ACCT323 Final exam 1. Which of the following represents the largest percentage of state tax revenue? Sales tax Individual income tax Other Property tax None of these 2. Congress recently approved a new, bigger budget for the IRS. What taxation concept evaluates the cost of administering our tax law? Convenience Economy Certainty Equity None of these 3. The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of _______. A sin tax to discourage undesirable behavior A government fine An earmarked tax Both A and C None of these 4. If Susie earns $750,000 in taxable income, how much tax will she pay as a single taxpayer for year 2012? $231,639.50 $262,500.00 $239,261.00 $236,435.00 None of these 5. Which of the following is not considered a primary authority? Tax Court case. Regulation. Revenue Ruling. Tax service. None of these. 6. Which of the following is not a factor that determines whether a taxpayer is required to file a tax return? rev: 03_21_2013_QC_28372 Filing status. Taxpayer's gross income. Taxpayer's occupation. Taxpayer's age. None of these. 7 . Corporations are required to file a tax return only if their taxable income is greater than: $0. $1,000. $600. $750. None of these. Corporations are always required to file a tax return.  8. Lavonda discovered that the U.S. Circuit Court of Appeals for the Federal Circuit has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case: Tax Court only. U.S. Court of Federal Claims only. U.S. District Court only. Tax Court or the U.S. District Court. Tax Court or the U.S. Court of Federal Claims. 9. Jason's employer pays year-end bonuses each year on December 31. Jason, a cash basis taxpayer, would prefer to not pay tax on his bonus this year (and actually would prefer his daughter to pay tax on the bonus). So, he leaves town on December 31, 2011 and has his daughter, Julie, pick up his check on January 2nd, 2012. Who reports the income and when? Julie in 2011 Julie in 2012 Jason in 2011 Jason in 2012 None of these Top of Form 10. Investing in municipal bonds to avoid paying tax on interest earned and to earn a higher after-tax yield is an example of: conversion tax evasion timing income shifting None of these Bottom of Form 11. Which of the following increases the benefits of income deferral? increasing tax rates smaller after-tax rate of return larger after-tax rate of return smaller magnitude of transactions None of these 12. Which of the following is an example of the timing strategy? A corporation paying its shareholders a $20,000 dividend A parent employing her child in the family business A taxpayer gifting stock to his children A cash-basis busi.

1. ACCT323 Final exam
1.
Which of the following represents the largest percentage of
state tax revenue?
Sales tax
Individual income tax
Other
Property tax
None of these
2.
Congress recently approved a new, bigger budget for the IRS.
What taxation concept evaluates the cost of administering our
tax law?
Convenience
Economy
Certainty
Equity

2. None of these
3.
The city of Granby, Colorado recently enacted a 1.5% surcharge
on vacation cabin rentals that will help pay for the city's new
elementary school. This surcharge is an example of _______.
A sin tax to discourage undesirable behavior
A government fine
An earmarked tax
Both A and C
None of these
4.
If Susie earns $750,000 in taxable income, how much tax will
she pay as a single taxpayer for year 2012?
$231,639.50
$262,500.00
$239,261.00
$236,435.00

3. None of these
5.
Which of the following is not considered a primary authority?
Tax Court case.
Regulation.
Revenue Ruling.
Tax service.
None of these.
6.
Which of the following is not a factor that determines whether a
taxpayer is required to file a tax return?
rev: 03_21_2013_QC_28372
Filing status.
Taxpayer's gross income.
Taxpayer's occupation.
Taxpayer's age.
None of these.

4. 7
.
Corporations are required to file a tax return only if their
taxable income is greater than:
$0.
$1,000.
$600.
$750.
None of these. Corporations are always required to file a tax
return.
8.
Lavonda discovered that the U.S. Circuit Court of Appeals for
the Federal Circuit has recently issued a favorable opinion with
respect to an issue that she is going to litigate with the IRS.
Lavonda should choose which of the following trial courts to
hear her case:
Tax Court only.
U.S. Court of Federal Claims only.
U.S. District Court only.

