Taxation for Accountants Test Questions
Course Introduction
Taxation for Accountants provides students with a comprehensive understanding of the principles, regulations, and practices of taxation relevant to accounting professionals. The course covers fundamental concepts of tax law, the computation of taxable income, and the preparation of income tax returns for individuals, businesses, and corporations. It explores the application of tax planning strategies, the implications of tax compliance, and the ethical considerations accountants must navigate when advising clients on tax-related matters. Emphasis is placed on current tax codes, the impact of taxation on business decisions, and the role of taxation in financial reporting and auditing.
Recommended Textbook Fundamentals of Taxation 2017 Edition 10th Edition by Ana Cruz
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Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040ez
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Sample Questions
Q1) On Form 1040EZ,the permitted deduction from income for a married filing jointly taxpayer is:
A)$20,700.
B)$1,500.
C)$10,350.
D)None of these.
Answer: A
Q2) The tax rate is applied against the tax base to determine the amount of tax liability. A)True
B)False
Answer: True
Q3) Which type of tax rate structure is each of the following types of tax: sales,federal income,social security,flat,Medicare?
Answer: Sales tax is proportional,federal income tax is progressive,social security is regressive,flat tax is proportional,Medicare tax is proportional.
Q4) What is the definition of a regressive tax?
Answer: A regressive tax is one in which the tax rate decreases as the tax base increases.
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Chapter 2: Expanded Tax Formula, forms 1040a and 1040, and Basic Concepts
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Q1) The early withdrawal penalty is a for AGI deduction.Which form can the taxpayer use to claim this benefit?
A)1040.
B)1040A.
C)1040EZ.
D)1040A or 1040.
Answer: A
Q2) A married couple can file a joint return only if both have earned income.
A)True
B)False
Answer: False
Q3) Elisa is 21 years of age and a full-time student living with her parents.She had wages of $680 $70 of income tax withholding)for 2016.Can Elisa claim her exemption on her return even though her parents will claim her as a dependent on their tax return?
A)No one can claim the exemption for Elisa.
B)No,Elisa cannot claim the exemption.
C)Yes,Elisa can claim the exemption.
D)Elisa and her parents can both claim the exemption. Answer: B
Page 4
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) There are some instances where a cash-basis taxpayer can report income as though he or she is an accrual basis taxpayer.
A)True
B)False
Answer: True
Q2) The imputed interest rules apply to the following:
A)Sales in which all payments are due in six months or less.
B)Sale of a personal residence.
C)Sales of property for $3,000 or less.
D)All of these.
Answer: B
Q3) When an individual's marginal ordinary income tax rate is 25% or more and less than 39.60%,the tax rate on qualified dividends is:
A)15%.
B)5%.
C)10%.
D)0%.
Answer: A
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) A Health Savings Account HSA)is a tax-exempt savings account to be used for qualified medical expenses.
A)True
B)False
Q2) Define each of the following: alimony,child support,and a property settlement.
Q3) Mike and Karen were divorced.Their only marital property was a personal residence with a fair market value of $1.5 million and a cost of $575,000.Under the terms of the divorce agreement,Mike would receive the house and Mike would pay Karen $125,000 each year for 5 years,or until Karen's death,whichever should occur first.Mike and Karen were not living together when the payments were made by Mike.Mike paid the $625,000 to Karen over the five-year period.Mike's recognized gain from the transfer of the house to him is:
A)$575,000.
B)$925,000.
C)$0.
D)$1,500,000.
Q4) Self-employment tax is calculated on the gross earnings of the business.
A)True
B)False
Q5) Why is it important to distinguish between a property settlement and alimony?
Page 6
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Chapter 5: Itemized Deductions
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Q1) The cost of aspirin and over-the-counter cough medicine is a deductible medical expense even though they are nonprescription drugs.
A)True
B)False
Q2) In order to deduct a charitable contribution,taxpayers must itemize on their return.
A)True
B)False
Q3) For 2016,sales taxes are deductible as an itemized deduction based only on the actual amount of sales taxes paid.
