Archive for September 2017

Which statement is incorrect with respect to taxation on the CPA exam?

Which statement is incorrect with respect to taxation on the CPA exam?




a. The CPA exam now has only four parts.
b. There are no longer case studies on the exam.
c. A candidate may not go back after exiting a testlet.
d. Simulations include a four-function pop-up calculator.
e. None of these are incorrect.



Answer: B

Which is not a primary source of tax law?

Which is not a primary source of tax law?




a. Notice 89-99, 1989-2 C.B. 422.
b. Estate of Harry Holmes v. Comm., 326 U.S. 480 (1946).
c. Rev. Rul. 79-353, 1979-2 C.B. 325.
d. Prop. Reg. § 1.7524T(f).
e. All of these are primary sources.





Answer: D

Which court decision carries more weight?

Which court decision carries more weight?




a. Federal District Court
b. Second Circuit Court of Appeals
c. U.S. Tax Court decision
d. Small Cases Division of U.S. Tax Court
e. U.S. Court of Federal Claims


Answer: B

Which Regulations have the force and effect of law?

Which Regulations have the force and effect of law?



a. Procedural Regulations
b. Finalized Regulations
c. Legislative Regulations
d. Interpretive Regulations
e. All of these




Answer: C

Which court decision would probably carry more weight?

Which court decision would probably carry more weight?



a. Regular U.S. Tax Court decision
b. Reviewed U.S. Tax Court decision
c. U.S. District Court decision
d. Tax Court Memorandum decision
e. U.S. Court of Federal Claims





Answer: B

Tax research involves which of the following procedures:

Tax research involves which of the following procedures:




a. Identifying and refining the problem.
b. Locating the appropriate tax law sources.
c. Assessing the validity of the tax law sources.
d. Follow-up.
e. All of these.




Answer: E

Which is presently not a major tax service?

Which is presently not a major tax service?




a. Standard Federal Tax Reporter
b. Federal Taxes
c. United States Tax Reporter
d. Tax Management Portfolios
e. All of these are major tax services




Answer: B

The IRS will not acquiesce to the following tax decisions:

The IRS will not acquiesce to the following tax decisions:





a. U.S. District Court.
b. U.S. Tax Court.
c. U.S. Court of Federal Claims.
d. Small Case Division of the U.S. Tax Court.
e. All of these.




Answer: D

A taxpayer may not appeal a case from which court:

A taxpayer may not appeal a case from which court:




a. U.S. District Court.
b. U.S. Circuit Court of Appeals.
c. U.S. Court of Federal Claims.
d. Small Case Division of the U.S. Tax Court.
e. None of these.






Answer: D

A jury trial is available in the following trial court:

A jury trial is available in the following trial court:




a. U.S. Tax Court.
b. U.S. Court of Federal Claims.
c. U.S. District Court.
d. U.S. Circuit Court of Appeals.
e. None of these.




Answer: C

What statement is not true with respect to Temporary Regulations?

What statement is not true with respect to Temporary Regulations?




a. May not be cited as precedent.
b. Issued as Proposed Regulations.
c. Automatically expire within three years after the date of issuance.
d. Found in the Federal Register.
e. All of these statements are true.





Answer: A

Which item may not be cited as a precedent?

Which item may not be cited as a precedent?





a. Regulations
b. Temporary Regulations
c. Technical Advice Memoranda
d. U.S. District Court decision
e. None of these



Answer: C

In addressing the importance of a Regulation, an IRS agent must:

In addressing the importance of a Regulation, an IRS agent must:





a. Give equal weight to the Code and the Regulations.
b. Give more weight to the Code rather than to a Regulation.
c. Give more weight to the Regulation rather than to the Code.
d. Give less weight to the Code rather than to a Regulation.
e. None of these.



Answer: A

Which statement is not true with respect to a Regulation that interprets the tax law?

Which statement is not true with respect to a Regulation that interprets the tax law?



a. Issued by the U.S. Congress.
b. Issued by the U.S. Treasury Department.
c. Designed to provide an interpretation of the tax law.
d. Carries more legal force than a Revenue Ruling.
e. All of these statements are true.




Answer: A

Which of the following is not an administrative source of tax law?

Which of the following is not an administrative source of tax law?




a. Field Service Advice
b. Revenue Procedure
c. Technical Advice Memoranda
d. General Counsel Memorandum
e. All of these are administrative sources.




