Question
1.Characteristics of profit-sharing plans include all of the followingexcept
(Points : 4)
a predetermined formula is used to allocate employer contributions to individual employees and to establish benefit payments.
forfeitures of benefits under the plan may be reallocated to the remaining participants
the company must make contributions to the plan if it has profits during the year.
annual employer contributions are not required but substantial recurring contributions that must be made to satisfy the requirement that the plan be permanent.
Question 2.2.Norman traveled to San Francisco for 4 days on vacation and spent another 2 days conducting business for his employer. Norman’s plane fare for the trip was $500 meals cost $150 per day hotels cost $300 per day and a rental car cost $150 per day that was used for all 6 days. Norman was not reimbursed by his employer for any expenses. Norman’s AGI for the year is $40000 and he did not have any other miscellaneous itemized deductions. Norman may deduct (after limitations)
(Points : 4)
$250.
$800.
$1050.
$1200.
Explanation: Meals ($150 2) $ 300
Minus: 50% of meals ( 150) $150
Hotels ($300 2) 600
Rental car ($150 2) 300
Total expenses $1050
Minus: 2% of $40000 (800)
Deductible expenses $ 250
Question 3.3.Hunter retired last year and will receive annuity payments for life from his employer’s qualified retirement plan of $30000 per year starting this year. During his years of employment Hunter contributed $130000 to the plan. Based on IRS tables his life expectancy is 260 months. All of the contributions were on a pre-tax basis. This year Hunter will include what amount in income?
(Points : 4)
$0
$6000
$24000
$30000
Explanation: If amounts are contributed on a pre-tax basis Hunter received a tax benefit when the contribution was made so all amounts are taxable.
Question 4.4.Ron is a university professor who accepts a visiting position at another university for 6 months and obtains a leave of absence from his current employer. Ron rents an apartment near the university and purchases his food. These living expenses incurred by Ron while visiting the university will be
(Points : 4)
deductible for AGI.
deductible from AGI without application of a floor
deductible from AGI subject to the 2% of AGI floor
nondeductible
Question 5.5.In 2014 Carlos filed his 2013 state income tax return and paid taxes of $800. Also in 2014 Carlos’s employer withheld state income tax of $750 from Carlos’s salary. In 2015 Carlos filed his 2014 state income tax return and paid an additional $600 of state income tax due for 2014. How much state income tax can Carlos deduct on his 2014 federal income tax return for state income tax?
(Points : 4)
$1350
$1400
$1550
$2150
Question 6.6.On July 31 of the current year Marjorie borrows $120000 to purchase a new fishing boat. The loan is secured by her personal residence. On the date of the loan the outstanding balance on the original debt incurred to purchase the residence is $300000 and the FMV of the home is $450000. What is the total amount of debt on which Marjorie can deduct interest in the current year?
(Points : 4)
$300000
$400000
$420000
$450000
Explanation: Interest on $300000 of acquisition indebtedness and $100000 of home equity indebtedness. The home equity indebtedness is the lesser of home equity of $150000 or $100000
Question 7.7.In October 2014 Jonathon Remodeling Co. an accrual-method taxpayer remodels and renovates an office building for Dale and bills him $30000. Dale signs a note for the debt. Dale keeps delaying payment and files bankruptcy in 2015. Creditors are informed that no assets are available for payment. Jonathon Remodeling Co. will report
(Points : 4)
$0 income in both years.
$30000 income in 2014 and a bad debt deduction of $30000 in 2015
$30000 income in 2014 and a STCL of $30000 in 2015 limited to $3000 after netting
$30000 income in 2014 and then must amend last year’s return to show $0 income when advised of the bankruptcy
Since Jonathon Remodeling Co. is an accrual-basis taxpayer the $30000 is recognized in income when billed in 2014. The debt is a business bad debt since it is related to a trade or business. The nonpayment in 2015 results in a business bad debt which is an ordinary loss deductible in 2015
Question 8.8.Gayle a doctor with significant investments in the stock market traveled on a cruise ship to Bermuda. Investment specialists provided daily seminars which Gayle attended. The cost of the cruise for 4 days is $2500. Gayle can deduct (before application of any floors)
(Points : 4)
$0
$1250.
$2000.
$2500.
Explanation: None of the travel expenses are deductible because the expenses are related to income-producing activities under Section 212 and are not related to Gayle’s trade or business
Question 9.9.Nicole has a weekend home on Pecan Island that she purchased in 2005 for $250000. Recently the home was appraised at $260000. After the appraisal a hurricane hit Pecan Island severely damaging Nicole’s home. An appraisal placed the value of the home at $140000 after the hurricane. Because of its prohibitive cost Nicole had no hurricane insurance. Before any reductions or limitations Nicole’s casualty loss amount is
(Points : 4)
$0
$10000
$120000
$140000
Explanation: 260000 (FMV Before casualty)-140000 (FMV after casualty)=120000
Question 10.10.A flood damaged an auto owned by Mr. and Mrs. South on June 15 of this year. The car was only used for personal purposes.
Fair market value before the flood $18500
Fair market value after the flood 2000
Cost basis 20000
Insurance proceeds 13000
Adjusted gross income for this year 25000
Business use of auto 0
Based on these facts what is the amount of the Souths casualty loss deduction after limitations for this year?
