Taxation II Exam Solutions
Course Introduction
Taxation II builds upon the foundational concepts introduced in earlier taxation courses by exploring advanced topics related to federal income taxation for individuals, corporations, partnerships, and other business entities. The course delves into areas such as tax planning strategies, the taxation of property transactions, deferred income, and losses, as well as current tax law developments and compliance requirements. Emphasis is placed on the interpretation and application of Internal Revenue Code provisions, regulations, and judicial decisions, enabling students to analyze complex tax scenarios and provide informed recommendations. Practical skills are developed through case studies, tax return preparation exercises, and research assignments, preparing students for professional roles in taxation and accounting.
Recommended Textbook
Fundamentals of Taxation 9th Edition 2016 by Ana Cruz
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15 Chapters
1631 Verified Questions
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Page 2
Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040ez
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137 Verified Questions
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Sample Questions
Q1) The marginal tax rate is the proportion of tax paid on the first dollar of taxable income.
A)True
B)False
Answer: False
Q2) Describe the legislative process for enacting a new tax law.
Answer: Typically, federal tax legislation is introduced in the House of Representatives Ways and Means Committee (although bills can be introduced in the Senate Finance Committee). The House bill is then voted on by the House of Representatives. Then the Senate Finance Committee generates its own bill which is voted on by the U.S. Senate. The Joint Conference Committee resolves differences between the House and Senate versions (if differences exist). The common Joint Conference Bill is voted on by the House of Representatives and the U.S. Senate. If the Joint Conference Bill passes the House and Senate it is signed or vetoed by the President of the United States. If signed, the legislation is incorporated into the Internal Revenue Code.
Q3) Circular 230 applies only to Certified Public Accountants and Enrolled Agents.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) A qualifying child does not have to meet the support test in order to be claimed as a dependent.
A)True
B)False
Answer: False
Q2) Mirtha is 21 years of age and a full-time student living by herself. She had wages of $23,000 for 2015. Can Mirtha claim the exemption for herself on her tax return?
A) Mirtha's parents can claim the exemption.
B) Both, Mirtha and her parents can claim the exemption.
C) Yes, Mirtha can claim the exemption.
D)No one can claim the exemption for Mirtha.
Answer: C
Q3) The taxpayer must provide over ________ of the qualifying relative's support to be able to claim a dependency exemption.
A) 49%
B) 50%
C) 51%
D)75%
Answer: B
4
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Chapter 3: Gross Income: Inclusions and Exclusions
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) The following income item is not taxable:
A) Jury duty.
B) Child support.
C) Sick Pay.
D)Alimony.
Answer: B
Q2) What are cafeteria plans?
Answer: Flexible benefit plans, often called cafeteria plans, are written plans that permit employees to choose their own "menu" of benefits. The menu of options from which employees can choose usually includes several fringe benefits, such as health care insurance, education expenses, transportation benefits, just to name a few. In these types of plans, the value of the benefits received is not taxed to the employee. However, if the employee elects to receive cash, the cash is taxable.
Q3) A stock dividend in which a shareholder has the option to receive cash is not taxable.
A)True
B)False
Answer: False
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5
Chapter 4: Adjustments for Adjusted Gross Income
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Paola is a freshman in the UC-Davis degree program in veterinary medicine. In 2015, Paola paid $3,000 in tuition, $500 for books, and $250 for supplies for class. Paola also paid room and board of $3,500. What is the total qualifying education expense for the student loan interest deduction for Paola in 2015?
A) $7,250.
B) $3,750.
C) $3,500.
D)$3,000.
Q2) What is an "eligible educational institution" as it relates to the deductibility of student loan interest?
Q3) Sade, who is single and self-employed as a graphic artist, had net earnings from self-employment of $7,250 for the year. She paid $285 a month for health insurance premiums over the last year. Sade is entitled to a for AGI deduction for health insurance of:
A) $0.
B) $285.
C) $3,420.
D)$3,830.
Q4) What is a Health Savings Account (HSA)?
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Chapter 5: Itemized Deductions
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115 Flashcards
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Sample Questions
Q1) 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
Q2) Which of the following interest expenses incurred by Amanda is treated as personal interest expense and, therefore, not deductible as an itemized deduction?