Answer: E

In § 212(1), the number (1) stands for the:

In § 212(1), the number (1) stands for the:




a. Section number.
b. Subsection number.
c. Paragraph designation.
d. Subparagraph designation.
e. None of these.





Answer: C

Federal tax legislation generally originates in what body?

Federal tax legislation generally originates in what body?




a. Internal Revenue Service
b. Senate Finance Committee
c. House Ways and Means Committee
d. Senate Floor
e. None of these





Answer: C

Chuck Corporation began operating a new retail business in the current year and had $500,000 of sales, $70,000 of which had not been collected by year-end. Total purchases were $350,000 on which $30,000 is still owed. Ending inventory is $60,000; operating expenses are $170,000, $50,000 of which is still owed at year-end.

Chuck Corporation began operating a new retail business in the current year and had $500,000 of sales, $70,000 of which had not been collected by year-end. Total purchases were $350,000 on which $30,000 is still owed. Ending inventory is $60,000; operating expenses are $170,000, $50,000 of which is still owed at year-end.


a. Compute net income from the business under the accrual method.
b. Compute net income from the business under the cash method.
c. Would paying the $50,000 she owes for operating expenses before year-end change her net income under the accrual method? Under the cash method?




Answer: Answer: C

Which of the following constitutes constructive receipt in 2011?

Which of the following constitutes constructive receipt in 2011?




a. A check received on December 29, 2011. The check was postdated January 5, 2012.
b. A check received on January 4, 2012. It had been mailed on December 29, 2011.
c. A rent check, received on December 31, 2011, by the manager of an apartment complex. The manager normally collects rent for the owner who is out of town.
d. A salary check received at 5:30 p.m. on December 31, 2011, after all banks are closed.
e. A paycheck received on December 26, 2011. The check was not honored by the bank because the employer's account did not have sufficient funds



Answer: C and D are constructively received. A and E are not because funds are not available. B is probably not considered constructively received assuming the taxpayer could not have "picked up" the check from the payor on December 29, 2011.

Daniel plans to invest $20,000 in either a corporate bond paying 5% or a tax-exempt bond with a 4% interest rate. The bonds have an equivalent level of risk. Daniel has a 33% marginal tax rate and wants to maximize his after-tax earnings. Daniel should

Daniel plans to invest $20,000 in either a corporate bond paying 5% or a tax-exempt bond with a 4% interest rate. The bonds have an equivalent level of risk. Daniel has a 33% marginal tax rate and wants to maximize his after-tax earnings. Daniel should




A) invest in the corporate bond due to its higher stated interest rate.
B) invest in the tax-exempt bond since its yield is more than the after-tax return on the corporate bond.
C) invest in the corporate bond because its after-tax earnings are more than the return on the tax-exempt bond.
D) allocate his money equally between the two investments.



Answer: B

During 2011, Robert and Cassie had $2,600 withheld from their pay for state income taxes. They file a joint return for 2011 and claimed the $2,600 taxes withheld as an itemized deduction on their federal tax return. Their itemized deductions totaled $12,200 on their 2011 tax return. Their 2011 state income tax was only $1,000 and they received a refund of $1,600 when they filed their state income tax return in 2012. As a result, Robert and Cassie must

During 2011, Robert and Cassie had $2,600 withheld from their pay for state income taxes. They file a joint return for 2011 and claimed the $2,600 taxes withheld as an itemized deduction on their federal tax return. Their itemized deductions totaled $12,200 on their 2011 tax return. Their 2011 state income tax was only $1,000 and they received a refund of $1,600 when they filed their state income tax return in 2012. As a result, Robert and Cassie must




A) amend 2011's federal tax return.
B) report income of $600 in 2012.
C) report income of $1,600 in 2012.
D) reduce their deduction for state income taxes for 2012 by $1,600.



Answer: B

During 2011, Christiana's employer withheld $1,500 from her wages for state income taxes. She claimed the $1,500 as an itemized deduction on her 2011 federal income tax return which included a total of $6,150 of itemized deductions. Christiana is single. On her 2011 state income tax return, her state income tax was $900. As a result, Christiana received a $600 refund in 2012. What amount must Christiana include in income in 2012?

