Taxation of Business Entities Pre-Test Questions
Course Introduction
Taxation of Business Entities provides an in-depth examination of federal tax principles affecting various business forms, including corporations, partnerships, limited liability companies, and S corporations. The course explores the tax consequences of entity formation, operation, distributions, liquidations, and reorganizations, emphasizing both tax compliance and strategic planning. Students will develop an understanding of how business decisions impact tax liabilities and how tax laws influence business structures and transactions. Through case studies and real-world examples, students learn to identify tax issues and apply relevant statutes and regulations to typical business scenarios.
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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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Q1) To be eligible to file the 1040EZ form,the taxpayer can only have taxable wages.
A)True
B)False Answer: False
Q2) A Private Letter Ruling is considered to be tax authority only to the taxpayer to whom it is issued.
A)True
B)False Answer: True
Q3) With a progressive rate structure,the average tax rate is always smaller than the marginal tax rate.
A)True
B)False Answer: False
Q4) Joe is an employee of Adams Company.Joe properly completed his Form 1040EZ tax return and was required to pay the IRS $1,372 at the time of filing.Joe's tax liability for the year is $1,372.
A)True
B)False Answer: False
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Chapter
2:
Expanded Tax Formula, forms 1040a and 1040, and Basic Concepts
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Q1) What is the amount of the standard deduction for Evelyn who is a full-time student and claimed as a dependent by her parents? She earned $2,700 in wages in 2016.
Answer: Evelyn's standard deduction is $3,050.When a taxpayer can be claimed as a dependent on another return,the basic standard deduction for the taxpayer is limited to the greater of a) $1,050,or b)the taxpayer's earned income plus $350,but not more than the amount of the basic standard deduction.
Q2) A head of household taxpayer with a dependent child had wages of $47,200.Which is the simplest form this person can file?
A)1040EZ.
B)1040.
C)1040ES.
D)1040A.
Answer: D
Q3) The standard deduction in 2016 for a married couple,under 65 and not blind,is $12,600.
A)True
B)False
Answer: True
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) In general,an individual must recognize income on his or her tax return if the transaction has economic benefit,the transaction has reached a conclusion and the income from the transaction is tax-exempt income.
A)True
B)False
Answer: False
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) For tax purposes,one of the requirements to recognize income is:
A)The transaction must occur but it's not necessary to complete it.
B)The income can be tax-exempt.
C)There must be an economic benefit.
D)All of these.
Answer: C
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Page 5
Chapter 4: Adjustments for Adjusted Gross Income
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Q1) Jena is a self-employed fitness trainer who had net earnings from self-employment of $23,500.She paid $525 per month for health insurance over the entire last year.Jena is entitled to a for AGI deduction for health insurance of:
A)$0.
B)$6,300.
C)$6,500.
D)$5,250.
Q2) For 2016,unreimbursed qualifying moving expenses are an itemized deduction. A)True
B)False
Q3) In order to be eligible for the qualified tuition and related expense deduction,a qualifying student must be enrolled:
A)At least three quarter time.
B)Full-time.
C)For at least one course.
D)At least half time.
Q4) For 2016,the amount of the student loan interest deduction is limited to $3,500.
A)True
B)False
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Chapter 5: Itemized Deductions
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Q1) A taxpayer receives a deduction for services rendered to a charitable organization.
A)True
B)False
Q2) Which of the following expenses is not deductible as medical expense?
A)Wig purchased upon the advice of a physician for the mental health of a patient who has lost all of his/her hair from disease.
B)Insulin used for diabetes.
C)Acupuncture used to treat migraines.
D)Swimming lessons,recommended by a doctor for improvement of general health.
Q3) What is usually the largest miscellaneous itemized deduction category? Does it require any special treatment?
Q4) For 2016,the AGI threshold for the deductibility of personal casualty losses generally is:
A)5%.
B)10%.
C)7)5%.
D)2%.
Q5) What are four major categories of deductible taxes for individual returns?
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Q1) Xavier bought furniture and fixtures 7-year property)on September 15,2016 for $505,000.He elects to expense as much as possible under Section 179 but does not elect the 50% bonus.Xavier's earned income for the year is $500,000.What is the maximum deduction Xavier can take in 2016 for the equipment? Round answers to the nearest dollar)
Q2) The adjusted basis of an asset is:
A)The cost of the asset.
B)The cost basis less any accumulated depreciation.
C)The trade-in value of the asset.
D)The fair market value of the asset.
Q3) Under MACRS,the half-year convention is used for all real property.
A)True
B)False
Q4) The significance of meeting the "travel away from home" standard is that it allows the deduction of meals,lodging,and other incidental expenses such as dry cleaning.
A)True
B)False
Q5) Describe each of the depreciation conventions and when each is applicable.
Q6) 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
Schedule D and Form 4797
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Sample Questions
Q1) On May 1,2015,Kelalani purchased land for $88,000 for use in her business.She sold it on May 1,2016,for $82,000.If there are no other sales of business or trade property,how is this loss treated for tax purposes on Kelalani's return?
A)$6,000 long-term capital loss.
B)$6,000 Section 1231 loss.
C)$6,000 short-term capital loss.
D)$6,000 ordinary loss.
Q2) Hiroko,a single taxpayer,has wage income of $80,000.In addition,she has $5,000 in long-term capital losses,$4,000 in long-term capital gains,and $4,000 in short-term capital gains.What is Hiroko's AGI for 2016?
A)$73,000.
B)$88,000.
C)$83,000.
D)$72,000.
Q3) Unused capital losses in any one year carry forward indefinitely to offset any future short-term or long-term gains.