A) Interest expense on personal credit cards.
B) Bonds purchased with accrued interest.
C) Interest on a home mortgage acquired in 2006.
D)Interest expense incurred by a partnership in which Amanda is a limited partner.
Q3) Explain the change in the tax treatment regarding the limitation of itemized deductions for high-income taxpayers.
Q4) In order for a personal property tax to be deductible as an itemized deduction, what three tests are required?
Q5) What is home equity indebtedness and how does it differ from acquisition indebtedness? Are there any limits to the deductibility of home equity loan interest?
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Chapter 6: Self-Employed Business Income
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Sample Questions
Q1) If inventory is a material amount, what method of accounting is acceptable for a sole proprietorship to use?
A) The cash method.
B) Accrual method.
C) Hybrid method.
D)Both Accrual method and Hybrid method.
Q2) Which of the following is incorrect regarding luxury automobile limitations?
A) Passenger autos with a gross weight of less than 6,000 pounds are subject to the limits.
B) Light trucks or vans that are less than 6,000 pounds are subject to the limits.
C) The limits are reduced further if the business use is less than 100%.
D)The luxury limitations do not apply to the Section 179 expense deduction.
Q3) Ted purchased a vehicle for business and personal use. In 2015, 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 2015?
Q4) Describe each of the depreciation conventions and when each is applicable.
Q5) List and define the criteria for an expenditure to be deductible on Schedule C.
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Chapter 7: Capital Gains and Other Sales of Property
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Sample Questions
Q1) If the property's fair market value at the date of the gift is lower than the adjusted basis, then the property's basis for determining loss is its fair market value on that date.
A)True
B)False
Q2) To figure the gain or loss from the sale of property received as a gift, the donor's adjusted basis at the time of the gift is the basis to the donee.
A)True
B)False
Q3) Sylvio purchased an apartment building as an investment in January 2009 for $383,500 and sold it for $475,000 in 2015. He reported $68,436 of allowed accumulated straight-line depreciation. If Sylvio is in the highest tax bracket for ordinary income, how much of his gain qualifies for preferential tax treatment?
A) $0.
B) $68,436.
C) $91,500.
D)$159,936.
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Chapter 8: Rental Property, Royalties, Income From
Flow-Through Entities
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Sample Questions
Q1) Residential rental properties are depreciated using the straight-line method over 27½ years.
A)True
B)False
Q2) Rental properties that are also used as vacation homes fall under one of three categories: (1) primarily rental, (2) primarily personal, and (3) personal/rental.
A)True
B)False
Q3) Alexis' cabin in the mountains that was rented for 125 days and used by her for 12 days is considered personal/rental property.
A)True
B)False
Q4) From which of the following flow-through entities is the ordinary income (K-1) considered self-employment income?
A) S corporations
B) Estates
C) Trusts
D)Partnerships
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Chapter 9: Tax Credits
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Sample Questions
Q1) In the case of the adoption credit, what special rules apply when adopting a child who is a citizen of another country?
Q2) Thomas and Emma are married, file a joint return, and have three qualifying children. Their AGI was $21,000. What is their EIC?
A) $1,819.
B) $3,359.
C) $5,548.
D)$6,242.
Q3) The maximum American opportunity tax credit is $2,500 per student per year.
A)True B)False
Q4) Rudy and Rebecca have AGI of $156,000. They have twin daughters, Ashley and Amy, ages 5. What amount of child tax credit can they claim?
A) $0.
B) $1,000.
C) $2,000.
D)$2,300.
Q5) What is the definition of qualifying child for purposes of the earned income credit?
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Chapter 10: Payroll Taxes
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Sample Questions
Q1) Goshen works part-time for PCN, Inc. and earned $6,400. He also works part-time for QDO Inc., and earned $7,300 for 2015. How much FUTA tax are his employers required to remit to the IRS? Assume the employer receives the maximum credit for state unemployment taxes and Goshen started on September 1, 2015.
A) $42.00.
B) $80.40.
C) $83.08.
D)$107.20.
