Term
Under the modified accelerated cost recovery system (MACRS) of depreciation for property placed in service after 1986,
No type of straight-line depreciation is allowable.
Used tangible depreciable property is excluded from the computation.
The recovery period for depreciable realty must be at least 27.5 years.
Salvage value is ignored for purposes of computing the MACRS deduction. |
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Definition
| Salvage value is ignored for purposes of computing the MACRS deduction. |
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Term
Gem Corp. purchased all the assets of a sole proprietorship, including the following intangible assets:
Goodwill
$50,000
Covenant not to compete
13,000
For tax purposes, what amount of these purchased intangible assets should Gem amortize over the specific statutory cost recovery period?
$0
$50,000
$13,000
$63,000 |
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Definition
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Term
| On February 1, Year 1, a taxpayer purchased an option to buy 1,000 shares of XYZ Co. for $200 per share. The taxpayer purchased the option for $50,000, which was to remain in effect for 6 months. The market declined, and the taxpayer let the option lapse on August 1, Year 1. The taxpayer would report which of the following as a capital loss on the Year 1 income tax return? $50,000 short term. $200,000 short term. $150,000 long term. $50,000 long term. |
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Definition
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Term
A taxpayer purchased and placed in service during the year a $100,000 piece of equipment. The equipment is 7-year property. The first-year depreciation for 7-year property is 14.29%. Assume that there is an allowable Sec. 179 limit in the current year of $25,000. What amount is the maximum allowable depreciation?
$25,000
$35,718
$14,290
$39,290 |
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Definition
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Term
| Lewis Brown bought four lots of land for $100,000. On the date of purchase, the lots had the following fair market values: Lot #1 $25,000 Lot #2 $31,250 Lot #3 $20,625 Lot #4 $48,125 What is the basis to Lewis of Lot #3? $16,500 $31,250 $20,625 $25,000 |
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Definition
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Term
Which of the following costs are amortizable organizational expenditures?
Commissions paid by the corporation to an underwriter.
Graded Legal fees for drafting the corporate charter.
Printing costs to issue the corporate stock.
Professional fees to issue the corporate stock. |
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Definition
| Legal fees for drafting the corporate charter. |
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Term
On January 1, Fast, Inc., entered into a covenant not to compete with Swift, Inc., for a period of 5 years, with an option by Swift to extend it to 7 years. What is the amortization period of the covenant for tax purposes?
5 years.
7 years.
17 years.
15 years. |
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Definition
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Term
Rock Crab, Inc., purchases the following assets during the year:
Computer
$ 3,000
Computer desk
1,000
Office furniture
4,000
Delivery van
25,000
What should be reported as the cost basis for MACRS 5-year property?
$33,000
$28,000
$25,000
$3,000 |
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Definition
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Term
Gar purchased 1,000 shares of Pat Corporation common stock at $5 per share in Year 1. On September 19, Year 4, he received 1,000 stock rights entitling him to buy 250 additional shares of Pat Corporation common stock at $10 per share. On the day that the rights were issued, the fair market value of the stock was $12 per share ex-rights and that of the rights was $1 each. Gar did not exercise the rights; he let them expire on November 28, Year 4. What should be the loss that Gar can report for Year 4?
A long-term capital loss of $385.
A short-term capital loss of $250.
A short-term capital loss of $1,000.
No gain or loss. |
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Definition
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Term
Data Corp., a calendar-year corporation, purchased and placed into service office equipment during November 2012. No other equipment was placed into service during 2012. Under the general MACRS depreciation system, what convention must Data use?
Half-year.
Mid-month.
Mid-quarter.
Full-year. |
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Definition
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Term
Residential rental property that was placed in service during 2013 using MACRS is depreciated over how many years, using which depreciation method and convention?
39 years, straight-line method, mid-month convention.
27.5 years, straight-line method, mid-month convention.
40 years, 200%-declining-balance method, half-year convention.
15 years, 150%-declining-balance method, half-year convention. |
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Definition
| 27.5 years, straight-line method, mid-month convention. |
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Term
Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $10,000. Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. On the date of change in use, her property has a FMV of $180,000, of which $30,000 is for the land and $150,000 is for the house. Her depreciable basis for the house is
$160,000
$178,000
$180,000
$150,000 |
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Definition
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Term
During 2013, Danny, a calendar-year taxpayer, acquired and placed in service the following business assets:
January: Delivery trucks
$ 50,000
March: Warehouse building
150,000
June: Computer system
30,000
September: Automobile
30,000
November: Office equipment
90,000
Which convention(s) is used to figure Danny’s depreciation for 2013?
Half-year for all of the assets.
Mid-quarter for all assets except the warehouse building, which uses the mid-month.
Half-year for all assets except the warehouse building, which uses mid-month. Half-year for the automobile and the office equipment.
Mid-quarter for all of the assets. |
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Definition
| Mid-quarter for all assets except the warehouse building, which uses the mid-month. |
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Term
A business auto that is purchased and placed in service in 2013 is classified under MACRS as
5-year property/without annual limitations.
3-year property/without annual limitations.
3-year property/with annual limitations.
5-year property/with annual limitations. |
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Definition
| 5-year property/with annual limitations. |
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Term
Assets that may be amortized are generally
Real property
Property used in a trade or business or for the production of income
Tangible property
Property having a determinable useful life
I, III, and IV only.
I and III only.
II and IV only.
II only. |
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Definition
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Term
Browne, a self-employed taxpayer, had 2013 business taxable income of $435,000 prior to any expense deduction for equipment purchases. In 2013, Browne purchased and placed into service, for business use, office machinery costing $450,000. This was Browne’s only 2013 capital expenditure. Browne’s business establishment was not in an economically distressed area. Browne made a proper and timely expense election to deduct the maximum amount. Browne was not a member of any pass-through entity. What is Browne’s deduction under the election?
$435,000
$500,000
$450,000
$2,000,000 |
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Definition
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Term
Dunn received 100 shares of stock as a gift from Dunn’s grandparent. The stock cost Dunn’s grandparent $32,000, and it was worth $27,000 at the time of the transfer to Dunn. Dunn sold the stock for $29,000. What amount of gain or loss should Dunn report from the sale of the stock?
$3,000 loss.
$3,000 gain.
$2,000 gain.
$0 |
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Definition
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Term
Shaney Corporation repurchased its own outstanding bonds in the open market for $258,000 on May 31, 2013. The bonds were originally issued on May 5, 2009, at face value of $250,000. For its tax year ending December 31, 2013, Shaney should report
A capital gain of $8,000.
Neither income nor a deduction.
A deduction of $8,000.
A capital loss of $8,000. |
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Definition
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Term
Which of the following will decrease the basis of property?
Depreciation.
Return of capital.
Recognized losses on involuntary conversions.
All of the answers are correct. |
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Definition
| All of the answers are correct. |
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Term
Bluff purchased equipment for business use for $35,000 and made $1,000 of improvements to the equipment. After deducting depreciation of $5,000, Bluff gave the equipment to Russett for business use. At the time the gift was made, the equipment had a fair market value of $32,000. Ignoring gift tax consequences, what is Russett’s basis in the equipment?
$36,000
$31,000
$32,000
$35,000 |
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Definition
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Term
On August 1 of the current year, Graham purchased and placed into service an office building costing $264,000, including $30,000 for the land. What was Graham’s MACRS deduction for the office building in the current year?
$3,600
$6,000
$2,250
$9,600 |
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Definition
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Term
| When determining the proper treatment of a corporation’s organizational and start-up costs, which of the following is true? Costs associated with the transfer of assets to the corporation are amortizable organization costs. Amortization of organization and start-up costs start with the month business operations begin. The election must be made on the tax return for the first tax year you are in business, even if the return is not timely filed. The period of amortization may not be more than 180 months. |
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Definition
| Amortization of organization and start-up costs start with the month business operations begin. |
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Term
Which one of the following statements is true with regard to an individual taxpayer who has elected to amortize the premium on a bond that yields taxable interest?
The amortization is treated as an itemized deduction.
The bond’s basis is increased by the amortization.
The bond’s basis is reduced by the amortization.
The amortization is not treated as a reduction of taxable income. |
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Definition
| The bond’s basis is reduced by the amortization. |
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Term
Sal used a building in his business that cost $200,000. In September Year 1, Sal sold the building to Benno for $100,000 cash. Benno also agreed to assume Sal’s $150,000 mortgage and pay Sal’s $5,000 accrued real estate taxes. The total depreciation claimed on the building (including Year 1 depreciation) was $30,000. Sal paid $10,000 selling expenses on the sale. What was Sal’s realized gain or loss on the sale of the building?
$75,000 gain.
$80,000 loss.
$65,000 gain.
