T13F-Chp-00-Tst-4-Exam-Prb-Fall-2013. Page 1 of 7
FEDERAL TAX TEST NO. 4. Comprehensive Final Exam. Fall, 2013. UNC Charlotte.
Name______Row In Class______
You may use your textbook and a reasonable amount of notes from the class. Avoid all appearances of impropriety.
If you see any sign of impropriety, please prepare an anonymous note and slide it under instructor's office door.
Failure to follow instructions below will result in a 5 point reduction in your grade.
Multiple Choice- 40 questions count 3.75 points each for a total of 150 Points.
1. Use a soft-lead pencilIn Spaces Above
2. Enter name in appropriate space above. Write clearly.
3. Enter above the row number for your seat in class. / On the Opscan Sheet:
4. Enter name (last name first) in the area for “NAME.”
5. Enter test number (found in upper right hand corner of
this page) in the special codes area.
6. Blacken circle containing appropriate letter for each question.
Add 3 points to your test grade if you complete the following form, completely and carefully. Must be readable.
Answer each question by marking the letter representing the best answer.
1. Wayne is single. In 2013, he had a salary of $320,000. After taking into account all deduction limits and phase-outs, his exemption and itemized deductions amounted to a total of $30,000.
His only other income during the year was interest of $10,000 on State of North Carolina bonds.
Wayne's federal income tax before credits for 2013 was:
2. Which of these expenditures is a deduction from Adjusted Gross Income for a single individual?
a. / Penalty for early withdrawal from savings / c. / Health insurance for self-employed individualb. / Contribution to IRA / d. / Casualty loss from accident involving personal auto
3. Betty is single. In 2013, she had a regular salary of $130,000.
In December, 2013, the company paid her a cash bonus of $20,000, in addition to her regular salary.
How much Social Security tax is withheld on the bonus?
Use the following trial balance for the next question.
Small Corporation had this (GAAP) trial balance at the end of its first year (2013).
The home repair corporation uses the accrual method.
Cash / $80,000Accounts receivable / 55,000
Equipment-placed in service January 2, 2013 / 90,000
Accumulated Depreciation.-Straight Line- 5 years, no salvage / $18,000
Other asset / 100,000
Capital stock (Mr. Small has always owned 100% of the stock) / 217,000
Retained earnings
Home repair revenue / 260,000
Other Revenue / 5,000
Rent expense on business property / 30,000
Advertising expense / 7,000
Depreciation expense / 18,000
Salary to owner / 40,000
Other expenses, including payroll taxes / 80,000
Totals / $500,000 / $500,000
There is no state income tax. Mr. Small has no income other than income from the corporation.
4. [For this question, assume Mr. Small elected S status on the first day of the year (2013).]
How much total income will Mr. Small report on his tax return from the “S” corporation?
a. / $130,000 / b. / $90,000 / c. / $40,000 / d. / $120,000 / e. / Other5. An individual had salary income and capital gains and losses as follows:
Tax Year: / 2012 / 2013 / 2014Salary / $120,000 / $120,000 / $120,000
Long-term capital gain / $4,000 / $2,000 / $0
Short-term capital loss / (16,000) / $0 / $0
She has no deduction for AGI, other than capital losses. What is her adjusted gross income for 2014?
a. / $120,000 / b. / $119,000 / c. / $118,000 / d. / $117,000 / e. / Other6. On 1-1-2013, Charlotte Corp. was organized. On that date, Charlotte paid $50,000 for organization
costs for the corporation. What is the total amount of organization cost deduction for 2013?
7. Bill and Betty are 23 years of age, married and file a joint return. Bill earns a salary of $56,000.
Betty earns $56,000. Total is $112,000. They are both covered by a retirement plan at work.
They each contribute $5,500 to an IRA (Total $11,000). What is their AGI on a joint return for 2013?
a. / $100,000 / b. / $112,000 / c. / $109,000 / d. / $110,350 / e. / Other8. What type of IRA is preferred when an individual expects to be in an income tax bracket in the
retirement years that is higher than the tax bracket during the individual’s working years?
a. / Regular IRA / b. / Roth IRA / c. / Either9. Ann's motorcycle (used entirely for family events) was totally destroyed by fire in 2013. The motorcycle
had a basis of $50,000 and a FMV of $52,000 before the fire. Ann received insurance reimbursement of $20,000. Ann's adjusted gross income was $60,000, before considering this loss. Ann had no casualty gains during the year.
What amount of the fire loss was Ann entitled to deduct on her tax return?
a. / $ 4,900 / b. / $ 14,900 / c. / $ 23,500 / d. / $23,900 / e. / Other10. Allen is 68, single and has a salary of $14,000. His adjusted gross income is $14,000. Allen is blind.
He has no dependents and his itemized deductions are $6,000. What is his taxable income for 2013?