5. Tax Court or the U.S. District Court.
Tax Court or the U.S. Court of Federal Claims.
9.
Jason's employer pays year-end bonuses each year on December
31. Jason, a cash basis taxpayer, would prefer to not pay tax on
his bonus this year (and actually would prefer his daughter to
pay tax on the bonus). So, he leaves town on December 31,
2011 and has his daughter, Julie, pick up his check on January
2nd, 2012. Who reports the income and when?
Julie in 2011
Julie in 2012
Jason in 2011
Jason in 2012
None of these
Top of Form
10.
Investing in municipal bonds to avoid paying tax on interest
earned and to earn a higher after-tax yield is an example of:
conversion

6. tax evasion
timing
income shifting
None of these
Bottom of Form
11.
Which of the following increases the benefits of income
deferral?
increasing tax rates
smaller after-tax rate of return
larger after-tax rate of return
smaller magnitude of transactions
None of these
12.
Which of the following is an example of the timing strategy?
A corporation paying its shareholders a $20,000 dividend
A parent employing her child in the family business

7. A taxpayer gifting stock to his children
A cash-basis business delaying billing its customers until after
year end
None of these
13.
Which of the following shows the correct relationship among
standard deduction amounts for the respective filing statuses?
Single > Head of Household > Married Filing Jointly
Married Filing Jointly > Married Filing Separately > Head of
Household
Married Filing Jointly > Head of Household > Single
Head of Household > Married Filing Separately > Married
Filing Jointly
14.
Which of the following is NOT a from AGI deduction?
Standard deduction
Itemized deduction
Personal exemption

8. None of these. All of the above are from AGI deductions
15.
Jamison's gross tax liability is $7,000. Jamison had $2,000 of
available credits and he had $4,000 of taxes withheld by his
employer. What is Jamison's taxes due (or taxes refunded) with
his tax return?
$5,000 taxes due.
$1,000 taxes due.
$1,000 tax refund.
$3,000 taxes due.
16.
All of the following are for AGI deductions except
Moving expenses.
Rental and royalty expenses.
Business expenses.
Charitable contributions.
17.

9. This year Henry realized a gain on the sale of an antique car
that he inherited from his uncle. The buyer has promised to pay
Henry in installment payments over the next few years. Identify
the principle that will determine when Henry should be taxed on
the gain from the sale:
Assignment of income
Constructive receipt
Return of capital principle
Wherewithal to pay
All of these
18.
Ben's employer offers employees the following benefits. What
amount must Ben include in his gross income?
$9,400
$11,070
$10,600
$7,000
Zero - None of these benefits is included in gross income

10. Top of Form
19.
Charles and Camilla are getting divorced. Under the terms of
the decree Charles will pay Camilla $50,000 in cash in each of
the next five years (or until Camilla's death or remarriage). In
addition, Charles will transfer a castle worth $2,000,000 to
Camilla and pay $12,000 per year to support their son, Clyde,
until he turns 19 years old. What amount (if any) is included in
Camilla's gross income this year?
$2,062,000
$12,000
$50,000
$2,050,000
None of the payments are included in gross income
Bottom of Form
20.
Frank received the following benefits from his employer this
year. What amount must Frank include in his gross income?
$54,450
$57,350

11. $56,250
$59,150
Zero - these benefits are excluded from gross income
21.
Congress allows self-employed taxpayers to deduct the cost of
health insurance above the line (for AGI) because:
employers are allowed to deduct social security (FICA) taxes as
a business expense.
self-employed taxpayers need an alternate mechanism for
reducing the cost of health care.
this deduction provides a measure of equity between employees
and the self-employed.
health insurance premiums cannot be deducted otherwise.
None of these.
22.
Generally, which of the following does not correctly categorize
the type of income?
rental real estate - passive income/loss

12. salary - active income/loss
dividends - portfolio income/loss
capital losses - passive income/loss
All of these
Top of Form
23.
Brice is a single, self-employed electrician who earns $60,000
per year in self-employment income. Brice paid the following
expenses this year. Which of the expenses are deductible for
AGI?
1. The cost of health insurance
2. The employer portion of self-employment tax paid
3. Penalty on early withdrawal of funds from a certificate of
deposit
Numbers 1 and 2 only.
Numbers 1 and 3 only.
Numbers 2 and 3 only.
None of these is deductible for AGI.
All of these are deductible for AGI.
24.

13. Which of the following is a true statement?
Congress allows self-employed taxpayers to deduct the
employer portion of their self-employment tax.
To deduct expenses associated with any profit motivated
activity taxpayers must maintain a high level of involvement or
effort in the activity throughout the year.
Business activities never require a relatively high level of
involvement or effort from the taxpayer.
All business expenses are deducted for AGI.
All of these are true.
25.
Glenn is an accountant who races stock cars as a hobby. This
year Glenn was paid a salary of $80,000 from his employer and
won $2,000 in various races. What is the effect of the racing
activities on Glenn's taxable income if Glenn has also incurred
$4,200 of hobby expenses this year? Assume that Glenn
itemizes his deductions but has no other miscellaneous itemized
deductions.
increase in taxable income of $2,000
increase in taxable income of $1,640
no change in taxable income
decrease in taxable income of $560