$70,000 loss. |
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Definition
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Term
Mitchell sold his Saratoga Bombers Corporation stock to his brother Sheldon for $7,000. Mitchell’s cost basis in the stock was $10,000. Sheldon later sold this stock to Sonia, an unrelated party, for $10,500. What is Sheldon’s recognized gain?
$3,000
$2,100
$500
$3,500 |
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Definition
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Term
How is the depreciation deduction of nonresidential real property, placed in service in 2013, determined for regular tax purposes using MACRS?
Straight-line method over 39 years.
150%-declining-balance method with a switch to the straight-line method over 39 years.
150%-declining-balance method with a switch to the straight-line method over 27.5 years.
Straight-line method over 40 years. |
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Definition
| Straight-line method over 39 years. |
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Term
Mr. Anderson, a sole proprietor, purchased $12,000 worth of office equipment and furniture in 2013 for use in his business. He elected to take the maximum Sec. 179 deduction. What is Mr. Anderson’s basis for the MACRS computation?
$7,000
$12,000
$2,000
$0 |
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Definition
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Term
Upon her grandfather’s death, Jordan inherited 10 shares of Universal Corp. stock that had a fair market value of $5,000. Her grandfather acquired the shares in 1995 for $2,500. Four months after her grandfather’s death, Jordan sold all her shares of Universal for $7,500. What was Jordan’s recognized gain in the year of sale?
$5,000 long-term capital gain.
$2,500 long-term capital gain.
$5,000 short-term capital gain.
$2,500 short-term capital gain. |
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Definition
| $2,500 long-term capital gain. |
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Term
Andrew purchased Maple Manufacturing Company on March 17 of the current year for a lump-sum price of $3.5 million. The value of the assets was as follows:
Carrying
Fair Market
Amount
Value
Inventory
$ 100,000
$ 100,000
Cash
500,000
500,000
Equipment
1,650,000
1,750,000
Building
400,000
750,000
Land
100,000
150,000
Covenant not to compete
0
175,000
Goodwill
0
75,000
Andrew assumed no liabilities. What is his basis in the covenant not to compete?
$185,000
$150,000
$350,000
$175,000 |
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Definition
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Term
Dove Corp. began operating a hardware store in the current year after constructing a building at a total cost of $100,000 on land previously acquired for $50,000. In the current year, the land had a fair market value of $60,000. Dove paid real estate taxes of $5,000 in the current year. What is the total depreciable basis of Dove’s business property?
$100,000
$155,000
$160,000
$150,000 |
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Definition
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Term
A taxpayer purchased 5 acres of land for $20,000 and placed in service other tangible business assets that cost $492,000. Disregarding business income limitations and assuming that the annual Section 179 (Election to Expense Certain Depreciable Business Assets) limit is $500,000, what maximum amount of cost recovery can the taxpayer claim this year?
$20,000
$512,000
$500,000
$492,000 |
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Definition
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Term
In the current year, Christian received a gift of property from his mother that had a fair market value of $50,000. Her adjusted basis was $20,000. She paid a gift tax of $9,000. What is Christian’s basis in the property?
$50,000
$59,000
$29,000
$27,500 |
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Definition
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Term
The basis of property received in exchange for service is determined by which of the following?
The value of the services rendered.
The fair market value of the property received.
The basis of the property received.
None of the answers are correct. |
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Definition
| The fair market value of the property received. |
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Term
Which of the following conditions must be satisfied for a taxpayer to expense, in the year of purchase, under Internal Revenue Code Section 179, the cost of new or used tangible depreciable personal property?
The property must be purchased for use in the taxpayer’s active trade or business.
The property must be purchased from an unrelated party.
II only.
Neither I nor II.
Both I and II.
I only. |
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Definition
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Term
Ms. Pear owned 1,000 shares of XYZ Corporation which she had purchased in Year 1 at a cost of $12 per share. In Year 3, she received a nontaxable 20% stock dividend. The shares were identical to those she already held. She ended the year owning 1,200 shares. In Year 5, the stock split 2 for 1 which increased her holdings to 2,400 shares at the end of the year. In Year 8, she sold 400 shares. What was her basis in the 400 shares of stock sold?
$4,800
$4,000
$2,400
$2,000 |
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Definition
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Term
Greller owns 100 shares of Arden Corp., a publicly traded company, which Greller purchased on January 1, Year 1, for $10,000. On January 1, Year 3, Arden declared a 2-for-1 stock split when the fair market value (FMV) of the stock was $120 share. Immediately following the split, the FMV of Arden stock was $62 per share. On February 1, Year 3, Greller had his broker specifically sell the 100 shares of Arden stock received in the split when the FMV of the stock was $65 per share. What is the basis of the 100 shares of stock Arden sold?
$6,000
$6,500
$5,000
$6,200 |
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Definition
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Term
Brown Corp., a calendar-year taxpayer, was organized and actively began operations on July 1, 2013, and incurred the following costs:
Legal fees to obtain corporate charter
$45,000
Commission paid to underwriter
30,000
Other stock issue costs
15,000
Brown wishes to amortize its organizational costs over the shortest period allowed for tax purposes. In 2013, what amount should Brown deduct for the amortization of organizational expenses (excluding any immediate expensing allowed)?
$3,000
$2,500
$1,500 |
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Definition
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Term
Which of the following cannot be amortized for tax purposes?
Organizational meeting costs.
Incorporation costs.
Stock issuance costs.
Temporary directors’ fees. |
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Definition
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Term
Winkler, a CPA, provided accounting services to a client, Thompson. On December 15 of the same year, Thompson gave Winkler 100 shares of Foster Corp. as compensation for services. The adjusted basis of the stock was $4,000, and its fair market value at the time of transfer was $5,000. The following year, Winkler sold the stock on February 15 for $7,500. What is the amount that Winkler should recognize as gain on the sale of stock?
$5,000
$1,000
$0
$2,500 |
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Definition
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Term
With regard to depreciation computations made under the general MACRS method, the half-year convention provides that
The deduction will be based on the number of months the property was in service, so that one-half month’s depreciation is allowed for the month in which the property is placed in service and for the month in which it is disposed of.
Depreciation will be allowed in the last year of the property’s economic life only if the property is disposed of after June 30 of the year of disposition for calendar-year corporations.
One-half of the first year’s depreciation is allowed in the year in which the property is placed in service, regardless of when the property is placed in service during the year, and a half-year’s depreciation is allowed for the year in which the property is disposed of.
Depreciation will be allowed in the first year of acquisition of the property only if the property is placed in service no later than June 30 for calendar-year corporations. |
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Definition
| One-half of the first year’s depreciation is allowed in the year in which the property is placed in service, regardless of when the property is placed in service during the year, and a half-year’s depreciation is allowed for the year in which the property is disposed of. |
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Term
Mr. Pine purchased a small office building. Included in his costs were the following:
Cash down payment
$ 50,000
Mortgage on property assumed
300,000
Title insurance
2,000
Fire insurance premiums
2,000
Attorney fees
1,000
Rent to former owner to allow Mr. Pine to
occupy the office building prior to closing
4,000
What is Mr. Pine’s basis in the property?
$359,000
$355,000
$353,000
$350,000 |
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Definition
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Term
Carter purchased 100 shares of stock for $50 per share. Ten years later, Carter died on February 1 and bequeathed the 100 shares of stock to a relative, Boone, when the stock had a market price of $100 per share. One year later, on April 1, the stock split 2 for 1. Boone gave 100 shares of the stock to another of Carter’s relatives, Dixon, on June 1 that same year, when the market value of the stock was $150 per share. What was Dixon’s basis in the 100 shares of stock when acquired on June 1?
$15,000
$5,000
$5,100
$10,000 |
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Definition
|
|
Term
In order to determine the MACRS deduction using the percentage tables, all of the following must be determined except
The placed-in-service date.
The basis of the property.
The declining balance rate.
The recovery period. |
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Definition
| The declining balance rate. |
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Term
In Year 4, Fay sold 100 shares of Gym Co. stock to her son, Martin, for $11,000. Fay had paid $15,000 for the stock in Year 1. Subsequently in Year 4, Martin sold the stock to an unrelated third party for $16,000. What amount of gain from the sale of the stock to the third party should Martin report on his Year 4 income tax return?
$1,000
$4,000
$5,000
$0 |
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Definition
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Term
The following information pertains to treasury stock sold by Lee Corporation to an unrelated broker in the current year:
Proceeds received
$50,000
Cost
30,000
Par value
9,000
What amount of capital gain should Lee recognize in the current year on the sale of this treasury stock?
$21,000
$20,000
$41,000
$0 |
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Definition
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Term
In 2013, Roe Corp. purchased and placed in service a machine to be used in its manufacturing operations. This machine cost $2,001,000. What portion of the cost may Roe elect to treat as an expense rather than as a capital expenditure?
