Taxation for Business Majors Exam Bank
Course Introduction
This course provides business majors with a comprehensive understanding of taxation principles and their application in the business environment. Students will explore fundamental concepts of federal, state, and local taxation, focusing on how tax laws impact business entities such as corporations, partnerships, and sole proprietorships. Topics include tax planning, compliance, reporting requirements, tax implications of business transactions, and the role of taxation in business decision-making. Through case studies and practical exercises, students will develop analytical skills to evaluate tax strategies and ensure businesses operate within legal and ethical standards.
Recommended Textbook Concepts in Federal Taxation 2014 21st Edition by Kevin
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16 Chapters
2109 Verified Questions
2109 Flashcards
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E. Murphy
Page 2
Chapter 1: Federal Income Taxation - an Overview
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Sample Questions
Q1) How much additional Social Security tax does Connie pay in 2013 on her $10,000 Christmas bonus? Her total earnings for the year (before the bonus)are $42,000.
A)$ 0
B)$145.00
C)$620.00
D)$765.00
Answer: D
Q2) Christy's 2013 tax return was audited during November 2014.The auditor proposed additional tax due of $1,500.Christy disagreed.What should Christy do next?
I.Within 30 days,she must file a protest.
II.She must respond with a written protest letter.
III.She may respond with an oral protest.
A)Only statement I is correct.
B)Only statement II is correct.
C)Only statement III is correct.
D)Statements I and III are correct.
E)Statements I and II are correct.
Answer: D
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3
Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Sandra sells a business-use warehouse to her wholly owned corporation.Sandra realizes a loss of $13,000 on the sale.(Sales price,$102,000,less adjusted basis,$115,000).Tax law does not permit Sandra a deduction for the $13,000 loss.Which of the following explain(s)this tax result?
I.Arm's-length Transaction Concept.
II.Pay-As-You-Go Concept.
III.Legislative Grace Concept
IV.Business Purpose Concept.
A)Only statement I is correct.
B)Only statement II is correct.
C)Statements III and IV are correct.
D)Statements I and III are correct.
E)Statements I, II, III, and IV are correct.
Answer: A
Q2) All deductions are allowed because of the legislative grace concept.
A)True
B)False
Answer: True
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Chapter 3: Income Sources
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Sample Questions
Q1) Brandon and Judy divorce during the year and agree that Brandon will pay Judy $24,000 a year in alimony.Brandon will be able to reduce his income by $24,000,but Judy does not have to report any income since it was not earned..
A)True
B)False
Answer: False
Q2) James bought an annuity for $42,000 several years ago.The annuity will pay him $250 per month from age 66 until he dies.During the current year,James turns 66 and received his first annuity payment.His life expectancy is 25 years.
I.If James receives more than 260 payments,all payments received after those are totally included in income.
II.James should include $50 of each payment in adjusted gross income.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: B
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Chapter 4: Income Exclusions
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Sample Questions
Q1) Marge,age 35,is an employee of Troy,Inc.Her annual salary is $50,000.After considering the following list of benefits provided Marge,determine her gross income for the year.
Marge has $2,000 of her salary withheld and paid into the company's qualified pension plan.The company matches the contribution at the rate of $.50 for each $1.00 paid in.
Group-term life insurance policy at twice her annual salary paid by the company.Premium cost is $1.08 per $1,000 of coverage.
Health and accident insurance policy costing $1,500 paid by the company.
Marge elects to have $1,800 of her salary paid into a flexible benefits plan to cover childcare costs.She incurs $2,100 of childcare costs during the year.
A)$44,700
B)$44,754
C)$46,254
D)$48,054
E)$50,000
Q2) What are the differences between a cafeteria plan and a flexible benefits (salary reduction)plan?
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Page 6
Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Morgan,a banker,is an amateur photographer who takes pictures at weddings and parties.He earned $1,000 but incurred $1,200 in related expenses.Since he takes a standard deduction,he will have to include the $1,000 in income but will not get any benefit from the expenses.
A)True
B)False
Q2) An ordinary expense
I.is an expense commonly incurred in an income-producing activity.