(Points : 4)
$900
$1000
$4400
$4500
Explanation: Loss in fair market value = $6500 ($8500-$2000)
Less: Insurance reimb = $3000
net loss is $3500
Less: $100
Less: 10% of AGI which is $2500
Casualty lossdeduction= $900.
Casualty losses are deductible to the extent they exceed a $100 deductible and 10% of your AGI.
Question 11.11.Hannah is a 52-year-old an unmarried taxpayer who is not an active participant in an employer-sponsored qualified retirement plan. Before IRA contributions her AGI is $63000 in 2014. What is the maximum amount she may contribute to a tax deductible IRA?
(Points : 4)
$4400
$5200
$5500
$6500
Explanation: Hannah is not an active participant in an employer-sponsored qualified retirement plan and therefore may deduct the full $5500 limit plus $1000 because she is over 50 years old
Question 12.12.Ted pays $2100 interest on his automobile loan $120 interest on a loan to purchase a computer for personal use $630 interest on credit cards and $1100 investment interest expense. Ted has net investment income of $850. Ted’s deductible interest is
(Points : 4)
$850
$1100
$2950
$3200
Explanation: Only the investment interest expense to the extent of net investment income of $850 is deductible
Question 13.13.A partnership plans to set up a retirement plan to benefit the partners and the employees. All of the following retirement plans are appropriateexcept
(Points : 4)
an H.R. 10 (Keogh) plan
a SEP IRA
a SIMPLE plan
a Solo 401(k).
Explanation: A Solo 401(k) plan is only appropriate for single business owners with no employees
Question 14.14.In 2014 Sela traveled from her home in Flagstaff to San Francisco to seek medical care. Because she was unable to travel alone her mother accompanied her. Total expenses included:
Hotel room en route ($150 2 rooms 3 nights) $900
Mileage: 1000 miles
Doctors bills in San Francisco 1600
The total medical expenses deductible before the 10% limitation are
(Points : 4)
$1600
$2135.
$2500
$2460
Question 15.15.Leonard owns a hotel which was damaged by a hurricane. The hotel had an adjusted basis of $1000000 before the hurricane. A recent appraisal determined that the hotel’s FMV was $1500000 before the hurricane and $700000 afterwards. Leonard received insurance proceeds of $500000. His AGI is $60000. What is the amount of his deductible casualty loss?
(Points : 4)
$293900
$300000
$793900
$800000
Explanation: For business property partially destroyed the amount of the loss is the lower of the decline in FMV or adjusted basis. The decline in FMV is $800000. Leonard received insurance proceeds of $500000 resulting in a deductible casualty loss of $300000
Question 16.16.Tobey receives 1000 shares of YouDog! stock as part of his compensation package. Tobey’s employment contract with YouDog! Inc. states that if he leaves before completion of 3 years of employment he will forfeit the stock. The stock currently has a fair market value of $12 per share. Which of the following statements regarding Tobey’s choices isnottrue?
(Points : 4)
Tobey does not have to recognize any income from receiving the stock until his rights to the stock are fully vested.
Tobey must report $12000 as income due to the receipt of the stock in the current year.
Tobey may elect to report the $12000 FMV of the stock as ordinary income in the current year.
If Tobey elects to report $12000 as income in the current year and the stock price falls to $5 per share when his rights to the stock are vested Tobey is not allowed to deduct a loss.
Question 17.17.Van pays the following medical expenses this year:
$1500 for doctor bills for Van’s son who is claimed as a dependent by Van’s former spouse.
$300 for Van’s eyeglasses.
$900 for Van’s dental work.
$3800 for Van’s face lift. Van a newscaster is worried about the wrinkles around his eyes.
How much can Van include on his return as qualified medical expenses before limitation?
(Points : 4)
$1200
$2400
$2700
$6500
Explanation: 1500+300+900=2700
Question 18.18.Hope sustained a $3600 casualty loss due to a severe storm. She also incurred a $800 loss from a theft in the same year. Both the casualty and theft involved personal-use property. Hope’s AGI for the year is $25000 and she does not have insurance coverage. Hope’s deductible casualty loss is
(Points : 4)
$1700
$1800
$4200
$4300
Explanation: Storm Theft Total
Loss before limits $3600 $ 800 $4400
Minus: $100 floor ( 100) ( 100) ( 200)
$3500 $ 700 $4200
Minus: 10% of AGI ( 2500)
Deductible loss $ 1700
Question 19.19.Peter is assessed $630 for street improvements in front of his house. Which of the following statements is correct?
(Points : 4)
Peter must deduct the assessment as a tax
Peter must reduce the property basis by $630
Peter must increase the property basis by $630
Peter can elect to deduct the $630 currently or increase the basis in the property
Question 20.20.Last year Abby loaned Pat $10000 as a gesture of their friendship. Although Pat had signed a note payable that contained interest payments and a maturity date the loan had not been repaid this year when Pat died insolvent. For this year assuming that the loan was bona fide Abby should account for nonpayment of the loan as a(n)
(Points : 4)
itemized deduction
ordinary loss
long-term capital loss
short-term capital loss