$499,000
$139,000
$138,000
$500,000 |
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Definition
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Term
| In January Year 1, Joan Hill bought one share of Orban Corp. stock for $300. On March 1, Year 3, Orban distributed one share of preferred stock for each share of common stock held. This distribution was nontaxable. On March 1, Year 3, Joan’s one share of common stock had a fair market value of $450, while the preferred stock had a fair market value of $150. After the distribution of the preferred stock, Joan’s bases for her Orban stocks are Common Preferred $225 $75 $300 $0 $150 $150 $200 $100 |
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Definition
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Term
Mr. Wolf purchased a building in Year 1 to use in his business. The purchase price was $400,000. He paid $100,000 cash and took out a mortgage of $300,000. In Year 11, he made certain permanent improvements to the building at a cost of $80,000. In Year 20, Mr. Wolf sold the building for $600,000 in cash and relief from the remaining mortgage balance of $100,000. By the time of sale, Mr. Wolf had repaid a total of $200,000 principal on the original $300,000 mortgage and had deducted $180,000 total depreciation on the original cost and improvements. What is Mr. Wolf’s realized gain on the sale?
$400,000
$200,000
$700,000
$480,000 |
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Definition
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Term
Fact Pattern: Conner purchased 300 shares of Zinco stock for $30,000 in 1994. On May 23, 2013, Conner sold all the stock to his daughter Alice for $20,000, its fair market value at the time. Conner realized no other gain or loss during 2013. On July 26, 2013, Alice sold the 300 shares of Zinco for $25,000.
What amount of the loss from the sale of Zinco stock can Conner deduct in 2013?
$5,000
$0
$10,000
$3,000 |
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Definition
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|
Term
The basis in property inherited from a decedent may be determined as follows:
The fair market value at the date of death.
The fair market value at an alternate valuation date.
The decedent’s basis plus any inheritance tax paid on the increased value.
The fair market value at the date of death or the fair market value at an alternative valuation date. |
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Definition
| The fair market value at the date of death or the fair market value at an alternative valuation date. |
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Term
A heavy equipment dealer would like to trade some business assets in a nontaxable exchange. Which of the following exchanges would qualify as nontaxable?
The company jet for a large truck to be used in the corporation.
Investment securities for antiques to be held as investments.
A road grader held in inventory for another road grader.
A corporate office building for a vacant lot. |
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Definition
| A corporate office building for a vacant lot. |
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Term
On October 1, 2013, Donald Anderson exchanged an apartment building, having an adjusted basis of $375,000 and subject to a mortgage of $100,000, for $25,000 cash and another apartment building with a fair market value of $550,000 and subject to a mortgage of $125,000. The property transfers were made subject to the outstanding mortgages. What amount of gain should Anderson recognize in his tax return for 2013?
$0
$25,000
$125,000
$175,000 |
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Definition
|
|
Term
In a “like-kind” exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of
Convertible debentures.
Convertible preferred stock.
Partnership interests.
Rental real estate located in different states. |
|
Definition
| Rental real estate located in different states. |
|
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Term
A taxpayer sold for $200,000 equipment that had an adjusted basis of $180,000. Through the date of the sale, the taxpayer had deducted $30,000 of depreciation. Of this amount, $17,000 was in excess of straight-line depreciation. What amount of gain would be recaptured under Section 1245, Gain from Dispositions of Certain Depreciable Property?
$13,000
$17,000
$20,000
$30,000 |
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Definition
|
|
Term
Dole, the sole owner of Enson Corp., transferred a building to Enson. The building had an adjusted tax basis of $35,000 and a fair market value of $100,000. In exchange for the building, Dole received $40,000 cash and Enson common stock with a fair market value of $60,000. What amount of gain did Dole recognize?
$0
$5,000
$40,000
$65,000 |
|
Definition
|
|
Term
Which of the following items is a capital asset?
An automobile for personal use.
Depreciable business property.
Accounts receivable for inventory sold.
Real property used in a trade or business. |
|
Definition
| An automobile for personal use. |
|
|
Term
Sand purchased 100 shares of Eastern Corp. stock for $18,000 on April 1 of the prior year. On February 1 of the current year, Sand sold 50 shares of Eastern for $7,000. Fifteen days later, Sand purchased 25 shares of Eastern for $3,750. What is the amount of Sand’s recognized gain or loss?
$0
$500
$1,000
$2,000 |
|
Definition
|
|
Term
Which of the following sales should be reported as a capital gain?
Sales of equipment.
Real property subdivided and sold by a dealer.
Sale of inventory.
Government bonds sold by an individual investor. |
|
Definition
| Government bonds sold by an individual investor. |
|
|
Term
A taxpayer lived in an apartment building and had a 2-year lease that began 16 months ago. The taxpayer’s landlord wanted to sell the building and offered the taxpayer $10,000 to vacate the apartment immediately. The taxpayer’s lease on the apartment was a capital asset but had no tax basis. If the taxpayer accepted the landlord’s offer, the gain or loss would be which of the following?
An ordinary gain.
A short-term capital loss.
A long-term capital gain.
A short-term capital gain. |
|
Definition
| A long-term capital gain. |
|
|
Term
Gibson purchased stock with a fair market value of $14,000 from Gibson’s adult child for $12,000. The child’s cost basis in the stock at the date of sale was $16,000. Gibson sold the same stock to an unrelated party for $18,000. What is Gibson’s recognized gain from the sale?
$0
$2,000
$4,000
$6,000 |
|
Definition
|
|
Term
Justin Justice owns 55% of the outstanding stock of Rego Corporation. During the current year, Rego sold a trailer to Justin for $10,000. The trailer had an adjusted tax basis of $12,000 and had been owned by Rego for 3 years. In its current-year income tax return, what is the allowable loss that Rego can claim on the sale of this trailer?
$0.
$2,000 ordinary loss.
$2,000 Sec. 1231 loss.
$2,000 Sec. 1245 loss. |
|
Definition
|
|
Term
Among which of the following related parties are losses from sales and exchanges not recognized for tax purposes?
Father-in-law and son-in-law.
Brother-in-law and sister-in-law.
Grandfather and granddaughter.
Ancestors, lineal descendants, and all in-laws. |
|
Definition
| Grandfather and granddaughter. |
|
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Term
The following data pertain to installment sales of personal property made by Fred Dale, an accrual-method taxpayer, in his retail furniture store:
Year of
Installment
Collections
Sale
Sales
Profit
in Year 3
Year 1
$ 50,000
$15,000
$10,000
Year 2
100,000
40,000
30,000
Year 3
150,000
75,000
40,000
These sales were not under a revolving credit plan. Under the installment method, Dale should report gross profit for Year 3 of
$35,000
$75,000
$80,000
$130,000 |
|
Definition
|
|
Term
Joan Reed exchanged commercial real estate that she owned for other commercial real estate plus cash of $50,000. The following additional information pertains to this transaction:
Property given up by Reed
Fair market value
$500,000
Adjusted basis
300,000
Property received by Reed
Fair market value
450,000
What amount of gain should be recognized in Reed’s income tax return?
$200,000
$150,000
$50,000
$0 |
|
Definition
|
|
Term
In the current year, Tatum exchanged farmland for an office building. The farmland had a basis of $250,000, had a fair market value (FMV) of $400,000, and was encumbered by a $120,000 mortgage. The office building had an FMV of $350,000 and was encumbered by a $70,000 mortgage. Each party assumed the other’s mortgage. What is the amount of Tatum’s recognized gain?
$0
$50,000
$100,000
$150,000 |
|
Definition
|
|
Term
On January 2, Year 1, Bates Corp. purchased and placed into service 7-year MACRS tangible property costing $100,000. On December 31, Year 3, Bates sold the property for $102,000, after having taken $47,525 in MACRS depreciation deductions. What amount of the gain should Bates recapture as ordinary income?
$0
$2,000
$47,525
$49,525 |
|
Definition
|
|
Term
Mary Brown purchased an apartment building on January 1, 2004, for $200,000. The building was depreciated using the straight-line method. On December 31, 2013, the building was sold for $210,000 when the asset basis net of accumulated depreciation was $160,000. On her 2013 tax return, Brown should report
Sec. 1231 gain of $10,000 and ordinary income of $40,000.
Sec. 1231 gain of $40,000 and ordinary income of $10,000.
Ordinary income of $50,000.
Sec. 1231 gain of $50,000. |
|
Definition
| Sec. 1231 gain of $50,000. |
|
|
Term
Mr. Macabee, a sole proprietor on the accrual basis, prepared the following balance sheet for his business on December 31, Year 14:
How should this sale be reported in Mr. Macabee’s Year 14 individual tax return?
Zero Sec. 1231 gain and $16,000 ordinary income.
Zero ordinary income and $16,000 Sec. 1231 gain.
