Expert answer:Federal income Tax
Answer & Explanation:30 mc questionsExam 1federal_income_tax_exam_1.doc
federal_income_tax_exam_1.doc
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Humphrey Corp., a calendar year C corporation, realized
taxable income of $20,000 from its regular business operations
for calendar year 2013. In addition, Humphrey had the
following capital gains and losses during 2013:
Short-term capital gain $2,000
Short-term capital loss (6,000)
Long-term capital gain 3,500
Long-term capital loss (9,500)
1. Humphrey did not realize any other capital gains or losses
since it began operations. What is Humphrey’s total taxable
income for 2013?
$ 20,000
$ 17,000
$ 12,000
$ 10,000
Meeker operates a hardware store and owns a parcel of land
that is operated as a parking lot. Meeker owns an additional
parcel across the street from the store that is being held for
investment purposes.
Land/Parking Land/Investment
a.
Capital
Capital
b.
Section 1231
Section 1231
c.
Capital
Section 1231
d.
Section 1231
Capital
2. Carlos Anderson died on March 13, 2013 and bequeathed his
entire $4,000,000 estate to his daughter, Derna. His estate
included investment real estate that had a tax basis to Carlos of
$230,000. This property was distributed to Derna seven
months after Carlos’s death. The alternate valuation date was
validly elected by the executor of Carlos’s estate.
Fair market values for the real estate were:
At the date of Carlos’s death
$500,000
Six months after Carlos’s death
460,000
Seven months after Carlos’s death 470,000
Derna’s basis for the stock is:
$0
$460,000
$470,000
$500,000
Suzanne gave corporate bonds to her child, Benjamin. At the
date of gift, Suzanne’s basis in the bonds was $17,000 and the
stock’s fair market value was $12,000. No gift taxes were paid
on the transfer.
What is Benjamin’s basis in the bonds?
Gain Basis Loss Basis
A
$12,000
$12,000
b
$17,000
$17,000
c
$17,000
$12,000
d
$12,000
$17,000
Rico sells a parcel of investment real estate and received
$120,000 cash and stock with a fair market value of $100,000
and basis of $60,000. Additionally, his $50,000 mortgage on
the property is assumed by the buyer. Rico paid an attorney
$1,000 to execute the sale. The week before the sale he paid
$75 to have a fence repaired on the property. His basis in the
property is $200,000.
What is Rico’s amount realized from selling the property?
$219,000
$268,925
$269,000
$270,000
Which of the following assets are classified as “ordinary” for
purposes of determining the character of gain or loss?
I. Personal residence
II. Inventory
III. Asset sold by a business that had been owned for 8 months
II
II, III
I, II
I, II, III
Which of the following assets are classified as “capital” for
purposes of determining the character of gain or loss?
I. Equipment used in a business
II. Land owned by a dealer in real estate
III. Personal use lawnmower
IV. Copyright owned by author of book
III
IV
II, III
I, II, III, IV
Based on Zella’s taxable income for 2013 her ordinary income
is taxed at a marginal tax rate of 15%. Zella also has net
capital gains for 2013 of $3,000.
At what rate will the $3,000 capital gain be taxed?
28%
15%
10%
0%
In 2013, Yousi has net short-term capital loss of $35,000. He
has also realized a net long-term gain of $60,000 comprised of
the following net gains and losses:
$15,000 gain on the sale of coins held 3 years.
$25,000 gain on the sale of securities held 5 years.
$20,000 gain on the sale of realty (attributable to straight-line
depreciation).
Which gains will the $35,000 net capital loss offset for 2013?
None; the losses cannot offset the gains
Gain from securities and realty
Gain from coins and securities
Gain from coins and realty
Which of the following assets is classified as a Section 1231
asset?
Antique car held as an investment
Accounts receivable
Equipment owned for three years and used in a business
Goodwill
Wolf, Inc. had the following net Section 1231 gains/losses for
its first four years of operations:
Year 1 $10,000
Year 2 $ 4,000
Year 3 $12,000
Year 4 ($18,000)
In Year 5, Wolf has a net Section 1231 gain of $30,000. How
will this gain be taxed according to the following classification?
Ordinary Income Long-Term Capital Gain
a
$18,000
$12,000
b
$0
$30,000
c
$30,000
$0
d
$12,000
$18,000
Carmella purchased a commercial building on June 1, 2003 for
$200,000. The building was depreciated using regular MACRS
straight-line depreciation. The apartment building was sold on
December 31, 2013 for $330,000 when its adjusted tax basis
was $160,000 (assume that $40,000 of depreciation has been
claimed). How much gain from the sale of the building is
subject to the 25% rate and qualifies as Section 1250
depreciation recapture?
25% rate Section 1250
a
$0
$170,000
b
$40,000
$130,000
c
$40,000
$0
d
$170,000
$0
On January 1, 2011, Whitehouse Corp. placed into service 5year MACRS equipment with a tax basis of $10,000. On
December 31, 2013, Whitehouse sold the property for $8,000,
after having taken $6,000 in MACRS depreciation deductions.
What amount of the gain should Whitehouse recapture as
ordinary income under the Section 1245 recapture rules?
$0
$2,000
$4,000
$5,000
Which of the following statements is false?