A)True
B)False
Q4) For 2016,taxpayers may take an above-the-line deduction for the amount of mortgage insurance premium paid in 2016.
A)True
B)False
Q5) How is the medical expense deduction calculated? How is it limited?
Q6) What are the general limits or floors placed on deductible personal casualty losses?
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Page 7
Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Sample Questions
Q1) Ted purchased a vehicle for business and personal use.In 2016,Ted used the vehicle 70% for business 10,000 business miles)and used the standard mileage rate to calculate his vehicle expenses.Ted also paid $1,200 in interest and $380 in county property tax on the car.What is the total business deduction related to business use of the car in 2016?
Q2) Taxpayers must use the mid-month convention when more than 40% of the personal property is placed in service during the last three months of the tax year. A)True
B)False
Q3) For an expense to be necessary,it must be essential to the taxpayer's business. A)True B)False
Q4) When business property is lost in a fire,storm,shipwreck,theft,or other casualty,the taxpayer normally receives a capital loss deduction. A)True B)False
Q5) "Listed property" includes only passenger automobiles. 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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Sample Questions
Q1) The gain or loss on land sold within one year of purchase is recorded on which one of the following forms or schedules?
A)Form 4797 if the sale was an asset held for investment purposes by a taxpayer who is a sole proprietor.
B)Schedule C if the sale was an asset used in a trade or business of a sole proprietorship.
C)Schedule D if the sale was an asset used in a trade or business by a sole proprietor who also files a Schedule C.
D)Form 4797 if the sale was an asset used in a trade or business by a sole proprietor.
Q2) Any Section 1245 gain is recognized as "ordinary" to the extent of the depreciation taken.
A)True
B)False
Q3) The purpose of Code Sections 1245 and 1250 recapture provisions is to restrict the possibility of converting ordinary income into capital gains through use of depreciation deductions.
A)True
B)False
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Page 9
Chapter 8: Rental Property, royalties, and Income From
Flow-Through Entities Line 17, form 1040, and Schedule E
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Q1) All advance rental payments received,including security deposits for a rental property,must be reported as income when received.
A)True
B)False
Q2) What are the rules concerning the deductibility of travel as it relates to rental properties? How are travel expenses to and from rental properties calculated?
Q3) In general,losses from passive activities may be deducted only to the extent that there is passive income.
A)True
B)False
Q4) Kirk and Amy live in Augusta,Georgia.Every year during the Masters Golf Tournament,they rent their primary personal residence for 10 days for $10,000 to a large corporation that uses it to entertain clients.The rest of year,they reside full-time in their home.How should Kirk and Amy treat the rental income? Explain.
Q5) What must the owner of rental property do with respect to the rental activity to have it be considered: 1)material participation? 2)a trade or business?
Q6) Explain what is considered personal use of a rental property.
Page 10
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Chapter 9: Tax Credits Form 1040, lines 46 Through 54 and Lines 66a Through 73
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Sample Questions
Q1) Andy and Delilah both work and have one qualifying child.They had AGI of $21,000.What is their EIC?
A)$3,356.
B)$3,373.
C)$5,572.
D)$0.
Q2) Rolando and Silvia have modified AGI of $230,000.They adopted a boy from Guatemala,whose adoption became final in the current year.They incurred a total of $15,000 in qualified adoption expenses.What is the amount of adoption credit they can claim in the current year?
A)$4,470.
B)$4,011.
C)$13,460.
D)$15,000.
Q3) The retirement savings contributions credit is available regardless of the income level of the taxpayer.
A)True
B)False
Q4) What is the definition of qualifying child for purposes of the earned income credit?
Page 11
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Chapter 10: Payroll Taxes
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Sample Questions
Q1) Schedule H is completed by the household worker and remitted with his/her Form 1040.
A)True B)False
Q2) Safe harbor is a term used to describe a provision in the Internal Revenue Code that protects taxpayers from penalty under certain situations.