$3,000 ordinary income and $13,000 long-term capital gain.
$11,000 ordinary income and $5,000 Sec. 1231 gain. |
|
Definition
| $11,000 ordinary income and $5,000 Sec. 1231 gain. |
|
|
Term
Lobster, Inc., incurs the following losses on disposition of business assets during the year:
Loss on the abandonment of office equipment
$ 25,000
Loss on the sale of a building (straight-line
depreciation taken in prior years of $200,000)
250,000
Loss on the sale of delivery trucks
15,000
What is the amount and character of the losses to be reported on Lobster’s tax return?
$40,000 Section 1231 loss only.
$40,000 Section 1231 loss, $50,000 long-term capital loss.
$40,000 Section 1231 loss, $250,000 long-term capital loss.
$290,000 Section 1231 loss. |
|
Definition
| $290,000 Section 1231 loss. |
|
|
Term
Which one of the following is a capital asset when a business was built by the taxpayer?
Delivery truck.
Goodwill.
Land used as a parking lot for customers.
Machinery used in business. |
|
Definition
|
|
Term
| On June 1, Year 1, Mr. Smart purchased investment land. On January 31, Year 2, Mr. Smart traded the land plus cash for some other investment land in a non-taxable exchange. On August 15, Year 2, he sold the land received in the non-taxable exchange for a gain. What is the character of Mr. Smart’s gain for Year 2? Short-term capital gain. Long-term capital gain. Part short-term capital gain and part long-term capital gain. Ordinary income. |
|
Definition
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|
Term
Arlene sold property with an adjusted basis of $35,000 to Sandy for $50,000. Sandy paid cash of $5,000 and assumed an existing mortgage of $20,000. Sandy signed an installment note for the $25,000 balance at 8% interest. Payments on the note were to be made at the rate of $5,000 a year, plus interest, beginning 1 year after the date of the contract. Arlene did not elect out of the installment method. What is the amount of gain that Arlene should include in the first year after the date of the contract?
$5,000
$2,500
$1,500
$4,500 |
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Definition
|
|
Term
In an installment sale, if the buyer assumes a mortgage that is greater than the installment sale basis of the property sold,
There is never a profit or a loss.
The transaction is disqualified as an installment sale.
The gross profit percentage is always 100%.
The gain is treated as short-term capital gain. |
|
Definition
| The gross profit percentage is always 100%. |
|
|
Term
Oliver, a widower who does not live in a community property state, sold 50 acres of land he and his wife had paid $10,000 for in 1996. She died in 2006. As of the date of her death, the land was valued at $50,000 for estate tax purposes. Oliver sold the land for $100,000 on an installment basis. What is his gross profit percentage?
90%
70%
50%
60% |
|
Definition
|
|
Term
Mr. McCarthy exchanged real estate that he held for investment purposes for other real estate that he will hold for investment purposes. The real estate that he gave up had an adjusted basis of $8,000. The real estate that he received in the exchange had a fair market value of $10,000, and he also received cash of $1,000. Mr. McCarthy paid $500 in exchange expenses. What is the amount of gain recognized by Mr. McCarthy?
$1,000
$2,500
$500
None of the answers are correct. |
|
Definition
|
|
Term
Leker exchanged a van that was used exclusively for business and had an adjusted tax basis of $20,000 for a new van. The new van had a fair market value of $10,000, and Leker also received $3,000 in cash. What was Leker’s tax basis in the acquired van?
$20,000
$17,000
$13,000
$7,000 |
|
Definition
|
|
Term
Platt owns land that is operated as a parking lot. A shed was erected on the lot for the related transactions with customers. With regard to capital assets and Sec. 1231 assets, how should these assets be classified?
Land
Shed
Capital
Capital
Sec. 1231
Capital
Capital
Sec. 1231
Sec. 1231
Sec. 1231 |
|
Definition
|
|
Term
During the current year, a corporation retired obsolete equipment purchased ten years ago having an adjusted basis of $30,000 and sold it as scrap for $1,000. The corporation also had $50,000 taxable income from operations. The taxable income of the corporation was
$21,000.
$20,000 with a capital loss carryover of $30,000.
$51,000 with a capital loss carryover of $29,000.
$50,000 with a capital loss carryover of $29,000. |
|
Definition
|
|
Term
On March 1, Year 1, Paul purchased a machine for use in his business. He sold the machine 9 months later for $11,000. At the time of the sale, the machine had an adjusted basis of $10,250. What is the amount and character of the gain?
$750 long-term capital gain.
$750 ordinary income.
$750 Sec. 1231 gain.
No gain should be recognized. |
|
Definition
|
|
Term
Which of the following dispositions of depreciable property would trigger recapture?
Installment sale.
Gift.
Transfer at death.
Tax-free exchange where no money or unlike property is received. |
|
Definition
|
|
Term
Which of the following is Sec. 1250 property?
Land held for investment.
Irrigation system.
Lease on land.
Dams. |
|
Definition
|
|
Term
The following information pertains to treasury stock sold by Lee Corporation to an unrelated broker in the current year:
Proceeds received
$50,000
Cost
30,000
Par value
9,000
What amount of capital gain should Lee recognize in the current year on the sale of this treasury stock?
$0
$20,000
$21,000
$41,000 |
|
Definition
|
|
Term
How are a C corporation’s net capital losses used?
Deducted from the corporation’s ordinary income only to the extent of $3,000.
Carried back 3 years and forward 5 years.
Deductible in full from the corporation’s ordinary income.
Carried forward 20 years. |
|
Definition
| Carried back 3 years and forward 5 years. |
|
|
Term
The income tax treatment of individual and corporate taxpayers agrees in which of the following respects?
Excess capital losses may be carried forward 5 years and losses may not be carried back.
Excess capital losses may be offset against income from other sources but only to a limited extent.
Excess capital losses retain their identity as either long-term or short-term losses in the year to which they are carried.
None of the answers are correct. |
|
Definition
| None of the answers are correct. |
|
|
Term
With regard to carrybacks and carryovers of a corporation’s capital losses, which of the following statements is false?
When figuring the current year’s net capital loss, you cannot use any capital loss carried from another year.
If you carry capital losses from 2 or more years to the same year, you should deduct the loss from the latest year first.
You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it.
There is no offset against ordinary income for a corporation. |
|
Definition
| If you carry capital losses from 2 or more years to the same year, you should deduct the loss from the latest year first. |
|
|
Term
All of the following businesses are automatically classified as corporations except
An insurance company.
A partnership that possesses at least three of the following characteristics: limited liability, centralized management, free transferability of interest, and continuity of life.
Certain foreign businesses.
A business wholly owned by a state or local government. |
|
Definition
| A partnership that possesses at least three of the following characteristics: limited liability, centralized management, free transferability of interest, and continuity of life. |
|
|
Term
Feld, the sole shareholder of Maki Corp., paid $50,000 for Maki’s stock 12 years ago. This year, Feld contributed a parcel of land to Maki but was not given any additional stock for this contribution. Feld’s basis for the land was $10,000, and the land’s FMV was $18,000 on the date of the transfer of title. What is Feld’s adjusted basis for the Maki stock?
$50,000
$58,000
$60,000
$68,000 |
|
Definition
|
|
Term
In April, A and B formed X Corp. A contributed $50,000 cash, and B contributed land worth $70,000 (with an adjusted basis of $40,000). B also received $20,000 cash from the corporation. A and B each receives 50% of the corporation’s stock. What is the tax basis of the land to X Corp.?
$40,000
$50,000
$60,000
$70,000 |
|
Definition
|
|
Term
Rela Associates, a partnership, transferred all of its assets, with a basis of $300,000, subject to liabilities of $50,000, to a newly formed corporation in return for all of the corporation’s stock. Rela then distributed this stock to the partners in liquidation. In connection with this incorporation of the partnership, Rela recognizes
No gain or loss on the transfer of its assets nor on the assumption of its liabilities by the corporation.
Gain on the assumption of its liabilities by the corporation.
Gain or loss on the transfer of its assets to the corporation.
Gain, but not loss, on the transfer of its assets to the corporation. |
|
Definition
| No gain or loss on the transfer of its assets nor on the assumption of its liabilities by the corporation. |
|
|
Term
Which of the following is not taken into account when determining if a gain or loss should be recognized on the transfer of property to a corporation in exchange for a controlling interest in stock of the corporation?
Ownership of at least 80% of the total combined voting power of all stock entitled to vote.
Ownership of at least 80% of the total number of shares of all other classes of stock.
Receipt of money in addition to stock.
Fair market value of property transferred. |
|
Definition
| Fair market value of property transferred. |
|
|
Term
Jack Carson transferred a building that had an adjusted basis of $75,000 and a fair market value of $130,000 to Corporation R in exchange for 80% of R’s only class of stock and a car with an adjusted basis to R of $25,000. The fair market value of the stock at the time of the transfer was $100,000 and the car’s was $30,000. What is the amount of R’s basis in the building?