During 2011, Christiana's employer withheld $1,500 from her wages for state income taxes. She claimed the $1,500 as an itemized deduction on her 2011 federal income tax return which included a total of $6,150 of itemized deductions. Christiana is single. On her 2011 state income tax return, her state income tax was $900. As a result, Christiana received a $600 refund in 2012. What amount must Christiana include in income in 2012?




A) $0
B) $350
C) $600
D) $900



Answer: B

During 2011, Mark's employer withheld $2,000 from his wages for state income tax. Mark claimed the $2,000 as an itemized deduction on his 2011 federal income tax return. His total itemized deductions for 2011 were $6,000. Mark's taxable income for 2011 was a negative $20,000. Mark received the $2,000 as a refund from the state during 2012. What amount must Mark include in income in 2012?

During 2011, Mark's employer withheld $2,000 from his wages for state income tax. Mark claimed the $2,000 as an itemized deduction on his 2011 federal income tax return. His total itemized deductions for 2011 were $6,000. Mark's taxable income for 2011 was a negative $20,000. Mark received the $2,000 as a refund from the state during 2012. What amount must Mark include in income in 2012?




A) $0
B) $1,000
C) $2,000
D) $6,000



Answer: A

During 2011, Christiana's employer withheld $1,500 from her wages for state income taxes. She claimed the $1,500 as an itemized deduction on her 2011 federal income tax return which included $7,000 of itemized deductions. Christiana is single. On her 2011 state income tax return, her state income tax was $900. As a result, Christiana received a $600 refund in 2012. What amount must Christiana include in income in 2012?

During 2011, Christiana's employer withheld $1,500 from her wages for state income taxes. She claimed the $1,500 as an itemized deduction on her 2011 federal income tax return which included $7,000 of itemized deductions. Christiana is single. On her 2011 state income tax return, her state income tax was $900. As a result, Christiana received a $600 refund in 2012. What amount must Christiana include in income in 2012?




A) $0
B) $600
C) $900
D) $1,500



Answer: B

Homer Corporation's office building was destroyed by fire. Homer collected insurance of $250,000, which equaled the building's basis, and $150,000 for profits lost during the time the company was rebuilding the office building. What is the amount taxable this year?

Homer Corporation's office building was destroyed by fire. Homer collected insurance of $250,000, which equaled the building's basis, and $150,000 for profits lost during the time the company was rebuilding the office building. What is the amount taxable this year?




A) $0
B) $150,000
C) $250,000
D) $400,000



Answer: B

Insurance proceeds received because of the destruction of property are

Insurance proceeds received because of the destruction of property are




A) included in gross income in all cases.
B) excluded from gross income completely.
C) included in gross income to the extent the proceeds are less than the adjusted basis of the replacement property.
D) included in gross income only to the extent the proceeds exceed the adjusted basis of the replacement property.



Answer: D

Mr. & Mrs. Bronson are both over 65 years of age and are filing a joint return. Their income this year consisted of the following:

Mr. & Mrs. Bronson are both over 65 years of age and are filing a joint return. Their income this year consisted of the following:


Taxable interest $ 6,000
Taxable dividends 9,000
Social Security payments (combined) 20,000
Tax-exempt interest 5,000
Taxable pension 11,000

They did not have any adjustments to income. What amount of Mr. & Mrs. Bronson's social security benefits is taxable this year?



A) $-0-
B) $4,500
C) $10,000
D) $20,000



Answer: B

In addition to Social Security benefits of $8,000, Mr. and Mrs. Wells have adjusted gross income of $32,000 and tax-exempt interest of $1,000 and will file a joint return. The taxable portion of their social security benefits will be

In addition to Social Security benefits of $8,000, Mr. and Mrs. Wells have adjusted gross income of $32,000 and tax-exempt interest of $1,000 and will file a joint return. The taxable portion of their social security benefits will be




A) $0.
B) $2,500.
C) $4,000.
D) $8,000.



Answer: B

The term "Social Security benefits" does not include

The term "Social Security benefits" does not include



A) supplementary medicare benefits.
B) tier-one railroad retirement benefits.
C) disability benefits received under Social Security.
D) retirement benefits received under Social Security.


Answer: A

Lori had the following income and losses in 2011:

Lori had the following income and losses in 2011:


Wages $22,000
Share of partnership income 18,000
Unemployment compensation 12,000
Gambling winnings 2,000
Gambling losses ( 5,000)
Prize won on a game show 30,000

What is Lori's adjusted gross income (not taxable income)?