14. decrease in taxable income of $2,200
26.
Which of the following is a true statement?
The standard deduction is increased for taxpayers who are blind
or deaf at year end.
A married couple is only entitled to one addition to their
standard deduction even if both spouses are both over age 65.
Bunching itemized deductions is an illegal method of tax
avoidance.
The deduction for personal and dependency exemptions is
$3,800 times the number of exemptions.
All of these are true.
27.
Which of the following is a true statement?
Expenses associated with a "hobby" are never deductible.
The deductibility of an activity's expenses in excess of revenues
depends upon whether the activity is primarily profit-motivated
or a hobby as determined by facts and circumstances.
Taxpayers engaged in a "hobby" are always presumed to be
motivated by profit.

15. The regulations do not provide any guidance for determining
whether an activity is profit motivated.
All of these are true.
28.
Which of the following is a true statement?
A casualty loss can only occur from storm damage.
Personal casualty losses can only be deducted to the extent that
aggregate casualty losses exceed 10 percent of AGI.
Individual casualty losses are only deductible if each individual
loss exceeds $5,000.
Uninsured thefts of personal assets are not included with
casualty losses.
All of these are true.
29.
Which of the following could explain why an increasing number
of taxpayers are subject to (or could become subject to) AMT?
Decreasing regular tax rates
The AMT exemption amount is indexed to increase with
inflation

16. Property values are decreasing
The personal and dependency exemption amounts are not
increasing as fast as the AMT exemption is decreasing
30.
Harmony reports a regular tax liability of $15,000 and tentative
minimum tax of $17,000. Given just this information, what is
her alternative minimum tax liability for the year?
$0
$2,000
$15,000
$17,000
31.
If an employer withholds taxes from an employee, in general,
when are these taxes treated as paid to the IRS?
As withheld
As the employee requests on his/her W - 4 form
Evenly throughout the year
On April 15

17. 32.
Hestia (age 17) is claimed as a dependent by her parents, Rhea
and Chronus. In 2012, Hestia received $1,000 of interest income
from a bond that she owns. In addition, she has earned income
of $200. What is her taxable income for 2012?
$0
$250
$700
$1,200
33.
Which of the following is a true statement about impermissible
accounting methods?
An impermissible method is adopted by using the method to
report results for two consecutive years.
An impermissible method may never be used by a taxpayer.
Cash method accounting is an impermissible method for
partnerships and Subchapter S electing corporations.
There is no accounting method that is impermissible.
None of these is true.

18. 34.
Jim operates his business on the accrual method and this year he
received $4,000 for services that he intends to provide to his
clients next year. Under what circumstances can Jim defer the
recognition of the $4,000 of income until next year?
Jim can defer the recognition of the income if he absolutely
promises not to provide the services until next year.
Jim must defer the recognition of the income until the income is
earned.
Jim can defer the recognition of the income if he has requested
that the client not pay for the services until the services are
provided.
Jim can elect to defer the recognition of the income if the
income is not recognized for financial accounting purposes.
Jim can never defer the recognition of the prepayments of
income.
35.
Which of the following is a true statement?
Meals are never deductible as a business expense.
An employer can only deduct half of any meals provided to

19. employees.
The cost of business meals must be reasonable.
A taxpayer can only deduct a meal for a client if business is
discussed during the meal.
None of these is true.
Top of Form
36.
Kip started a wholesale store this year selling bulk peanut
butter. In January of this year Kip purchased an initial five tubs
of peanut butter for a total cost of $5,000. In July Kip
purchased three tubs for a total cost of $6,000. Finally, in
November Kip bought two tubs for a total cost of $1,000. Kip
sold six tubs by year end. What is Kip's ending inventory under
the FIFO cost-flow method?
$12,000
$6,000
$5,000
$2,500
$1,000
7.