$130,000
$105,000
$100,000
$75,000 |
|
Definition
|
|
Term
Mr. Wind transferred property subject to a $35,000 liability to Corporation X in exchange for 90% of X’s only class of stock outstanding. Mr. Wind’s adjusted basis in the property transferred was $40,000. The fair market value of the stock at the time of the transfer was $60,000. What is Corporation X’s basis in the property received and what is Wind’s basis in the stock received?
Corporation X
Mr. Wind
$35,000
$5,000
$40,000
$5,000
$60,000
$40,000
$75,000
$75,000 |
|
Definition
|
|
Term
Mr. A owned 75% of the voting stock and 85% of the nonvoting stock of Corporation Y. Mr. A transferred property with a fair market value of $90,000 and an adjusted basis of $70,000 to Y for an additional 5% of the voting stock and 5% of the nonvoting stock. What is the amount of gain to be recognized by Mr. A?
$0
$8,000
$10,000
$20,000 |
|
Definition
|
|
Term
During 2013, Marlene, Nancy, and Olive formed a new corporation. Solely in exchange for stock, Marlene and Nancy contributed appreciated property, while Olive contributed services. The exchanges of Marlene and Nancy will be nontaxable if
Olive receives 30% of the stock.
Olive receives 80% of the stock.
Olive receives 10% of the stock.
Marlene and Nancy receive 50% of the stock. |
|
Definition
| Olive receives 10% of the stock. |
|
|
Term
Trio Corporation was formed in 2000 by Jordan, Karen, and Lois. These three shareholders have owned all of the corporation’s stock as follows: Jordan owns 500 shares, Karen owns 100 shares, and Lois owns 100 shares. In 2013, Jordan contributed property worth $90,000 to the corporation in exchange for an additional 300 shares. Jordan’s basis in the contributed property was $20,000. Jordan will recognize
Gain on the exchange because he received only 30% of the stock outstanding after the exchange.
No gain because he has sufficient stock ownership after the exchange.
No gain because transfers to a corporation by a shareholder in exchange for a stock interest are nontaxable regardless of the transferor’s stock ownership.
Gain because the transfer is not to a newly formed corporation. |
|
Definition
| No gain because he has sufficient stock ownership after the exchange. |
|
|
Term
In 2013, Chris and Loretta formed a new corporation and contributed appreciated property. They received 90 and 10 shares of the corporation’s stock, respectively. Select the true statement.
Chris must recognize gain.
Loretta must recognize gain.
Chris and Loretta must recognize gain.
Neither Chris nor Loretta must recognize gain. |
|
Definition
| Neither Chris nor Loretta must recognize gain. |
|
|
Term
n a Sec. 351 transaction, Mr. Biller transferred assets with an adjusted basis of $76,000 and a fair market value of $80,000 to Bay View Corporation in exchange for its capital stock with a fair market value of $72,000. Bay View Corporation also assumed a liability from Mr. Biller of $81,000 [not a trade account payable under IRC Sec. 357(c)(3)]. What is Mr. Biller’s recognized gain?
$1,000
$5,000
$8,000
$9,000 |
|
Definition
|
|
Term
Donna exchanges property having an $18,000 adjusted basis and a $35,000 fair market value for 70 shares of the newly created Table Corporation stock. Evelyn exchanges legal services worth $15,000 for the remaining 30 shares of Table Corporation stock. Which of the following is true?
Evelyn recognizes no income, and the exchange is nontaxable.
Evelyn must recognize $15,000 of income, but Donna’s transfer of property qualifies under IRC Sec. 351 as nontaxable.
Evelyn must recognize $15,000 of income, and Donna must recognize $17,000 gain on the exchange.
The exchange qualifies as a nontaxable exchange under IRC Sec. 351. |
|
Definition
| Evelyn must recognize $15,000 of income, and Donna must recognize $17,000 gain on the exchange. |
|
|
Term
You transfer property with an adjusted basis of $20,000 and a fair market value of $31,000 in exchange for 100% of the stock in a new corporation. You receive 100 shares of stock having a fair market value of $16,000 and $10,000 in cash. The corporation also assumes a $5,000 mortgage on the property. Which of the following is correct?
$11,000 gain realized; $0 recognized.
$15,000 gain realized; $11,000 recognized.
$11,000 gain realized; $10,000 recognized.
$10,000 gain realized; $5,000 recognized. |
|
Definition
| $11,000 gain realized; $10,000 recognized. |
|
|
Term
In an exchange transaction, Jesse Jenkins transferred land worth $50,000 to his 80%-controlled corporation in exchange for additional stock of the corporation worth $20,000 and cash of $20,000. The basis of the property to him was $15,000 and was subject to a $10,000 mortgage which the corporation assumed. Jenkins must report a gain of
$10,000
$20,000
$30,000
$35,000 |
|
Definition
|
|
Term
Quigley, Roberk, and Storm form a corporation. Quigley exchanges $25,000 of legal fees for 30 shares of stock. Roberk exchanges land with a basis of $10,000 and a fair market value of $100,000 for 60 shares of stock. Storm exchanges $10,000 cash for 10 shares of stock. What amount of income should each shareholder recognize?
Quigley
Roberk
Storm
$0
$0
$0
$25,000
$90,000
$0
$25,000
$90,000
$10,000
$0
$90,000
$0 |
|
Definition
|
|
Term
Jose started renting a house to Bill for $600 per month beginning February 1, 2013. Bill paid $1,200 on January 15, 2013, which included one month’s rent and one month’s security deposit. The rent is due by the 5th of the month. The lease specifies that the security deposit will also be used as the final month’s rent. Bill pays the rent on the 2nd of each month. Bill also paid $150 for repairs to the air-conditioning system in July and $80 for a roof repair in September. He deducted the amounts from the rent paid to Jose for those months. Bill was unable to pay December’s rent until January of the next year. How much should Jose report as rental income for 2013?
$6,000
$6,600
$7,200
$6,900 |
|
Definition
|
|
Term
Pierce Corp., an accrual-basis, calendar-year C corporation, had the following 2013 receipts:
2014 advance rental payments for a lease ending in 2015
$250,000
Lease cancelation payment from a 5-year lease tenant
100,000
Pierce had no restrictions on the use of the advance rental payments and renders no services in connection with the rental income. What amount of gross income should Pierce report on its 2013 tax return?
$350,000
$0
$100,000
$250,000 |
|
Definition
|
|
Term
Chrisp, a freelance photographer, uses the cash method for business. The tax year ends on December 31. Which of the following should not be included in the determination of Chrisp’s gross income for the current year?
Chrisp received a check from a client on December 28 of the current year for a family portrait produced on December 22 of the current year. The check was dated December 23 of the current year but was not deposited until January 4 of the following year.
A client notified Chrisp on December 27 of the current year that a check was ready. The check was not picked up until January 4 of the following year.
Chrisp owns controlling shares of a closely-held corporation and is planning to delay the bonus payment from the corporation until January of the next year. Bonus was authorized on December 15 of the current year and may be drawn at any time.
Chrisp received a dividend check on January 4 of the following year. The dividends were declared payable on December 30 of the current year |
|
Definition
| Chrisp received a dividend check on January 4 of the following year. The dividends were declared payable on December 30 of the current year |
|
|
Term
Nare, an accrual-basis, calendar-year taxpayer, owns a building that was rented to Mott under a 10-year lease expiring August 31, Year 3. On January 2, Year 1, Mott paid $30,000 as consideration for canceling the lease. On November 1, Year 1, Nare leased the building to Pine under a 5-year lease. Pine paid Nare $5,000 rent for each of the 2 months of November and December, and an additional $5,000 for the last month’s rent. What amount of rental income should Nare report in its Year 1 income tax return?
$45,000
$10,000
$40,000
$15,000 |
|
Definition
|
|
Term
Johnson, an accrual-method landlord, receives the following receipts during the current year associated with his rental of apartments:
Lessees’ refundable deposits
$ 2,000
Value for modifying a lease
50
Rent
10,000
Lessee improvements made in lieu of rent
1,500
Prepaid rent
500
Bonus for granting a lease
200
What amount should Johnson report as taxable income from his rental investment?
$12,250
$12,050
$12,000
$14,250 |
|
Definition
|
|
Term
Ms. Oak rented a small house to Mr. Acorn for $500 a month for all of 2013. The house was in serious need of rehabilitation. Mr. Acorn, an electrician, approached Ms. Oak with a proposal that he would rewire the house in lieu of payment of his January through April rent (4 months). Ms. Oak accepted Mr. Acorn’s offer, and Mr. Acorn completed his work in July. In August, Ms. Oak notified Mr. Acorn that she would be out of town for 3 months starting at the beginning of September, and she asked him to “look after things.” While she was away, he paid $200 to have the furnace repaired. When she returned at the end of November, he paid her $1,300 (3 months’ rent for September, October, and November less the $200 he had paid for the furnace). Mr. Acorn timely paid his rent on the first of each month for May, June, July, August, and December. What amount should Ms. Oak include in her 2013 gross rental income?