A) $72,000
B) $79,000
C) $82,000
D) $84,000



Answer: D

In 2011 Lily had the following income and losses:

In 2011 Lily had the following income and losses:


Salary $75,000
Prize from quiz show 25,000
Unemployment compensation 8,000
Embezzled funds 30,000
Partnership Income 35,000

What is Lily's adjusted gross income (not taxable income)?



A) $135,000
B) $143,000
C) $165,000
D) $173,000



Answer: D

A taxpayer had the following income and losses in the current year:

A taxpayer had the following income and losses in the current year:


Salary $55,000
Sold AT&T stock at a loss ( 5,000)
Lottery prize 4,500
Gambling winnings 8,000
Gambling losses ( 5,000)

What is the taxpayer's adjusted gross income (not taxable income)?



A) $57,500
B) $59,500
C) $62,500
D) $64,500




Answer: D

While using a metal detector at the beach during spring break, Toni uncovered some rare coins with a current fair market value of $9,000. What are her tax consequences regarding this find?

While using a metal detector at the beach during spring break, Toni uncovered some rare coins with a current fair market value of $9,000. What are her tax consequences regarding this find?




A) Because it was a "find" she only reports half of the FMV as income.
B) She reports the entire FMV as income.
C) Since she "found" the coins, she does not have to report any amount of income until she sells the coins.
D) Under the discovery rules in the tax law, she will never report any amount as taxable since the value is under $10,000.




Answer: B

Jan purchased an antique desk at auction. For two years, the desk sat in Jan's garage until she decided to restore it. This year, while cleaning and restoring the desk, Jan discovered $1,500 in a hidden compartment inside one drawer. With respect to the $1,500, Jan must

Jan purchased an antique desk at auction. For two years, the desk sat in Jan's garage until she decided to restore it. This year, while cleaning and restoring the desk, Jan discovered $1,500 in a hidden compartment inside one drawer. With respect to the $1,500, Jan must




A) report nothing.
B) amend her previous tax return and report the $1,500.
C) report only $750 due to the statute of limitations.
D) report $1,500 on this year's tax return.



Answer: D

Jonathon, age 50 and in good health, withdrew $6,000 from his pension plan during the current year. The withdrawal was not eligible for any exception to the 10% penalty. Jonathon had made $40,000 of after-tax contributions to the plan while his employer had contributed $80,000. What amount of penalty tax must Jonathon pay?

Jonathon, age 50 and in good health, withdrew $6,000 from his pension plan during the current year. The withdrawal was not eligible for any exception to the 10% penalty. Jonathon had made $40,000 of after-tax contributions to the plan while his employer had contributed $80,000. What amount of penalty tax must Jonathon pay?




A) $0
B) $200
C) $400
D) $600



Answer: C

Jonathon, age 50 and in good health, withdrew $6,000 from his pension plan during the current year. The withdrawal was not eligible for any exception to the 10% penalty. Jonathon had made $40,000 of after-tax contributions to the plan while his employer had contributed $80,000. How much must Jonathon include in income?

Jonathon, age 50 and in good health, withdrew $6,000 from his pension plan during the current year. The withdrawal was not eligible for any exception to the 10% penalty. Jonathon had made $40,000 of after-tax contributions to the plan while his employer had contributed $80,000. How much must Jonathon include in income?




A) $0
B) $2,000
C) $4,000
D) $6,000



Answer: C

David, age 62, retires and receives $1,000 per month annuity from his employer's qualified pension plan. David contributed $65,000 to the plan prior to his retirement. Under the simplified method, David's number of anticipated payments is 260. What is the amount includible in income in the first year of withdrawals assuming 12 monthly payments?

David, age 62, retires and receives $1,000 per month annuity from his employer's qualified pension plan. David contributed $65,000 to the plan prior to his retirement. Under the simplified method, David's number of anticipated payments is 260. What is the amount includible in income in the first year of withdrawals assuming 12 monthly payments?




A) $0
B) $3,000
C) $9,000
D) $12,000



Answer: C

Julia, age 57, purchases an annuity for $33,600. Julia will receive $400 per month for the rest of her life. The expected return multiple is 20.0. At age 88, the amount that Julia may exclude from income is

Julia, age 57, purchases an annuity for $33,600. Julia will receive $400 per month for the rest of her life. The expected return multiple is 20.0. At age 88, the amount that Julia may exclude from income is




A) $0.
B) $1,680.
C) $3,120.
D) $4,800.