11. Peggy earns a salary from IBM Corporation of $100,000 per year. On 1-1-2013, Peggy invested $50,000 to become a 25% owner of an S corporation that builds homes. In 2013, the S corporation had revenue of $190,000 and expenses of $150,000. Peggy received a salary of 20,000 from the S corporation, which is included in the expenses shown above. Peggy received a dividend of $2,000 from the S corporation in 2013. Peggy earns a salary from Big Corporation of $100,000 per year. What is Peggy’s basis in her S corporation stock at the end of 2013?
a. / $56,000 / b / $60,000 / c. / $44,000 / d. / $58,000 / e. Other12. Mary paid $170,000 for an office building on September 27, 2013, to use in her consulting business. She properly allocates $150,000 to the building and $20,000 to the land.
What is Mary's depreciation deduction on the property for 2013?
13. In a nontaxable, like-kind exchange, Ted traded in a truck having an adjusted basis of $5,000
and a fair market value of $9,000, for another truck having a fair market value of $12,000.
In addition, Ted paid cash of $3,000. What is Ted's recognized gain on this exchange?
14. In a nontaxable, like-kind exchange, Ted traded in a truck having an adjusted basis of $5,000
and a fair market value of $9,000, for another truck having a fair market value of $12,000.
In addition, Ted paid cash of $3,000. What is Ted's basis in the truck?
15. Ann and Bill are married. They sold their jointly held home on November 19, 2013, for $850,000. Their adjusted basis in the home at that time was $200,000. They had lived in the home since 2010. How much gain is included in their income from the sale of their home?
a. / $0 / b. / $235,000 / c. / $118,500 / d. / $435,000 / e. / $150,00016. The Concord Corporation has federal taxable income of $600,000 for the year.
What is the federal income tax due for the year?
17. Santana Corp. operates a golf shop. It properly elected Subchapter S status on March 1 of the current
year. Taxable income for the current year is $120,000. What is Santana Corp’s income tax liability?
------
18. Donna incorporated her proprietorship by transferring her building with a basis of $900,000 to the Gold Corp.
in exchange for all its stock. Donna received stock worth $1,100,000. The building had a value of $1,200,000 and was subject to a $100,000 mortgage which was assumed by Gold Corp. What is the gain to be recognized by Donna?
19. Repeat the preceding question. What is Donna’s basis in the stock received?
a. / $700,000 / b. / $800,000 / c. / $900,000 / d. / $1,200,000 / e. / Other20. Repeat the preceding question. What is Gold Corporation’s basis in the building?
a. / $780,000 / b. / $800,000 / c. / $840,000 / d. / $900,000 / e. / Other------
21. Perry contributed property to a new partnership in return for a 50% interest in capital and profits.
The property had a fair market value of $10,000, an adjusted basis of $6,000, and was subject to
a $9,000 mortgage which was assumed by the partnership. What was Perry’s recognized gain?
22. Repeat the preceding question. What was Perry's basis in the partnership?
a. / $0 / b. / $600 / c. / $1,500 / d. / $6,000 / e. / Other------
23. The Maria & Marvin Partnership was organized on January 2 of the current year.
The partnership had the following income for the current year:
Net Income from operations / $160,000Tax exempt interest income / $10,000
Dividends from corporations / $20,000
Long-term capital gains / $30,000
Partners Maria and Marvin share the profits and losses equally.
Maria has no income or losses from sources other than the partnership?
What is Maria's adjusted gross income, before considering the deduction for 50% of self-employment tax?
a. / $85,000 / b. / $105,000 / c. / $97,500 / d. / $110,000 / e. / Other24. Jane Doe invested $20,000 for a one-third interest in capital and profits of a partnership.
After her investment, the partnership had total taxable income of $24,000 and nontaxable income of $12,000.
Jane withdrew $9,000. After these events, the tax basis of Jane's interest in the partnership is:
25. Local Corporation had the following items of income and expenses in the current year:
Income from operations / $500,000Expenses of operations / 510,000
Net Operating Income / (10,000)
Dividend income from Cooper Corporation (a 10% owned corporation) / 90,000
Net income before taxes (GAAP) / $80,000
What is Local Corporation’s dividends-received deduction, if any?
a. / $56,000 / b. / $63,000 / c. / $82,000 / d. / $90,000 / e. / Other26. Crane Corporation, an S corporation, has three equal stockholders. During the current year, Crane had net ordinary business income of $270,000. The company also had municipal interest of $20,000.
Crane made cash distributions totaling $120,000 during the current year.
What amount from Crane should be included in each stockholder's gross income for the current year?
27. On January 1, Bob purchased 50% of the stock of United Industries, an S corporation, for $100,000.
Bob also loaned the corporation $30,000. United Industries incurred in ordinary loss of $250,000 in the year.
How much of the loss can Bob deduct on his personal income tax return for the year?
a. / $0 / b. / $100,000 / c. / $ 120,000 / d. / $ 125,000 / e. / $130,00028. Rebecca’s adjusted basis in a partnership interest was $6,000 before receiving these distributions:
(1) Cash of $8,000 and (2) Land with an adjusted basis of $7,000 to the partnership and a FMV of $9,000.
Assume this is a liquidating distribution for Rebecca.
What Rebecca’s gain to be recognized as a result of these distributions?
a. / $7,000. / b. / $-0-. / c. / $2,000. / d. / $8,000.29. Rebecca’s adjusted basis in a partnership interest was $6,000 before receiving these distributions:
(1) Cash of $8,000 and (2) Land with an adjusted basis of $7,000 to the partnership and a FMV of $9,000. Assume this is a liquidating distribution for Rebecca. What Rebecca’s basis in the land received from the partnership?