$4,000
$4,200
$6,200
$6,000 |
|
Definition
|
|
Term
Mock operates a retail business selling illegal narcotic substances. When Mock calculates business income, he may adjust for
Cost of merchandise.
Business expenses other than the cost of merchandise.
Neither I nor II.
I only.
Both I and II.
II only. |
|
Definition
|
|
Term
Phil Armonic is actively engaged in the oil business and owns numerous oil leases in the Southwest. During 2013, he made several trips to inspect oil wells on the leases. As a result of these overnight trips, he paid the following
Plane fares
$4,000
Hotels
1,000
Meals
800
Entertaining lessees
500
Of the $6,300 in expenses incurred, he can claim as deductible expenses
$4,650
$6,300
$5,650
$5,000 |
|
Definition
|
|
Term
Bob Builder is a sole proprietor. During 2013, he incurred the following expenses:
Rental payments for January and February of the next year
$3,000
Country club dues (Bob frequently entertains clients at the country club)
7,500
Meal expenses incurred while meeting with clients
1,500
What is the amount of Bob Builder’s expenses that are deductible for 2013?
$7,500
$8,250
$750
$4,500 |
|
Definition
|
|
Term
Chassis, Inc., located in Detroit, MI, sells a new type of automobile chassis, which is produced by Auto Manufacturing, Inc., in East Lansing, MI. Which of the following statements is true regarding the 9% manufacturing deduction in 2013?
Chassis can take the U.S. Production Deduction.
Auto Manufacturing cannot take the U.S. Production Deduction.
Chassis cannot take the U.S. Production Deduction.
Chassis and Auto Manufacturing can split the deduction between them. |
|
Definition
| Chassis cannot take the US production deduction |
|
|
Term
Bank Corp., a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant, and the reimbursement is not treated as wages subject to withholdings. For 2013, what percentage of the meal expense may Bank deduct?
50%
80%
100%
0% |
|
Definition
|
|
Term
Gary Judd is an individual proprietor trading as Lake Stores, an accrual basis enterprise that had been using the reserve method for determining bad debt expense for both book and tax purposes. At December 31, 2012, Lake’s allowance for doubtful accounts (“bad debt reserve”) was $20,000. In Lake’s 2013 budget, it was estimated that $3,000 of trade accounts receivable would become worthless in 2013. However, actual bad debts amounted to $4,000 in 2013. In Lake’s 2013 Schedule C of Form 1040, Lake is allowed
No deduction for bad debts since these bad debts should be charged against the “reserve.”
A $1,000 deduction for bad debts, which is the excess of actual bad debts over the amount estimated.
A $4,000 deduction for bad debts but must also include $5,000 of the “reserve” in taxable income.
A $4,000 deduction for bad debts and does not have to include any portion of the “reserve” in taxable income. |
|
Definition
| A $4,000 deduction for bad debts and does not have to include any portion of the “reserve” in taxable income. |
|
|
Term
Clyde operated a food distribution business. He leased a small warehouse in 2012 for $60,000 per year for a 3-year term. The lease was to start on July 1, 2012. Clyde paid the first 2 years’ rent in advance in May 2012. Clyde then began to make monthly payments of $5,000 starting on July 1, 2014, and continuing on the first of the month for the balance of 2014. What rent expense may Clyde claim in 2013?
None of the answers are correct.
$50,000
$60,000
$30,000 |
|
Definition
|
|
Term
Venus Motor Company has two plants from which it manufactures cars: Nevada, U.S. and Mexico. In addition, all executives of Venus and its subsidiaries are offered a discount when they lease cars from the company. All gross receipts are from the sales and leases of cars produced by Venus. In addition, all car leases are leases of cars produced in the Nevada plant. The following reflects the gross receipts from the various business activities:
Sale of cars produced in Nevada
$1,700,000
Sale of cars produced in Mexico
450,000
Leasing cars to customer
400,000
Leasing cars to executives of the subsidiaries of Venus
250,000
Leasing cars to executives of Venus Motor Company
100,000
Sale of cars produced in Nevada to executives of Venus and its subsidiaries
50,000
What is the amount of gross receipts that qualify as domestic production gross receipts (DPGR)?
$2,100,000
$2,150,000
$2,400,000
$2,500,000 |
|
Definition
|
|
Term
What percentage is used when calculating the U.S. Production Deduction?
10%
3%
9%
6% |
|
Definition
|
|
Term
The gross receipts from which of the following activities would not qualify as domestic production gross receipts (DPGR)?
Receipts from an architectural consultation by the taxpayer in Austin, TX, about the construction of a building in Mexico.
Sale of corn grown in Durand, MI, when the taxpayer did not participate in 5% of the procedures required to grow the corn.
Sale of a qualified movie that was filmed by the taxpayer in Minnesota.
Sale of a house that was constructed in Miami, FL, by the taxpayer |
|
Definition
| Receipts from an architectural consultation by the taxpayer in Austin, TX, about the construction of a building in Mexico. |
|
|
Term
ABC Corp. leases two buildings. The first lease started January 1, 2013, and was for 3 years at $10,000 per year rent. ABC paid $30,000 in January for the entire 3-year term. The second lease started July 1, 2013, and was for 5 years at $6,000 per year rent. ABC paid $30,000 in June for the entire 5-year term. What is the total rent expense ABC Corp. may deduct in 2013?
$13,500
$60,000
$13,000
None of the answers are correct. |
|
Definition
|
|
Term
Woodburg, Inc., has domestic production gross receipts (DPGR) of $200,000. His total expenses include $100,000 of cost of goods sold and $40,000 of other expenses. The portion of cost of goods sold and other expenses that are allocable to domestic production is 60%. Woodburg’s taxable income is $150,000, and the W-2 wages allocable only to qualified production activities income for 2013 are equal to $240,000. What is Woodburg’s deduction for income attributable to domestic activities?
$10,440
$18,000
$10,800
$13,500 |
|
Definition
|
|
Term
In order to adopt a fiscal tax year on its first federal income tax return, a corporate taxpayer must
Get IRS approval.
File a short-period return.
Maintain books and records and report income and expenses using that tax year.
Attach a completed Form 1128 to his/her fiscal-year-basis income tax return. |
|
Definition
| Maintain books and records and report income and expenses using that tax year. |
|
|
Term
A C corporation must use the accrual method of accounting in which of the following circumstances?
The business had average sales for the past 3 years of less than $1 million.
The business is a personal service business with over $15 million in sales.
The business has more than $10 million in average sales.
The business is a service company and has over $1 million in sales. |
|
Definition
| The business has more than $10 million in average sales. |
|
|
Term
The following information pertains to treasury stock sold by Lee Corporation to an unrelated broker in the current year:
Proceeds received
$50,000
Cost
30,000
Par value
9,000
What amount of capital gain should Lee recognize in the current year on the sale of this treasury stock?
$0
$21,000
$41,000
$20,000 |
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Definition
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Term
The following information for 2013 pertains to Bartley Corporation:
Capital contributions
$50,000
Realized loss on sale of treasury stock
(10,500)
Income from rental property in a sinking fund (in the hands of a trustee)
5,500
Rent paid directly to a bond holder on a lease of corporate property
8,000
What is the amount of gross income to Bartley Corporation for 2013?
$47,500
$53,000
$8,000
$13,500 |
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Definition
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Term
Tapper Corp., an accrual-basis, calendar-year corporation, was organized on January 2, 2013. During 2013, revenue was exclusively from sales proceeds and interest income. The following information pertains to Tapper:
Taxable income before charitable contributions for the year ended December 31, 2013
$500,000
Tapper’s matching contribution to employee-designated qualified universities made during 2013
10,000
Board of directors’ authorized contribution to a qualified charity (authorized December 1, 2013; made February 1, 2014)
30,000
What is the maximum allowable deduction that Tapper may take as a charitable contribution on its tax return for the year ended December 31, 2013?
$30,000
$0
$10,000
$40,000 |
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Definition
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Term
John Budd is the sole shareholder of Ral Corp., an accrual-basis taxpayer engaged in wholesaling operations. Ral’s retained earnings at January 1, 2013, amounted to $1 million. For the year ended December 31, 2013, Ral’s book income, before federal income tax, was $300,000. Included in the computation of this $300,000 were the following:
Key employee insurance premiums paid on Budd’s life (Ral is the beneficiary of this policy.)