II.is an expenditure that provides future benefits to an income-producing activity.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Political contributions
A)Capitalized and amortized over a number of accounting periods
B)Expensed in the period incurred
C)Not deductible
D)Can be capitalized and amortized or deductible depending on the amount of the expenditure
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Chapter 6: Business Expenses
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Sample Questions
Q1) Natasha is an employee of The Johnson Company.She incurs a total of $7,500 in business expenses as follows:
\[\begin{array} { l r }
\text { Lodging } & \$ 2,500 \\
\text { Transportation (no commuting) } & 3,500 \\
\text { Dues and subscriptions } & 1,500 \end{array}\]
Natasha receives reimbursement of $5,600 after an adequate accounting to her employer.Natasha's itemized deductions before any limitations would be:
A)$ - 0 -
B)$1,500
C)$1,900
D)$5,600
E)$7,500
Q2) Danielle graduated from State University in 2012.She paid $2,100 of interest during 2013 on her qualified educational loan.The full amount is deductible.
A)True
B)False
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Chapter 7: Losses: Deductions and Limitations
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Sample Questions
Q1) Darien owns a passive activity that has a basis of $36,000 and a suspended loss of $22,000.If Darien dies during the year when the passive activity has a fair market value of $52,000,how will the information be presented on his tax return?
I.Darien will report an ordinary loss of $6,000.
II.Darien will report a capital gain of $16,000.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Which of the following events is a "casualty" loss?
I.Diamonds stolen by thief,reported to police
II.Florida orange trees killed by a freeze.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Fowler sells stock he had purchased for $22,000 to his brother,Phil,for $15,000.What is the tax consequence of the sale to Fowler and Phil? Explain the three possible tax consequences if Phil sells the stock two years later to his neighbor?
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Page 9
Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Mr.and Mrs.Bachman,both age 65,file a joint return.In 2013 they have wages of $30,000,dividends of $6,200,municipal bond interest of $3,000 and received $10,300 for the sale of stock that cost $4,000 in 1992.They made a $3,000 contribution to their Roth IRA,paid $4,100 in deductible mortgage interest and real estate taxes and made a $2,500 charitable contribution.What is their gross income,adjusted gross income,and taxable income?
Q2) Tisha's husband died in 2010.She has not remarried and maintains a home for herself and her dependent son.What is Tisha's filing status for 2013?
A)Single.
B)Head of household.
C)Married, filing separately.
D)Surviving spouse.
Q3) To qualify for the child- and dependent-care credit,the taxpayer must have earned income and must incur qualified expenses for the care of qualified individuals.
A)True
B)False
Q4) Explain the support test and the gross income test to be a qualifying relative.
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Chapter 9: Acquisitions of Property
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Sample Questions
Q1) On June 10,2012,Wilhelm receives a gift of gold coins with a fair market value of $10,000.The gold coins had an adjusted basis of $12,000 to the donor.Wilhelm sells the gold coins August 1,2013,for $8,000.What is the amount of the recognized gain or loss on the sale?
A)$ - 0 -
B)$2,000 loss
C)$3,000 loss
D)$4,000 loss
E)$5,000 loss
Q2) Dana purchases an automobile for personal use for $27,000.After using it for three years,Dana converts the automobile to business use when the fair market value is $19,000.After a few months of business use,Dana sells the automobile for $18,000.What is the amount of gain or loss recognized on the sale of the automobile?
A)No gain or loss
B)$1,000 loss
C)$8,000 loss
D)$9,000 loss
E)$8,000 gain
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Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) The mid-quarter convention
I.never applies to real estate.
II.is required when more than 30% of the depreciable basis of certain property is placed into service during the last 3 months of the tax year.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Daniel purchases 5-year class listed property (a computer)on March 2,2013,for $30,000.It is used 75% for business,and the remainder for personal use.Daniel wishes to maximize his 2013 depreciation deduction.What is Daniel 's 2013 depreciation deduction?
A)$ 2,250
B)$ 2,700
C)$ 3,375
D)$ 4,500
E)$ 6,000
Q3) Discuss why listed property gets special attention.
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Page 12
Chapter 11: Property Dispositions
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Sample Questions
Q1) A capital asset includes which of the following?
I.real estate held as an investment in rental property.
II.the copyright to a song held by its writer.
III.real estate used in a trade or business.
IV.accounts receivable.
A)Only statement I is correct.
B)Statements I and II are correct.
C)Statements III and IV are correct.
D)Statements I, II, and III are correct.
E)Statements I, II, III, and IV are correct.
