30 May ACCT 324 Midterm 3 NEW
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in 2General studies
(TCO 9) Trent files his tax return 35 days after the due date. Along with the return, Trent remits a check for $8,000, which is the balance of the tax owed.
Disregarding the interest element, Trent’s total failure to file and to pay penalties are:
2. (TCO 9) A characteristic of fraud penalties is:
3. (TCO 1) Tax bills are handled by which committee in the U.S. Senate?
4. (TCO 1) Which statement is false with respect to tax treaties?
5. (TCO 11) Emily, whose husband died in December 2008, maintains a household in which her dependent daughter lives. Which (if any) of the following is her filing status for the tax year 2008? (Note: Emily is the executor of her husband’s estate.)
6. (TCO 11) During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss. Presuming adequate income, how much of these losses may Kim claim?
7. TCO 7) Orange Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($350 per year), or two years in advance ($680). In September 2008, the company collected the following amounts applicable to future services:
October 2008-September 2010 services
(two-year contracts) $72,000
October 2008-September 2009 services
(one-year contracts) $64,000
Total $136,000
As a result of the above, Orange Cable should report as gross income
8. (TCO 7) With respect to the prepaid income from services, which of the following is true?
9. (TCO 3) Section 119 excludes the value of meals from the employees’ gross income:
10. (TCO 3) Under the Swan Company’s cafeteria plan, all full-time employees are allowed to select any combination of the benefits below, but the total received by the employee CANNOT exceed $8,000 a year.
I. Group medical and hospitalization insurance for the employee, $3,600 a year.
II. Group medical and hospitalization insurance for the employee’s spouse and children, $1,200 a year.
III. Childcare payments, actual cost, but not more than $4,800 a year.
IV. Cash required to bring the total of benefits and cash to $8,000.
Which of the following statements is true?
11. (TCO 10) Hans purchased a new passenger automobile on August 17, 2010 for $40,000. During the year, the car was used 40% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2010
12. (TCO 10) Bob and April own a house at the beach. The house was rented to unrelated parties for 8 weeks during the year. April and the children used the house 12 days for their vacation during the year. After properly dividing the expenses between rental and personal use, it was determined that a loss was incurred as follows:
Gross rental income $4,000
Less: Mortgage interest and property taxes $3,500
Other allocated expenses 2,000 (5,500)
Net rental loss ($1,500)
What is the correct treatment of the rental income and expenses on Bob and April’s joint income tax return for the current year, assuming the IRS approach is used, if applicable?
13. (TCO 10) On May 2, 2010, Karen places in service a new sports utility vehicle that costs $70,000 and has a gross vehicle weight of 6,300 lbs. The vehicle is used 40% for business and 60% for personal use. Determine the cost recovery deduction for 2010
14. (TCO 10) Danielle owns a vacation cottage. During the current year, she rented it for $1,500 for 48 days, and lived in it for 12 days. How would any expenses be accounted for?
15. (TCO 3) Norm’s car, which he uses 100% for personal purposes, was completely destroyed in an accident. The car’s adjusted basis at the time of the accident was $13,000. Its fair market value was $11,500. The car was covered by a $2,000 deductible insurance policy. Norm did NOT file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is Norm’s deductible loss?
16. (TCO 3) During the year, Grant’s personal residence was damaged by fire. Grant was insured for 90% of his actual loss, and he received the insurance settlement. Grant had adjusted gross income, before considering the casualty item, of $30,000. Pertinent data with respect to the residence follows:
Cost basis $170,000
Value before casualty $250,000
Value after casualty $150,000
What is Grant’s allowable casualty loss deduction?
17. (TCO 3) Hannah makes the following charitable donations in the current year:
Basis Fair Market
Value
Inventory held for resale in Hannah’s business
(a sole proprietorship) $8,000 $7,200
Stock in HBM, Inc., held as an investment
(acquired four years ago) $16,000 $40,000
Baseball card collection held as an investment
(acquired six years ago) $4,000 $20,000
The HBM stock and the inventory were given to Hannah’s church, and the baseball card collection was given to the United Way. Both donees promptly sold the property for the stated fair market value.
Disregarding percentage limitations, Hannah’s current charitable contribution deduction is:
18. (TCO 3) Zeke made the following donations to qualified charitable organizations during the year:
Basis Fair Market
Value
Used clothing (all acquired at least 18 months ago) of taxpayer and his family $2,350 $675
Stock in ABC, Inc., held as an investment for 15 months $15,000 $12,875
Stock in MNO, Inc., held as an investment for 11 months $12,000 $20,000
Real estate held as an investment for two years $20,000 $35,000
The used clothing was donated to the Salvation Army; the other items of property were donated to Eastern State University. Both are qualified charitable organizations.
Disregarding percentage limitations, Zeke’s current charitable contribution deduction is:
19. (TCO 3) Josh has investments in two passive activities. Activity A, acquired three years ago, produces income in the current year of $60,000. Activity B, acquired last year, produces a loss of $100,000 in the current year. At the beginning of this year, Josh’s at-risk amounts in Activities A and B are $10,000 and $100,000, respectively. What is the amount of Josh’s suspended passive loss with respect to these activities at the end of the current year?
20. (TCO 3) Several years ago, Joy acquired a passive activity. Until 2006, the activity was profitable. Joy’s at-risk amount at the beginning of 2006 was $250,000. The activity produced losses of $100,000 in 2006, $80,000 in 2007, and $90,000 in 2008. During the same period, no passive income was recognized. How much is suspended under the at-risk rules and the passive loss rules at the beginning of 2009?
21. (TCO 3) Vic’s at-risk amount in a passive activity is $200,000 at the beginning of the current year. His current loss from the activity is $80,000. Vic had no passive activity income during the year. At the end of the current year:
22. (TCO 2) The accrual basis taxpayer sold land for $100,000 on December 31, 2009. He did NOT collect the $100,000 until January 2, 2010. The land was held as an investment.
23. (TCO 2) Hal sold land held as an investment with a fair market value of $100,000 for $36,000 cash and a note for $64,000 that was due in two years. The note bore interest of 11% when the applicable federal rate was 7%. Hal’s cost of the land was $40,000. Because of the buyer’s good credit record and the high interest rate on the note, Hal thought the fair market value of the note was at least $74,000.
24. (TCO 2) Pedro, NOT a dealer, sold real property that he owned with an adjusted basis of $60,000 and encumbered by a mortgage for $28,000 to Pat in 2008. The terms of the sale required Pat to pay $14,000 cash, assume the $28,000 mortgage, and give Pedro eleven notes for $6,000 each (plus interest at the federal rate). The first note was payable two years from the date of sale, and each succeeding note became due at two-year intervals. Pedro did NOT elect out of the installment method for reporting the transaction. If Pat pays the 2011 note as promised, what is the recognized gain to Pedro in 2010 (exclusive of interest)?
25. (TCO 2) Social considerations can be used to justify:
1. (TCO 3) Joe’s automobile, which was used only for business purposes, was damaged in an accident. At the date of the accident, the fair market value of the automobile was $13,000 and its adjusted basis was $7,000. After the accident, the automobile was appraised at $4,000. Calculate Joe’s loss. Is it a for or fromAGI deduction?
2. (TCO 1) Elaine provides more than half of the support for her son James, who does NOT live with her. James is 26 and is a full-time law student. He earns $2,000 from a part-time job. He has a $11,000 scholarship covering his tuition. May Elaine claim James as a dependent? Fully explain you answer.
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