$3,000
Group term insurance premiums paid on $10,000 life insurance policies for each of Ral’s four employees (The employees’ spouses are the beneficiaries.)
4,000
What amount should Ral deduct for key employee and group life insurance premiums in computing taxable income for 2013?
$3,000
$4,000
$7,000
$0 |
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Definition
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Term
Placebo Corp. is an accrual-basis, calendar-year corporation. On December 13, 2013, the board of directors declared a 2%-of-profits bonus to all employees for services rendered during 2013 and notified them in writing. None of the employees own stock in Placebo. The amount represents reasonable compensation for services rendered and was paid on March 13, 2014. Placebo’s bonus expense may
Not be deducted on Placebo’s 2013 tax return because the per-share employee amount cannot be determined with reasonable accuracy at the time of the declaration of the bonus.
Be deducted on Placebo’s 2013 tax return.
Not be deducted on Placebo’s tax return because payment is a disguised dividend.
Be deducted on Placebo’s 2014 tax return. |
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Definition
| Be deducted on Placebo’s 2013 tax return. |
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Term
The costs of organizing a corporation in 2013
May be amortized over a period of not less than 180 months, even if these costs are capitalized on the company’s books.
May be deducted in full in the year in which these costs are incurred even if paid in later years.
Are nondeductible capital expenditures.
May be deducted only in the year in which these costs are paid. |
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Definition
| May be amortized over a period of not less than 180 months, even if these costs are capitalized on the company’s books. |
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Term
Kisco Corp.’s taxable income for 2013 before taking the dividends-received deduction was $70,000. This included $10,000 in dividends from a less than 20%-owned taxable domestic corporation. Given the following tax rates, what would Kisco’s income tax be before any credits?
Partial Rate Table
Tax Rate
Up to $50,000
15%
Over $50,000 but not over $75,000
25%
$15,750
$10,750
$10,000
$12,500 |
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Definition
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Term
Shaney Corporation repurchased its own outstanding bonds in the open market for $258,000 on May 31, 2013. The bonds were originally issued on May 5, 2009, at face value of $250,000. For its tax year ending December 31, 2013, Shaney should report
A deduction of $8,000.
A capital loss of $8,000.
A capital gain of $8,000.
Neither income nor a deduction. |
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Definition
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Term
In the current year, Brown, a C corporation has gross income (before dividends) of $900,000 and deductions of $1,100,000 (excluding the dividends-received deduction). Brown received dividends of $100,000 from a Fortune 500 corporation during the current year. What is Brown’s net operating loss?
$100,000
$200,000
$170,000
$130,000 |
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Definition
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Term
Which of the following cannot be amortized for tax purposes?
Stock issuance costs.
Temporary directors’ fees.
Incorporation costs.
Organizational meeting costs |
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Definition
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Term
For each of the years 2010 through 2012, Geyer, Inc., a calendar-year corporation, had net income (loss) per books as follows:
2010
$ 15,000
2011
10,000
2012
(60,000)
Included in Geyer’s gross revenues for 2012 were taxable dividends of $20,000 received from an unrelated 20%-owned domestic corporation. If Geyer elects to give up the carryback period, what is its NOL that may be carried forward to 2013?
$60,000
$76,000
$51,000
$35,000 |
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Definition
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Term
John Budd is the sole shareholder of Ral Corp., an accrual-basis taxpayer engaged in wholesaling operations. Ral’s retained earnings at January 1, 2013, amounted to $1 million. For the year ended December 31, 2013, Ral’s book income, before federal income tax, was $300,000. Included in the computation of this $300,000 were the following:
Dividends received on 500 shares of stock of a taxable domestic corporation that had 1,000,000 shares of stock outstanding (Ral had no portfolio indebtedness)
$1,000
Loss on sale of investment in stock of unaffiliated corporation (this stock had been held for 2 years; Ral had no other capital gains or losses)
(5,000)
In computing taxable income for 2013, Ral should deduct a capital loss of
$3,000
$5,000
$2,500
$0 |
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Definition
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Term
In the current year, Starke Corp., an accrual-basis, calendar-year corporation, reported book income of $380,000. Included in that amount was $50,000 municipal bond interest income, $170,000 for federal income tax expense, and $2,000 interest expense on the debt incurred to carry the municipal bonds. What amount should Starke’s taxable income be as reconciled on Starke’s Schedule M-1 of Form 1120, U.S. Corporation Income Tax Return?
$500,000
$550,000
$330,000
$502,000 |
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Definition
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Term
In the reconciliation of income per books with income per return,
Only permanent differences are considered.
Both temporary and permanent differences are considered.
Only temporary differences are considered.
Neither temporary nor permanent differences are considered. |
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Definition
| Both temporary and permanent differences are considered. |
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Term
For the current tax year, Sting Corporation had net income per books of $65,000, tax-exempt interest of $1,500, excess contributions of $3,000, excess tax depreciation over book depreciation of $4,500, premiums paid on term life insurance on corporate officers of $10,000 (Sting is the beneficiary), and accrued federal income tax of $9,700. Based on this information, what is Sting Corporation’s taxable income as would be shown on Schedule M-1 of its current year corporate tax return?
$93,700
$58,700
$81,700
$61,700 |
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Definition
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Term
For the year ended December 31, 2013, Kell Corp.’s book income, before income taxes, was $70,000. Included in the computation of this $70,000 was $10,000 of proceeds of a life insurance policy, representing a lump-sum payment in full as a result of the death of Kell’s controller. Kell was the owner and beneficiary of this policy since 2005. In its income tax return for 2013, Kell should report taxable life insurance proceeds of
$5,000
$8,000
$10,000
$0 |
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Definition
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Term
For the year ended December 31, 2013, Kelly Corp. had net income per books of $300,000 before the provision for federal income taxes. Included in the net income were the following items:
Dividend income from an unaffiliated domestic taxable corporation (Taxable income limitation does not apply, and there is no portfolio indebtedness.)
$50,000
Bad debt expense (represents the increase in the allowance for doubtful accounts)
80,000
If no bad debt was written off, what is Kelly’s taxable income for the year ended December 31, 2013?
$380,000
$250,000
$345,000
$330,000 |
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Definition
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Term
If a corporation’s charitable contributions exceed the limitation for deductibility in a particular year, the excess
May be carried back or forward for 1 year at the corporation’s election.
May be carried back to the preceding year.
Is not deductible in any future or prior year.
May be carried forward to a maximum of 5 succeeding years. |
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Definition
| May be carried forward to a maximum of 5 succeeding years. |
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Term
Ram Corp.’s operating income for the year ended December 31, 2013, amounted to $100,000. In addition, Ram received $2,000 in dividends from an unrelated taxable domestic corporation in 2013. Included in Ram’s 2013 operating expenses is a $6,000 insurance premium on a policy insuring the life of Ram’s president. Ram is beneficiary of this policy. Also in 2013, a machine owned by Ram was completely destroyed in an accident. This machine’s adjusted basis immediately before the casualty was $15,000. The machine was not insured and had no salvage value. In Ram’s 2013 tax return, what amount should be deducted for the casualty loss?
$15,000
$14,900
$9,960
$7,948 |
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Definition
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Term
In 2013, Acorn, Inc., had the following items of income and expense:
Sales
$500,000
Cost of sales
250,000
Dividends received
25,000
The dividends were received from a corporation of which Acorn owns 30%. In Acorn’s 2013 corporate income tax return, what amount should be reported as income before special deductions?
$525,000
$505,000
$250,000
$275,000 |
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Definition
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Term
In 2013, Pine Corporation had losses of $20,000 from operations. It received $180,000 in dividends from a 25%-owned domestic corporation. Pine’s taxable income is $160,000 before the dividends-received deduction. What is the amount of Pine’s dividends-received deduction?
$128,000
$144,000
$0
$180,000 |
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Definition
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Term
Wonder, Inc., had 2013 taxable income of $200,000 exclusive of the following:
Gain on sale of land used in business
$25,000
Loss on sale of machinery used in business
(13,000)
Loss on sale of securities held 3 years
(4,000)
Loss on sale of securities held 3 months
(3,000)
On what amount of taxable income should Wonder compute tax?
$212,000
$205,000
$200,000
$202,500 |
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Definition
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Term
Which of the following costs are amortizable organizational expenditures?
Printing costs to issue the corporate stock.
Professional fees to issue the corporate stock.
Legal fees for drafting the corporate charter.
Commissions paid by the corporation to an underwriter. |
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Definition
| Legal fees for drafting the corporate charter. |
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Term
In 2013, Garland Corp. contributed $40,000 to a qualified charitable organization. Garland’s 2013 taxable income before the deduction for charitable contributions was $410,000. Included in that amount was a $20,000 dividends-received deduction. Garland also had carryover contributions of $5,000 from the prior year. In 2013, what amount can Garland deduct as charitable contributions?