20. Which of the allowable methods allows the most accelerated
depreciation?
150 percent declining balance
200 percent declining balance
Straight line
Sum of the years digits
None of these allow accelerated depreciation
38.
Bonnie Jo purchased a used computer (5-year property) for use
in her sole proprietorship. The basis of the computer was
$2,400. Bonnie Jo used the computer in her business 60 percent
of the time and used it for personal purposes the rest of the time
during the first year. Calculate Bonnie Jo's depreciation expense
during the first year assuming the sole proprietorship had a loss
during the year (Bonnie did not place the property in service in
the last quarter):
$240
$288
$480
$2,400

21. None of these
39.
Sairra, LLC purchased only one asset during the current year. It
placed in service furniture (7-year property) on April 16 with a
basis of $25,000. Calculate the maximum depreciation expense
for the current year, rounding to a whole number (ignoring §179
and bonus depreciation):
$1,786
$3,573
$4,463
$5,000
None of these
40.
Assume that Brittany acquires a competitor's assets on
September 30th of the prior year. The purchase price was
$350,000. Of that amount, $300,000 is allocated to tangible
assets and $50,000 is allocated equally to two §197 intangible
assets (goodwill and a 1-year non-compete agreement). Given,
that the non-compete agreement expires on September 30th of
year 2, what is Brittany's amortization expense for the second
year, rounded to the nearest whole number?
$0

22. $1,667
$2,917
$3,333
None of these
41.
Bozeman sold equipment that it uses in its business for $80,000.
Bozeman bought the equipment two years ago for $75,000 and
has claimed $20,000 of depreciation expense. What is the
amount and character of Bozeman's gain or loss?
$25,000 §1231 gain.
$20,000 ordinary gain, and $5,000 §1231 gain.
$5,000 ordinary gain, and $20,000 §1231 gain.
$25,000 capital gain.
None of these.
42.
Leesburg sold a machine for $2,200 on November 10th of the
current year. The machine was purchased for $2,600. Leesburg
had taken $1,200 of depreciation deductions. What is Leesburg's
gain or loss realized on the machine?

23. $800 gain.
$1,000 gain.
$1,200 loss.
$1,400 loss.
None of these.
43.
Which of the following is not true regarding §1239?
It only applies to related taxpayers.
It only applies to gains on sales of depreciable property.
It only applies to gains on sales of non-residential real property.
It does not apply to losses.
None of these.
44.
Alpha sold machinery to Beta, a related entity, which it used in
its business for $40,000. Beta used the machinery in its
business. Alpha bought the equipment a few years ago for
$50,000 and has claimed $30,000 of depreciation expense. What
is the amount and character of Alpha's gain?

24. $20,000 ordinary income under §1239.
$10,000 ordinary gain and $10,000 §1231 gain.
$20,000 ordinary gain.
$20,000 capital gain.
None of these.
45.
Mary traded furniture used in her business to a furniture dealer
for some new furniture. Mary originally purchased the furniture
for $45,000 and it had an adjusted basis of $20,000 at the time
of the exchange. The new furniture had a fair market value of
$40,000. Mary also gave $4,000 to the dealer in the transaction.
What is Mary's adjusted basis in the new furniture after the
exchange?
$20,000.
$24,000.
$36,000.
$40,000.
None of these.
46.

25. If an individual forms a sole proprietorship, which nontax factor
will be of greatest benefit to the sole proprietor?
Liability protection
Legal flexibility in defining rights and responsibilities of
owners
Facilitates initial public offerings
Minimal time and cost to organize
47.
Which of the following is most effective in mitigating the
double tax?
Shift income from high tax rate shareholders to low tax rate
corporations
Shift income from low tax rate shareholders to high tax rate
corporations
Shift income from high tax rate corporations to low tax rate
shareholders
Shift income from low tax rate corporations to high tax rate
shareholders
48.

26. From a tax perspective, which entity choice is preferred when a
liquidating distribution occurs and the entity has appreciated
assets?
Partnership
S corporation
LLC
Partnership and LLC
S corporation and LLC
Top of Form
49.
Logan, a 50 percent shareholder in Military Gear Inc., is
comparing the tax consequences of losses from C corporations
compared with losses from S corporations. Assume Military
Gear Inc has a $100,000 loss for the year, Logan's tax basis in
his Military Gear Inc. stock was $150,000 at the beginning of
the year, and he received $75,000 ordinary income from other
sources during the year. Assuming Logan's marginal income tax
rate is 15%, how much more tax will Logan pay currently if
Military Gear Inc. is a C corporation compared to the tax he
would pay if it were an S corporation?
$0
$3,750
$7,500

27. $11,250
50.
Roberto and Reagan are both 25 percent owner/managers for
Bright Light Inc. Roberto runs the retail store in Sacramento,
CA, and Reagan runs the retail store in San Francisco, CA.
Bright Light Inc. generated a $125,000 profit companywide
made up of a $75,000 profit from the Sacramento store, a
($25,000) loss from the San Francisco store, and a combined
$75,000 profit from the remaining stores. If Bright Light Inc. is
an S corporation, how much income will be allocated to
Roberto?
$31,250
$62,500
$75,000
$125,000
Bottom of Form
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