Answer: A

Natasha, age 58, purchases an annuity for $40,000. Natasha will receive $400 per month for the rest of her life. The expected return multiple is 20.0. At age 65, the amount that Natasha may exclude from income is

Natasha, age 58, purchases an annuity for $40,000. Natasha will receive $400 per month for the rest of her life. The expected return multiple is 20.0. At age 65, the amount that Natasha may exclude from income is




A) $0.
B) $2,000.
C) $2,800.
D) $4,000.



Answer: B

As a result of a divorce, Michael pays Judy $75,000 in year one and $25,000 per year in subsequent years. How much of the $75,000 in year one is properly characterized as alimony and will not be recaptured later?

As a result of a divorce, Michael pays Judy $75,000 in year one and $25,000 per year in subsequent years. How much of the $75,000 in year one is properly characterized as alimony and will not be recaptured later?




A) $25,000
B) $35,000
C) $40,000
D) $75,000



Answer: C

Under the terms of their divorce agreement, Humphrey transferred Corporation H stock to his former wife, Greta as a property settlement. At the time of the transfer, the stock had a basis to Humphrey of $40,000 and a fair market value of $55,000. What is the tax consequence of this transaction to Humphrey, and what is Greta's basis in the Corporation H stock?

Under the terms of their divorce agreement, Humphrey transferred Corporation H stock to his former wife, Greta as a property settlement. At the time of the transfer, the stock had a basis to Humphrey of $40,000 and a fair market value of $55,000. What is the tax consequence of this transaction to Humphrey, and what is Greta's basis in the Corporation H stock?




A) Humphrey has no gain or loss; Greta's basis is $55,000.
B) Humphrey has no gain or loss; Greta's basis is $40,000.
C) Humphrey has a gain of $15,000; Greta's basis is $55,000.
D) Humphrey has a gain of $15,000; Greta's basis is $40,000.



Answer: B

Under the terms of their divorce agreement executed in August of this year, Clint transferred Beta, Inc. stock to his former wife, Rosa, as a property settlement. At the time of the transfer, the stock had a basis to Clint of $55,000 and a fair market value of $68,000. Rosa subsequently sold the stock for $75,000. What is the tax consequence of first the stock transfer and then the stock sale to Rosa?

Under the terms of their divorce agreement executed in August of this year, Clint transferred Beta, Inc. stock to his former wife, Rosa, as a property settlement. At the time of the transfer, the stock had a basis to Clint of $55,000 and a fair market value of $68,000. Rosa subsequently sold the stock for $75,000. What is the tax consequence of first the stock transfer and then the stock sale to Rosa?




A)
Rosa's Income
From Stock Transfer Rosa's Income
From Stock Sale
$0 $20,000 capital gain

B)
Rosa's Income
From Stock Transfer Rosa's Income
From Stock Sale
$0 $7,000 capital gain

C)
Rosa's Income
From Stock Transfer Rosa's Income
From Stock Sale
$13,000 $7,000 capital gain

D)
Rosa's Income
From Stock Transfer Rosa's Income
From Stock Sale
$13,000 $20,000 capital gain



Answer: A

Carolyn, who earns $400,000, is required to pay John, her ex-husband, $200,000 as part of the property settlement as a result of their divorce. In turn, John transfers stock worth $50,000 to Carolyn. What is the amount of Carolyn's adjusted gross income for the year?

Carolyn, who earns $400,000, is required to pay John, her ex-husband, $200,000 as part of the property settlement as a result of their divorce. In turn, John transfers stock worth $50,000 to Carolyn. What is the amount of Carolyn's adjusted gross income for the year?




A) $200,000
B) $250,000
C) $400,000
D) $450,000



Answer: C

Thomas and Sally were divorced last year. As a result, Thomas must pay Sally alimony of $100,000 per year starting this year and relinquish the house and car with a combined value of $170,000 and a combined cost basis of $155,000. The house and car are given as a property settlement. As a result of these transactions Thomas has a deduction of

Thomas and Sally were divorced last year. As a result, Thomas must pay Sally alimony of $100,000 per year starting this year and relinquish the house and car with a combined value of $170,000 and a combined cost basis of $155,000. The house and car are given as a property settlement. As a result of these transactions Thomas has a deduction of




A) $100,000.
B) $155,000.
C) $170,000.
D) $270,000.