$40,000
$41,000
$45,000
$43,000 |
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Definition
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Term
The corporate dividends-received deduction
Is unaffected by the percentage of the investee’s stock owned by the investor corporation.
Must exceed the applicable percentage of the recipient shareholder’s taxable income.
Is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period.
May be claimed by S corporations. |
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Definition
| Is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period. |
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Term
For the year ended December 31, 2013, Maple Corporation’s book income before federal income tax was $100,000. Included in this $100,000 were the following:
Provision for state income tax expense
$1,000
Interest earned on U.S. Treasury bonds
6,000
Interest expense on bank loan to purchase U.S. Treasury bonds
2,000
Maple’s taxable income for 2013 was
$97,000
$101,000
$100,000
$96,000 |
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Definition
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Term
During 2013, Ral Corp. exchanged 5,000 shares of its own $10 par common stock for land with a fair market value of $75,000. As a result of this exchange, Ral should report in its 2013 tax return
No gain.
$25,000 Sec. 1231 gain.
$25,000 Sec. 1245 gain.
$25,000 ordinary income. |
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Definition
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Term
In the case of a corporation that is not a financial institution, which of the following statements is true with regard to the deduction for bad debts?
On approval from the IRS, a corporation may change its method from direct charge-off to reserve.
A corporation is required to use the direct charge-off method rather than the reserve method.
If the reserve method was consistently used in prior years, the corporation may take a deduction for a reasonable addition to the reserve for bad debts.
Either the reserve method or the direct charge-off method may be used, if the election is made in the corporation’s first taxable year. |
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Definition
| A corporation is required to use the direct charge-off method rather than the reserve method. |
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Term
Corporation R was organized and began active business on January 4, 2013. R incurred the following expenses in connection with creating the business:
Professional fees for issuance of stock
$ 4,000
State incorporation fees
2,000
Printing cost for stock certificates
1,500
Broker’s commissions on sale of stock
7,000
Legal fees for drafting the charter
32,000
Expense for temporary directors
5,000
Total
$51,500
Electing no immediate expensing, the maximum amount of organizational expense that may be deducted by Corporation R on its 2013 income tax return is
$51,500
$2,600
$34,333
$3,433 |
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Definition
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Term
Marvel Corporation’s operating income for 2013 was $200,000 after a reduction of $60,000 for charitable contributions. What is the maximum allowable deduction for contributions on Marvel’s 2013 federal income tax return?
$6,000
$20,000
$12,500
$26,000 |
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Definition
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Term
During 2013, ABC Corporation had the following income and expenses:
Gross sales receipts
$350,000
Salaries
175,000
Contributions to qualified charitable
organizations
20,000
Capital gains
3,000
Capital loss carryback
3,000
Depreciation expense
14,000
Dividend income
30,000
Dividends-received deduction
21,000
What is ABC’s charitable contribution deduction for 2013?
$17,000
$15,000
$19,400
$20,000 |
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Definition
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Term
For 2013, a corporation had taxable income of $70,000 without regard to the contribution deduction. Contributions made in 2013 totaled $5,000, and a $4,000 carryover of excess contributions from 2012 is available to apply to 2013. What is the amount of contribution carryover available for 2014, and what is its source?
$3,000 from 2011.
$2,000 from 2013.
$0
$2,000 from 2012. |
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Definition
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Term
In 2013, Cable Corp., a calendar-year C corporation, contributed $80,000 to a qualified charitable organization. Cable’s 2013 taxable income before the deduction for charitable contributions was $820,000 after a $40,000 dividends-received deduction. Cable also had carryover contributions of $10,000 from the prior year. In 2013, what amount can Cable deduct as charitable contributions?
$90,000
$86,000
$82,000
$80,000 |
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Definition
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Term
Which of the following are organizational costs?
Deductible research and experimental costs; set-up accounting services.
Legal services for drafting the charter; cost of organizational meetings.
Expenses of temporary directors; a survey of potential markets.
Advertisements for the opening of business; state incorporation fees. |
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Definition
| Legal services for drafting the charter; cost of organizational meetings. |
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Term
During the current year, Ashley Corporation charged the following payments to miscellaneous expense:
Travel expense of $300 for the company president to offer voluntary testimony at the state capital against proposed legislation regarded as unfavorable to its business
Christmas gifts to 20 customers at $75 each
Contribution of $600 to local political candidate
The maximum deduction that Ashley can claim for these payments is
$1,800
$1,400
$800
$2,400 |
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Definition
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Term
Quail, Inc., manufactures consumer products and sells them to distributors. Quail advertises its products to increase sales and enhance the value of its trade name. What is the appropriate tax treatment for the advertising costs?
Deduct the costs currently as ordinary and necessary business expenses.
Amortize the costs over 60 months.
Amortize the costs over 15 years.
Amortize the costs over 36 months. |
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Definition
| Deduct the costs currently as ordinary and necessary business expenses. |
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Term
For the tax year ended December 31, 2013, Orange Corporation had gross income of $600,000 and operating expenses of $900,000. Contributions of $5,000 to qualified charities were included in expenses. In addition to the expenses, Orange Corporation had a net operating loss carryover of $8,000. What is Orange Corporation’s net operating loss for 2013?
$305,000
$295,000
$313,000
$300,000 |
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Definition
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Term
During 2013, Dowdy, a C corporation, realized a long-term capital gain of $8,000 from the sale of a tract of land, a short-term capital gain of $6,000 from the sale of stock of Ornery Corporation, and a long-term capital loss of $18,000 from the sale of U.S. government securities. What amount of the long-term capital loss may Dowdy deduct on its 2013 income tax return?
$0
$18,000
$8,000
$14,000 |
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Definition
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Term
On January 2 of the current year, Shaw Corp., an accrual-basis, calendar-year C corporation, purchased all the assets of a sole proprietorship, including $300,000 in goodwill. Current-year federal income tax expense of $110,100 and $7,500 for annual amortization of goodwill based on a 40-year amortization period were deducted to arrive at Shaw’s reported book income of $239,200. What should be the amount of Shaw’s current-year taxable income, as reconciled on Shaw’s Schedule M-1 of Form 1120, U.S. Corporation Income Tax Return?
$329,300
$239,200
$336,800
$349,300 |
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Definition
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Term
Net income per books of Pat Jordan’s psychology clinic was $140,825 for the year ended September 30 of the current year. Select from the following account information those items that would be necessary to reconcile book income to the income to be reported on the return, and compute taxable income per return.
Capital gains
$ 3,600
Capital losses
8,200
Entertainment expenses (before limitation)
10,850
Federal income tax expense
62,225
Tax-exempt interest income
5,000
Net income
140,825
Cash distribution to shareholders
20,000
$203,050
$202,225
$207,650
$208,075 |
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Definition
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Term
Eastern Corp., a calendar-year corporation, was formed January 3, 2013, and on that date placed 5-year property in service. The property was depreciated under the general MACRS system. Eastern did not elect to use the straight-line method. The following information pertains to Eastern:
Eastern’s 2013 taxable income
$300,000
Adjustment for the accelerated depreciation taken on 2013 5-year property
1,000
2013 tax-exempt interest from specified private activity bonds issued in 2012
5,000
What was Eastern’s 2013 alternative minimum taxable income before the adjusted current earnings (ACE) adjustment?
$305,000
$306,000
$304,000
$301,000 |
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Definition
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Term
Which of the following is a true statement of the adjusted current earnings adjustment to alternative minimum taxable income?
It applies only to personal holding companies.
It is a decrease by the excess of alternative minimum taxable income over adjusted current earnings.
The adjustment is equal to 75% of the excess of ACE over AMTI.
It is an increase by the excess of adjusted current earnings over alternative minimum taxable income. |
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Definition
| The adjustment is equal to 75% of the excess of ACE over AMTI. |
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Term
Rona Corp.’s 2013 alternative minimum taxable income was $200,000. The exempt portion of Rona’s 2013 alternative minimum taxable income was
$0
$27,500
$12,750
$50,000 |
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Definition
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Term
The Tinkers, Evers, and Chance Corporations have taxable income, all resulting from regular operations, of $100,000, $300,000, and $450,000, respectively. None is a member of a controlled group. The tax liabilities before credits in the current year are
Tinkers
Evers
Chance
$34,000
$102,000
$153,000
$22,250
$90,250
$141,250
$22,250
$117,000
$153,000
$22,250
$100,250
$153,000 |
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Definition
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Term
Zak Corporation has an alternative minimum tax credit available as a result of alternative minimum tax paid for 2013. Which of the following is true regarding how the alternative minimum tax credit may be carried?
Carry forward 20 years.
Carry forward indefinitely.
Carry back 2 years, and then forward 20 years.
Carry back 3 years, and then forward 5 years |
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Definition
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