Depreciation recapture does not apply to losses
Buildings used as residential rental property are Section 1245
property
Buildings used as commercial rental property are Section 1250
property
All depreciable property is classified as Section 1231 property
BOX Corporation purchased MACRS 5 year property in Year 1
for $5,000. On November 19 of Year 5 BOX sells the property
for $1,500. The MACRS deprecation percentages provided are
as follows:
Year 1 20.00%
Year 2 32.00%
Year 3 19.20%
Year 4 11.52%
Year 5 11.52%
Year 6 5.76%
The depreciation allowed for Year 5 (ignoring bonus
depreciation and Section 179) is:
$0
$288
$576
$1,000
On May 28, 2013, Randy purchased and placed into service a
commercial building costing $1,000,000. Twenty percent of the
cost was allocated to the land. What was Randy’s 2013 MACRS
deduction for the building (rounded to the
$12,821
$18,182
$25,758
$29,091
Sonny, a calendar year taxpayer, purchased the following
assets in the current year for use in his business. He does not
make a Section 179 election or elect bonus depreciation.
January 31 Equipment
$50,000
November 15 Computers
$150,000
December 30 Storage Building $500,000
Which of the following conventions will apply when computing
depreciation for these assets for the current year?
A. Mid-quarter only
Half-year only
Mid-quarter and mid-month
Half-year, mid-month, and mid-quarter
Which of the following assets qualify for both Section 179 and
bonus depreciation treatment in 2013 if purchased for use in a
business?
Franchise fee
New office building
Refurbished computer
New delivery van
Which of the following transactions qualify for deferral of gain
and loss under the like-kind exchange rules?
Exchange of business computer for personal use computer
Exchange of business office building for investment land
Exchange of business automobile for business equipment
Exchange of business office building for business equipment
Matthew exchanges land used in his business for another
parcel of land which is more suitable for parking for his
customers. Matthew’s land has a fair market value of $160,000
and adjusted basis of $100,000. The land he receives has a fair
market value of $120,000 so he also receives cash of $40,000.
What is Matthew’s recognized gain or loss from this
transaction?
$0
$40,000
$60,000
$160,000
Karen exchanges land used in her business for another parcel
of land which is more suitable for parking for her customers.
Karen’s land has a fair market value of $200,000 and adjusted
basis of $80,000. The land she receives has a fair market value
of $150,000 so she also receives cash of $50,000. Assume that
Karen’s recognized gain from this transaction is $50,000. What
is Karen’s basis in the new parcel of land?
$ 80,000
$130,000
$150,000
$200,000
Fenwick operates a grocery store and his retail building was
completely destroyed by a hurricane on August 22, 2013. The
fair market value of the building before the hurricane was
$1,200,000 with an adjusted basis of $800,000. His insurance
company reimbursed him $1,200,000 of December 2, 2013.
When is the last date that Fenwick can replace this building
with qualifying property and avoid recognizing gain from this
transaction?
December 31, 2013
August 22, 2015
December 31, 2015
December 31, 2016
On April 16, 2013, Alvin sold 200 shares of Chipmunk stock to
his father, Tang, for $18,000. Alvin had purchased the stock in
2009 for $23,000. Tang sold the stock to Amber, an unrelated
third party, for $30,000 on December 28, 2013.
What amount of gain from the sale of the stock to Amber
should Tang report on his 2013 income tax return?
$0
$2,000
$5,000
$7,000
Potter, who is 48 years old, sold his principal residence this
year for $350,000. He had purchased the residence six years
ago for $200,000 and has lived in it since them except for six
months last year when he was in a rehabilitation center after a
car accident. He paid a realtor’s commission of $15,000. He has
not bought a new home by the end of the tax year and does not
plan to do so in the near future.
What amount of gain is recognized from the sale of the former
residence on Potter’s tax return?
$0
$135,000
$150,000
$350,000
Sabin purchased 100 shares of Risky company stock in 2012 for
$10,000. He sold these shares on December 27, 2013 when the
value had dropped to $2,000. On January 3, 2014 he
repurchased 100 shares of Risky for $3,000.
What gain or loss can Sabin recognize from this sale in 2013
what basis does he have in the shares purchased in 2014?
a
Gain/Loss
Basis
$0
$3,000
b
($8,000)
$3,000
c
$0
$11,000
d
($8,000)
$11,000
Ike Investor purchased land in Year 1 for $600,000. He sold the
land for $800,000 in Year 4 and received a down payment of
$200,000. He will receive principal payments each year of
$200,000 for the next three years. What amount of gain should
be reported in Year 4 if he reports the gain under the
installment method?
$ 50,000
$100,000
$200,000
$800,000
Which of the following are NOT considered to be a related party
for purposes of the loss disallowance rules on related party
sales?
A partnership and a partner who owns 60% of the partnership
A grandfather and grandson
A corporation and a shareholder owns 90% of the corporation
Two cousins
Dandy Corporation’s business building was destroyed by an
earthquake this year. Dandy had an adjusted basis in the
building of $350,000. The fair market value of the building
before the earthquake was $500,000. However, the building
was insured for only $250,000 which was the amount received
by Dandy’s insurance company. Dandy uses these funds and
other resources to purchase a new business building for
$400,000 by the end of the year. How much gain or loss must
be recognized by Dandy?
$0
$50,000 gain
$100,000 loss
$150,000 gain
Corporation P is organized this year and incurs $41,000 of
organizational expenses. P, a calendar year corporation, begins
business operations on October 1. What will be the total
deductions taken on this year’s tax return for these
expenditures?
$0
$ 5,000
$ 5,600
$ 41,000
Which of the following items is tangible personal property?
50 shares of stock in Ace Corp.
Oil painting
Land
Franchise
…
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