A)True
B)False
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Chapter 8: Rental Property, royalties, and Income From
Flow-Through Entities Line 17, form 1040, and Schedule E
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Q1) A property that has been rented for 180 days and used for personal use for 16 days should be categorized as:
A)personal/rental
B)primarily personal
C)primarily rental
D)all of these are correct
Q2) Rental activities by definition are passive activities.
A)True
B)False
Q3) Flow-through entities are named as such because they are taxed continuously.
A)True
B)False
Q4) Alexis's 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
Q5) Generally,a taxpayer uses Schedule C to report royalty income.
A)True
B)False
Q6) What are the different types of income that may be reported on Schedule E? 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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Q1) Matt is a single father.He paid $5,000 in qualifying expenses for his son,Kyle,to attend the University of Minnesota.Kyle is a sophomore.Matt's AGI is $47,000.What is his allowable American opportunity tax credit?
A)$5,000.
B)$2,500.
C)$4,000.
D)$0.
Q2) All taxpayers must file Form 1116 to receive the foreign tax credit.
A)True
B)False
Q3) Brian and Clara paid $4,350 in foreign income taxes to Mexico.Their total income was $105,000,which included $16,000 of foreign income.Their U.S.tax liability is $22,750.How much can Brian and Clara claim as foreign tax credit?
A)$4,350.
B)$16,000.
C)$0.
D)$3,467.
Q4) What is the definition of qualifying child for purposes of the earned income credit?
Page 12
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Chapter 10: Payroll Taxes
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Q1) Household workers are subject to FUTA tax only if cash wages of $2,000 or more are paid in any calendar quarter during the prior and/or current year.
A)True
B)False
Q2) Unemployment tax payments are made by federal and state governmental agencies directly to the taxpayer who is unemployed.
A)True B)False
Q3) Employers with a payroll tax liability of less than $2,500 at the end of a quarter can pay the payroll tax liability at the end of the next month following the quarter with Form 941.
A)True
B)False
Q4) Form 1040-ES is filed along with the Form 1040 when a taxpayer makes estimated payments during the year.
A)True B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) Which of the following is not an employer-sponsored retirement plan?
A)401k).
B)Roth IRA.
C)SIMPLE.
D)Qualified pension plan.
Q2) Employees age 50 or over can contribute an additional ________ per year to a 401k)plan.
A)$6,000
B)$18,000
C)$1,000
D)$6,500
Q3) Which of the following statements is incorrect?
A)Annuity payments may be for a specified period of time or for the life of the contract holder.
B)An annuity is a series of payments under a contract.
C)Annuity payments are fixed in amount.
D)The proportional amount of an annuity payment that is attributable to the cost of the contract is tax-free.
Q4) Under what circumstances might an individual want to establish an annuity contract in retirement?
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Chapter 12: Special Property Transactions
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Q1) Related parties include the taxpayer's spouse,ancestors,lineal descendants,but not brothers and sisters.
A)True
B)False
Q2) Tanner,who is single,purchased a house on April 15,2002 for $215,000.During the time Tanner owned the house,he installed a swimming pool at a cost of $21,000 and replaced the deck at a cost of $18,000.On August 5,2016,Tanner sold the house for $570,000.Tanner paid a sales commission of $30,000 and legal fees of $800 connected with the sale of the house.What is Tanner's recognized gain on the sale of the house?
A)$0.
B)$250,000.
C)$285,200.
D)$35,200.
Q3) Dr.and Mrs.Spankle purchased a residence on January 12,2012,for $250,000.On May 15,2016,they sold the residence for $360,000,and paid selling expenses of $18,000.They purchased a new home for $354,000.Determine the Spankles' realized and recognized gain.
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) The term "active participation" is used to determine:
A)Whether a taxpayer is a material participant.
B)Whether an activity is considered passive.
C)Whether a taxpayer is eligible for the $25,000 rental offset.
D)None of these.
Q2) A taxpayer's share of nonrecourse debt is considered an amount at-risk.
A)True
B)False
Q3) After computing all tax preferences and AMT adjustments,Peter has AMTI of $210,000 in 2016.If Peter is single,what exemption amount can he claim for AMT in 2016?
A)$0.
B)$31,325.
C)$83,800.
D)$53,900.
Q4) Tax preference items can be either positive or negative.
A)True
B)False
Q5) Identify factors that increase or decrease the at-risk amount.
Page 16
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Chapter 14: Partnership Taxation
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Q1) Molly has a $15,000 basis in her partnership interest when she receives a liquidating distribution from the partnership.Molly receives cash of $6,000.What is Molly's recognized gain or loss on the liquidating distribution?
A)$9,000).
B)$0.
C)$6,000).
D)$15,000).
Q2) Paris,a 60% partner in Omega Partnership,has a basis of $25,000 in her partnership interest.Paris receives a cash distribution of $24,000 at year-end.What is Paris's basis in her partnership interest at the end of the year?
A)$25,000.
B)$24,000.
C)$1,000.
D)$0.
Q3) Typically,a partner does not recognize a gain when he or she receives a current distribution.
A)True
B)False
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Chapter 15: Corporate Taxation
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Q1) Barrie owns 100% of a Subchapter S corporation and her basis in the stock is $200,000.In the current year,the corporation reports an ordinary loss of $250,000 and interest income of $20,000.How much of the loss can Barrie claim in the current year?
A)$250,000.
B)$200,000.
C)$220,000.
D)The amount cannot be determined with the information provided.
Q2) As part of a corporate formation meeting the 80% test,an individual who contributes property and receives,in return,stock plus property,will report a taxable gain equal to the lower of the FMV of the property received or the gain on the transfer.
A)True
B)False
Q3) A C corporation can become a Subchapter S corporation by filing a statement with its corporate income tax return.
A)True
B)False
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