Answer: A

With respect to alimony and property settlements in a divorce or separation, all of the following are true with the exception of

With respect to alimony and property settlements in a divorce or separation, all of the following are true with the exception of




A) a property settlement does not result in income to either spouse.
B) no tax deduction is allowed for payment of a property settlement.
C) the spouse receiving a property settlement has a basis equal to the basis of that property to the paying spouse prior to payment.
D) no deduction is allowed for alimony paid to the former spouse, if a property settlement is also paid.



Answer: D

Child support is

Child support is




A) deductible by both the payor and the payee.
B) deductible by the payor, and included in income by the payee.
C) included in income by the payor and deducted by the payee.
D) an item which does not affect the payor's and the payee's tax reporting.



Answer: D

Alimony is

Alimony is




A) deductible by both the payor and the payee.
B) deductible by the payor and included in income by the payee.
C) included in income by the payor and deducted by the payee.
D) an item which does not affect the payor's and the payee's tax reporting.



Answer: B

Which of the following is least likely to result in a constructive dividend?

Which of the following is least likely to result in a constructive dividend?




A) an unreasonable salary paid to a shareholder
B) a sale of a corporation's asset to a shareholder at fair market value
C) a payment by a corporation of a shareholder's debts
D) a payment by a corporation of a shareholder's personal expenses



Answer: B

Julia owns 1,000 shares of Orange Corporation. This year, Orange declared a 10% stock dividend. There was no option for shareholders to receive cash When Julia received 100 shares of Orange stock, it had a fair market value of $50 a share. How much income does Julia have from the dividend?

Julia owns 1,000 shares of Orange Corporation. This year, Orange declared a 10% stock dividend. There was no option for shareholders to receive cash When Julia received 100 shares of Orange stock, it had a fair market value of $50 a share. How much income does Julia have from the dividend?




A) $0
B) $50
C) $5,000
D) $50,000



Answer: A

Bridget owns 200 shares of common stock of Jones Corporation. During the current year, Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned. The stock has a fair market value of $10 per share. Bridget chooses to take the additional shares of stock. How much income does Bridget have from the stock dividend?

Bridget owns 200 shares of common stock of Jones Corporation. During the current year, Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned. The stock has a fair market value of $10 per share. Bridget chooses to take the additional shares of stock. How much income does Bridget have from the stock dividend?




A) $0
B) $200
C) $400
D) $1,000



Answer: C

In 2011, Richard, a single taxpayer, has adjusted gross income of $40,500. His AGI includes $4,000 of qualified dividends. Richard has no dependents and does not itemize deductions. What is his 2011 federal income tax? A) $3,625 B) $4,225 C) $4,650 D) $4,750 Answer: A

In 2011, Richard, a single taxpayer, has adjusted gross income of $40,500. His AGI includes $4,000 of qualified dividends. Richard has no dependents and does not itemize deductions. What is his 2011 federal income tax?




A) $3,625
B) $4,225
C) $4,650
D) $4,750



Answer: A

Ricky has rented a house from Sarah since last year. The rent is usually $900 per month, but Sarah reduced the monthly rent down to $800 for all twelve months this year in exchange for Ricky constructing an addition to the house. The addition has a fair market value of $33,000. How much total rental income must Sarah report this year?

Ricky has rented a house from Sarah since last year. The rent is usually $900 per month, but Sarah reduced the monthly rent down to $800 for all twelve months this year in exchange for Ricky constructing an addition to the house. The addition has a fair market value of $33,000. How much total rental income must Sarah report this year?




A) $9,600
B) $33,000
C) $42,600
D) $43,800



Answer: C

Hoyt rented office space two years ago to Harris, receiving the first and last months' rent plus a security deposit of $1,000. In early January of this year, Harris moves and Hoyt refunds $250 of the deposit and keeps the remainder to cover $500 which is spent for repairs to the office space and one week of unpaid rent that amounts to $250. How would this information be reflected on Hoyt's tax return this year?

Hoyt rented office space two years ago to Harris, receiving the first and last months' rent plus a security deposit of $1,000. In early January of this year, Harris moves and Hoyt refunds $250 of the deposit and keeps the remainder to cover $500 which is spent for repairs to the office space and one week of unpaid rent that amounts to $250. How would this information be reflected on Hoyt's tax return this year?




