q5) Most IRAs can own stock in an S corporation.
A)True
B)False
Q6) An S corporation may not have a ____________________ alien shareholder.
Page 25
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Chapter 23: Exempt Entities
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Q1) Theater, Inc., an exempt organization, owns a printing company, Printers, Inc., which remits 85% of its profits to Theater, Inc.Since Printers remits at least 85% of its profits to Theater, neither Theater, Inc., nor Printers, Inc., must pay income tax on this $85,000 ($100,000 ´ 85%).
A)True
B)False
Q2) If the unrelated business income of an exempt organization is $20,000 or less, the unrelated business income tax (UBIT) will be $0.
A)True
B)False
Q3) Wonder, Inc., a private foundation, makes a speculative investment of $800,000 that puts the foundation assets at risk.Calculate the tax on jeopardizing investments.Assume that corrective action is taken so that the additional tax does not apply.
Q4) Wett, Inc., a § 501(c)(3) exempt organization, acquired all the stock of a for-profit corporation for $150,000.Wett is a private foundation.The acquired corporation was not a related business.Calculate the tax on excess business holdings.Assume that corrective action is taken so that the additional tax does not apply.
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Chapter 24: Multistate Corporate Taxation
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Q1) In determining a corporation's taxable income for state income tax purposes, which of the following does not constitute a subtraction from Federal income?
A)Interest on U.S.obligations.
B)Expenses that are directly or indirectly related to state and municipal interest that is taxable for state purposes.
C)Federal corporate income taxes paid.
D)The amount by which the Federal depreciation deduction exceeds the corresponding state amount.
Q2) The ____________________ tax usually is applied at the city or county level, as its main source of revenue.
Q3) State and local politicians tend to apply new and increased taxes to taxpayers who are visitors to the jurisdiction, such as a tax on auto rentals, because the taxpayer cannot vote to reelect the lawmaker.
A)True
B)False
Q4) A(n) ____________________ business operates its separate companies as a whole.It cannot be segregated into independently operating divisions or branches.
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Chapter 25: Taxation of International Transactions
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Q1) Which of the following statements is false in regard to the U.S.income tax treaty program?
A)There are about 70 bilateral income tax treaties between the U.S.and other countries.
B)Tax treaties generally provide for primary taxing rights that require the other treaty partner to allow a credit for the taxes paid on the twice-taxed income.
C)Residence of the taxpayer is an important consideration in applying tax treaties, while the presence of a permanent establishment is not.
D)None of the above statements is false.
Q2) Losses and deductions, similar to income items, can be U.S.- or foreign-source.
A)True
B)False
Q3) With respect to income generated by non-U.S.persons, does the U.S.apply a "worldwide" or a "territorial" approach. Be specific.
Q4) Discuss the primary purposes of income tax treaties.
Q5) The United States has in force income tax treaties with about 70 countries.
A)True
B)False
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Chapter 26: Tax Practice and Ethics
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Q1) According to the IRS, the annual "Tax Gap" totals about $______________________ billion. or
Q2) Minnie, a calendar year taxpayer, filed a return correctly showing a zero Federal income tax liability for 2011, because her Form 1040 showed various deductions and credits.During 2012, Minnie's AGI is $120,000 and her tax liability is $20,000.To avoid a penalty for 2012, Minnie must make aggregate estimated tax payments of at least:
A)$20,000.
B)$18,000.
C)$1,000 (minimum amount).
D)$0.
Q3) A CPA can take a tax return position for a client that is contrary to current IRS interpretations of the law.
A)True
B)False
Q4) About ____________________% of all Forms 1040 are audited each year.The rate is about ____________________% if income exceeds $1 million. or
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Chapter 28: Income Taxation of Trusts and Estates
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Q1) Which of the following is the annual maximum amount to be included as gross income by all of the income beneficiaries of the trust or estate?
A)Distributable net income.
B)Entity taxable income.
C)Adjusted gross income.
D)Fiduciary accounting income.
Q2) To reduce trustee commissions, the Sigrid Trust is operated as though it were two trusts (i.e., with 70-year-old Grandma and 7-year old Skippy each holding equal shares).This year the trust generated distributable net income (DNI) of $80,000.The Sigrid trustee distributed $100,000 to Grandma this year: $40,000 as her one-half share of the entity's income, and $60,000 as a distribution of principal.Skippy received no distribution. How much of the year's distributable net income is assigned to Grandma?
A)$40,000.
B)$50,000.
C)$80,000.
D)$100,000.
Q3) In computing the Federal taxable income of a trust, the first step is to determine its ____________________ income.
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