Q2) Allie,a well-known artist,gave one of her paintings to her nephew Alfred.When Alfred sells the painting he will have a capital gain.
A)True
B)False
Q3) All of the gain from the sale of qualified small business stock,purchased between 9/27/2010 and 1/1/2014,and held more than five years is excluded from tax.
A)True
B)False
Q4) Discuss the general differences between Section 1245 and Section 1250 property.
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Chapter 12: Nonrecognition Transactions
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Q1) Which of the following qualify as replacement property under the involuntary conversion rules?
I.Mayfield Ice Cream Company's production plant is destroyed by a hurricane.The insurance proceeds are used to replace the plant with a refrigerated storage container.
II.Mayfield Ice Cream Company's production plant is destroyed by a fire.They sign a five year lease for a replacement production facility,and the insurance proceeds are then used to buy an office building
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) A gain on a like-kind exchange is always recognized to the extent of any boot received.
A)True
B)False
Q3) Compare the deferral of recognition of losses resulting from an involuntary conversion with the deferrals for like-kind exchanges.
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Chapter 13: Choice of Business Entity - General Tax and
Nontax Factorsformation
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Q1) Gomer is admitted to the Mouton Partnership on July 1,2013.Gomer contributes ABC common stock purchased in 1991 for $20,000 with a fair market value of $100,000 on July 1,2013,for a 25% interest in the partnership.After Gomer's admission to the partnership,Mouton's net asset fair market value is $400,000.What is Gomer's taxable gain or income due to the exchange of ABC stock for the Mouton Partnership interest?
A)$ - 0 -
B)$80,000 long-term capital gain.
C)$80,000 ordinary income.
D)$80,000 short-term capital loss.
E)$100,000 ordinary income.
Q2) Discuss the characteristics of a personal service corporation (PSC).
Q3) Paris is a CPA and a partner in a small firm.To limit her liability from the negligence or misconduct of her partners,they can form the firm as a Limited Liability Partnership.
A)True
B)False
Q4) Corporations generally are required to use the accrual method of accounting. A)True B)False
Page 15
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Chapter 14: Choice of Business Entity - Operations and Distributions
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Q1) When a partnership distributes property that has a fair market value greater than its basis,the partnership must recognize the income as if it sold the property.
A)True
B)False
Q2) Howard is a partner in the Smithton Partnership with a basis of $20,000.During the current year,the partnership is liquidated and the partnership distributes cash of $22,000 and property with a basis of $8,000 and a fair market value of $15,000 to each partner.What amount must Howard report as a gain from the liquidation?
A)$ - 0 -
B)$ 2,000
C)$10,000
D)$15,000
E)$17,000
Q3) Losses flow-through limited to basis plus the amount of any direct loans
A)Sole Proprietorship.
B)Partnership.
C)Corporation.
D)S Corporation.
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Chapter 15: Choice of Business Entity - Other Considerations
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Q1) Ester is employed by Montgomery Enterprises and will retire at the end of the current year after 22 years of service.Under the company's defined benefit plan,she can retire at 80% of the average of her three highest consecutive years' salary.Her average salary over these three years is $80,000.What is the maximum amount Ester can receive from Montgomery's pension plan?
A)$ 35,000
B)$ 64,000
C)$ 80,000
D)$100,000
E)$125,000
Q2) In 2013,Billie decides to purchase a house by withdrawing $15,000 from his IRA.Brandan qualifies as a first-time home- buyer.The $15,000 consists of $12,600 in nondeductible contributions and $2,400 in income earned on the plan's assets.Billie will have to pay an early withdrawal penalty of
A)$ -0-
B)$ 240
C)$ 500
D)$1,260
E)$1,500
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Chapter 16: Tax Research
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Sample Questions
Q1) Which of the following sources of tax law authority has the highest tax validity?
A)Cumulative Bulletin.
B)Tax Court Decision.
C)Revenue Ruling.
D)Internal Revenue Code Section.
E)Regulation Section.
Q2) Which of the following Administrative sources has the highest level of authority?
A)Revenue Ruling
B)Nonacquiescence
C)Treasury Regulation
D)General Counsel Memorandum
E)Private Letter Ruling
Q3) When the Supreme Court grants a writ of certiorari,they are agreeing to review a lower court's decision.
A)True
B)False
Q4) Describe the steps of the tax research process.
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