30. Ann started a new corporation in Year 1. Ann owns 100% of the company stock.
Ann does not receive a salary from the corporation. Ann does not borrow from (or make loans to) the Corporation.
Corporation elected S Status / January 1 / Year 1
Corporation had net income for year / Year 1 / $50,000
Corporation distributed dividend to Ann / December 31 / Year 1 / $40,000
How much income or gain does Ann recognize as a result of the cash distribution?
a. / $0 / b. / $10,000 / c. / $30,000 / d. / $50,000 / e. / $70,00031. Repeat preceding question. What is Ann’s basis in the corporate stock on January 1, Year-2?
a. / $0 / b. / $50,000 / c. / $15,000 / d. / $35,000 / e. / $70,00032. You are given the following information about a nonstatutory stock option plan.
Non-Qualified Stock Option / Shares / Cost/share / FMV/shareJan. 2, 2008 / Sarah receives an option to buy 1,000 shares of stock / 1,000 / $100 / $100
(The option price or strike price is $100 per share,)
Option can be exercised on or after January 2, 2010.
Jan. 2, 2010 / Sarah buys 1,000 shares at a cost of $100 per share. / 1,000 / $100 / $160
If Sarah leaves the company before January 2, 2012,
she must sell it back to the company at $100 per share.
Jan. 2, 2012 / All restrictions lapse on January 1, 2012. / $200
Jan. 2, 2015 / She sells all of the stock for $400 per share. / 1,000 / $400
No Section 83(b) election is made. What amount of gain will be reported when the stock is sold in 2015?
a. / $0 / b. / $50,000 / c. / $ 80,000 / d. / $120,000 / e. / $200,00033. Repeat question above. An election under Section 83(b) is made.
How much income will she recognize prior to the year in which the stock is ultimately sold?
a. / -0- / b. / $10,000 / c. / $50,000 / d. / $60,000 / e. / $200,00034. Repeat question above. Assume the option is an incentive option.
How much income or gain is recognized in year of sale, when computing regular taxable income?
a. / $400,000 / b. / $300,000 / c. / $200,000 / d. / $100,000 / e. / OtherNext five questions are about corporate tax return assignment. See the solution on a page later in this test.
After preparing a draft of the corporate tax return, you learn some additional information causing you to need to correct the return. Please consider each of the following questions independently. When computing the answer for a question, please ignore additional information provided for earlier questions.
35. You learn that the client made some emergency repairs for a customer on December 30, 2013. However, the client’s accounting department did not record the revenue of $30,000 and the accounts receivable of $30,000 until
the first week in January, 2014. You will increase revenue by $30,000 on the tax return for 2013.
[The customer provided the necessary repair parts, so no adjustment is needed for your client’s expenses.]
What is the revised amount of taxable income for 2013, taking into account this additional information?
a. / $138,800 / b. / $168,800 / c. / $167,800 / d. / $165,800 / e. / Other36. Assume you determine that the CEO entertained customers at a Bowl Game on December 31, 2013, but did not file an expense reimbursement request until after this trial balance was prepared. The CEO spent $20,000 on entertainment for dozens of customers. This entertainment was not lavish or extravagant. Assume your client makes an adjusting entry to debit "Entertainment expense" for $20,000 and credit "Payable to Officer" for $20,000.
What is the revised amount of taxable income for 2013, taking into account this additional information?
37. Your draft copy of the tax return shows rent expense of $73,000. Your client entered into a contract to rent a small warehouse at a cost of $15,000 per year, starting on the first day of 2013. On January 2, 2013, your client
made a payment of $30,000 covering rent expense for 2013 and 2014. The $30,000 payment was recorded
as rent expense for 2013. Your client will make a correcting entry, reducing rent expense for 2013 by $15,000,
and increasing rent expense for 2014 by $15,000.
What is the revised amount of taxable income for 2013, taking into account this additional information?
a. / $138,800 / b. / $153,800 / c. / $152,000 / d. / $152,30038. Assume your client invested $100,000 in IBM bonds, rather than IBM stock. The draft of the corporate
tax return now shows dividend income of $10,000. That is incorrect. The return should
show corporate bond interest income of $10,000, not dividend income of $10,000.
What is the revised amount of taxable income for 2013, taking into account this additional information?
39. Assume you learn that the capital loss of $15,000 represents a loss on sale of a business truck.
The loss of $15,000 should be reported as an ordinary loss, not a capital loss.
What is the revised amount of taxable income for 2013, taking into account this additional information?
a. / $138,800 / b. / $123,800 / c. / $125,000 / d. / $125,30040. Which would you prefer?
a. / To have the Flub. / To have a flat tire on your auto
c. / To get a good grade on this test
Instructor recommends C.
Thanks for being in this class.
I hope you have enjoyed the class and have learned a lot that will be useful in your career.
Keep us up to date on your career, etc. - we love to hear from past students.
Best Wishes in all that you do!!! Howard Godfrey