Q2) Angie earned $120,000 during 2015. She is single, claims two withholding allowances, and is paid monthly. How much FICA tax must Angie's employer remit to the federal government in 2015?
A) $18,130.05.
B) $18,174.00.
C) $18,288.00.
D)$18,360.00.
Q3) Self-employed taxpayers who also receive wages from an employer are not subject to FICA or federal withholding taxes.
A)True
B)False
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Page 12
Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities:
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Sample Questions
Q1) Defined-contribution plans establish the amount of retirement benefits an employee will receive in retirement.
A)True
B)False
Q2) For all annuity contracts, to determine the expected return, use the IRS tables for either a single life or a dual life annuity.
A)True
B)False
Q3) Hyman is age 34, single, and has AGI of $130,000. He would like to contribute to a Coverdell Education Savings Account (CESA) for his niece, Danielle. Danielle's father has already contributed $500 to a CESA in 2015. What is the maximum CESA contribution Hyman can make for Danielle in 2015?
A) $0.
B) $500.
C) $1,500.
D)$2,000.
Q4) 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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Sample Questions
Q1) When a loss is disallowed under the wash sale rules,
A) The loss is lost forever.
B) The loss is carried over indefinitely.
C) The loss is added to the basis of the newly acquired stock.
D)None of these.
Q2) To qualify for the IRC Section 121 exclusion of gain on the sale of a residence, the taxpayer must have lived in the home for a continuous two-year period.
A)True
B)False
Q3) The exchange of a 5-year class asset for a 7-year class asset would not qualify for "like-kind" treatment.
A)True
B)False
Q4) Laverne exchanges a rental beach house with an adjusted basis of $400,000 and fair market value of $320,000 for a mini-storage building with a fair market value of $200,000 plus $120,000 cash. What is the recognized gain or loss on the exchange and the basis of the mini-storage building?
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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70 Verified Questions
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Sample Questions
Q1) Catherine purchased furniture and fixtures (7-year property) for her shop for $80,000 in May. What AMT depreciation adjustment is required for the year?
A) $0.
B) $2,864.
C) $8,568.
D)$11,432.
Q2) Joshua purchased business furniture and fixtures (7-year property) for $40,000 in May 2012. On July 15, 2015, Joshua sold the furniture and fixtures for $30,000. During his years of ownership, he had taken $27,504 of depreciation for regular tax purposes. AMT depreciation for that period was $17,276. What is the 2015 AMT adjustment required as a result of the sale of the assets?
A) $0.
B) $7,276.
C) $10,228.
D)$17,504.
Q3) The standard deduction is added back as a positive adjustment to AMTI.
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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Sample Questions
Q1) Partner Jamie has a basis of $10,000 in a partnership at the beginning of the year. She receives $5,000 in cash distributions, her distributive share of income is $3,000, and she receives an equipment distribution with a basis of $6,000 (FMV $12,000). Jamie's basis in her partnership interest at the end of the year is:
A) $0.
B) $2,000.
C) $8,000.
D)$13,000.
Q2) Partnership income or loss and separately stated items are reported to the individual partners via Schedule K-1.
A)True
B)False
Q3) Which of the following partnership items are not included in the self-employment income calculation?
A) Ordinary income.
B) Section 179 expense.
C) Guaranteed payments.
D)Gain on the sale of partnership property.
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16
Chapter 15: Corporate Taxation
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Sample Questions
Q1) Felix 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 $300,000 and debt of $500,000. The basis of the land, in the hands of the corporation is:
A) $300,000.
B) $500,000.
C) $600,000.
D)$900,000.
Q2) Caesar owns 100% of Roman Company and his basis in its stock is $35,000. He receives cash of $10,000 and property with FMV of $30,000 and basis of $50,000 in complete liquidation of his ownership interest. As a result of this transaction, which of the following statements is incorrect?
A) Caesar reports dividend income of $40,000.
B) Caesar has a nontaxable return of capital of $35,000.
C) Roman Company records a loss of $20,000.
D)Caesar reports a capital gain of $5,000.
Q3) When a corporation is formed, the transaction is tax-free.
A)True
B)False
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