A) $750 income and $500 deduction
B) $750 income and no deduction
C) $250 income and $500 deduction
D) $750 income and $500 deduction



Answer: A

In December 2011, Max, a cash basis taxpayer, rents an apartment to Kadeem. Max receives both the first and last months' rent totaling $1,800 plus a security deposit of $400. The amount of income reported as taxable in 2011 is

In December 2011, Max, a cash basis taxpayer, rents an apartment to Kadeem. Max receives both the first and last months' rent totaling $1,800 plus a security deposit of $400. The amount of income reported as taxable in 2011 is




A) $400.
B) $1,300.
C) $1,800.
D) $2,200.



Answer: C

Jacob, who is single, paid educational expenses of $16,000 in 2011. He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000. Jacob has other adjusted gross income of $75,100. The $3,000 exclusion must be reduced by

Jacob, who is single, paid educational expenses of $16,000 in 2011. He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000. Jacob has other adjusted gross income of $75,100. The $3,000 exclusion must be reduced by




A) $0.
B) $1,400.
C) $1,600.
D) $3,000.



Answer: B

In December of this year, Jake and Stockard, a married couple, redeemed qualified Series EE U.S. Savings Bonds which they had purchased in January 2000. The proceeds were used to help pay for their daughter's college tuition. Jake and Stockard received proceeds of $8,000 representing principal of $5,000 and interest of $3,000. The qualified higher educational expenses they paid this year totaled $6,000. What is the amount of interest income Jake and Stockard can exclude from their income this year?

In December of this year, Jake and Stockard, a married couple, redeemed qualified Series EE U.S. Savings Bonds which they had purchased in January 2000. The proceeds were used to help pay for their daughter's college tuition. Jake and Stockard received proceeds of $8,000 representing principal of $5,000 and interest of $3,000. The qualified higher educational expenses they paid this year totaled $6,000. What is the amount of interest income Jake and Stockard can exclude from their income this year?




A) $2,250
B) $2,500
C) $3,000
D) $5,000



Answer: A

Carla redeemed EE bonds which qualify for the educational exclusion. The redemption consisted of $14,000 principal and $6,000 interest. The net qualifying educational expenses are $10,000. No reduction of the exclusion is required. The taxable interest is

Carla redeemed EE bonds which qualify for the educational exclusion. The redemption consisted of $14,000 principal and $6,000 interest. The net qualifying educational expenses are $10,000. No reduction of the exclusion is required. The taxable interest is




A) $0.
B) $2,400.
C) $3,000.
D) $6,000.



Answer: C

Alex is a calendar year sole proprietor. He began business on December 1, this year. He uses the accrual method of accounting. Alex had the following collections in December.

Alex is a calendar year sole proprietor. He began business on December 1, this year. He uses the accrual method of accounting. Alex had the following collections in December.


Collected $7,000 in December, from clients who paid cash for services to be performed next year.
Collected $5,000 in December, for services performed during December; deposited in an operating account on December 31, this year.
Collected $12,000 in December; on accounts receivable for services performed in December; deposited in operating account on January 2, next year.

What is the amount Alex must include in his income for December?



A) $7,000
B) $12,000
C) $17,000
D) $24,000




Answer: C

CT Computer Corporation, an accrual basis taxpayer, sells service contracts on the computers it sells. At the beginning of January of this year, CT Corporation sold contracts with service to begin immediately:

CT Computer Corporation, an accrual basis taxpayer, sells service contracts on the computers it sells. At the beginning of January of this year, CT Corporation sold contracts with service to begin immediately:


One for three months $200
One for 20 months 800
One for 48 months 4,000

The amount of income CT Corporation must report for this year is



A) $200.
B) $1,000.
C) $1,680.
D) $5,000.



Answer: C

Which of the following advance payments cannot qualify for income tax deferral?

Which of the following advance payments cannot qualify for income tax deferral?




A) advance collection for services
B) advance collection for merchandise
C) advance collection of rent without associated services
D) advance collection of rent with associated services



Answer: C

One of the requirements that must be met in order to defer recognition of income for advance payments for goods is

One of the requirements that must be met in order to defer recognition of income for advance payments for goods is



A) the taxpayer's method of accounting for the sale for tax purposes is the same as the method used for financial reporting purposes.
B) the goods are on the taxpayer's premises on the last day of the tax year.
C) the goods are produced in the United States.
D) the amount received is more than the taxpayer's cost of the goods



Answer: A
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