A)True B)False
Q3) Lynita has two jobs and earned $92,316 from her first job and $26,345 from her second job.How much total FICA taxes will Lynita have withheld from her wages from working two jobs? Round your answer to 2 decimal places.)
A)$9,027.00.
B)$9,067.58.
C)$9,065.25.
D)$9,077.57.
Q4) Wages subject to withholding and other employment taxes include all pay given to employees for services performed.
A)True B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Sample Questions
Q1) Under what circumstances might an individual want to establish an annuity contract in retirement?
Q2) Len is entitled to receive monthly payments of $1,500 over his life from his employer's qualified pension plan.The payments begin January 1,2016.He contributed $71,500 to the plan prior to his retirement at age 62.Using the simplified method,how much of the payments will be included in Len's taxable income for 2016?
A)$14,700.
B)$0.
C)$3,300.
D)$18,000.
Q3) Regarding a full or partial rollover of assets from one retirement plan to another retirement plan:
A)A tax-free rollover can be made from a traditional IRA to a Roth IRA.
B)A tax-free rollover can be made from a traditional IRA to another traditional IRA.
C)Rollovers are permitted only in unusual circumstances.
D)Rollovers are normally taxable to the beneficiary.
Q4) What is an annuity contract? Who are the parties to an annuity contract?
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Chapter 12: Special Property Transactions
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Sample Questions
Q1) A barn with an adjusted basis of $125,000 was destroyed by a tornado on March 5,2016.On May 15,2016,the insurance company paid the owner $150,000.The owner reinvested $170,000 in another barn.What is the basis of the new barn if non-recognition of gain from an involuntary conversion is elected?
A)$120,000.
B)$145,000.
C)$0.
D)$170,000.
Q2) A wash sale occurs when:
A)A taxpayer sells stock and buys substantially identical stock within 30 days before or after the sale.
B)A taxpayer sells stock and buys substantially identical stock within 60 days before or after the sale.
C)A taxpayer sells and buys substantially identical stock.
D)A taxpayer sells stock at the end of the year to offset a gain recognized earlier in the year.
Q3) The like-kind exchange provisions are elective provisions.
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) Which of the following increases the taxpayer's at-risk amount?
A)A taxpayer's share of recourse liabilities.
B)Both a taxpayer's share of recourse liabilities and a taxpayer's share of qualified nonrecourse liabilities.
C)A taxpayer's share of qualified nonrecourse liabilities.
D)A taxpayer's share of nonrecourse liabilities.
Q2) Randall invested $200,000 in Activity A and $100,000 in Activity B both passive)in 2002.At the beginning of 2016,Randall's at-risk amount was $20,000 in A and $15,000 in B.Activity A had a loss of $25,000 and Activity B had income of $30,000.What is the amount of income or loss recognized in 2016 from these activities?
A)$5,000 income.
B)$10,000 income.
C)$25,000 loss.
D)$0.
Q3) Libby owns and operates Mountain View Inn,a bed and breakfast.Libby's inn is not considered a passive activity.
A)True
B)False
Q4) Identify factors that increase or decrease the at-risk amount.
Page 15
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Chapter 14: Partnership Taxation
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Q1) Guaranteed payments are always determined with regard to partnership income.
A)True
B)False
Q2) 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
Q3) Generally,guaranteed payments do not have an impact on a partner's basis in the partnership interest.
A)True
B)False
Q4) 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?
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Page 16
Chapter 15: Corporate Taxation
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Q1) Sunshine Company has book income of $250,000.It also has tax depreciation in excess of book depreciation of $30,000 and $10,000 of interest on tax-exempt bonds.Without regard to tax expense,what is Sunshine's taxable income?
A)$270,000.
B)$210,000.
C)$290,000.
D)$230,000.
Q2) Keisha is a shareholder in a corporation.She received a distribution of property from the earnings and profits of the corporation.Keisha will report dividend income equal to the FMV of the property received.
A)True B)False
Q3) 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?
Q4) Adjusted Gross Income for a corporation is equal to sales minus cost of goods sold. A)True B)False
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