Micro Corp., a calendar-year accrual-basis corporation, purchased a five-year, 8%, $100,000 taxable corporate bond for $108,530 on July 1, 2010, the date the bond was issued. The bond paid interest semiannually. Micro elected to amortize the bond premium. For Micro's 2010 tax return, the bond premium amortization for 2010 should be

Micro Corp., a calendar-year accrual-basis corporation, purchased a five-year, 8%, $100,000 taxable corporate bond for $108,530 on July 1, 2010, the date the bond was issued. The bond paid interest semiannually. Micro elected to amortize the bond premium. For Micro's 2010 tax return, the bond premium amortization for 2010 should be

I. Computed under the constant yield to maturity method.

II. Treated as an offset to the interest income on the bond.

a) I only.
b) II only.
c) Both I and II.
d) Neither I nor II.


Answer: c) Both I and II.

Ryan, age fifty-seven, is single with no dependents. In January 2010, Ryan's principal residence was sold for the net amount of $400,000 after all selling expenses. Ryan bought the house in 1997 and occupied it until sold. On the date of sale, the house had a basis of $180,000. Ryan does not intend to buy another residence. What is the maximum exclusion of gain on sale of the residence that may be claimed in Ryan's 2010 income tax return?

Ryan, age fifty-seven, is single with no dependents. In January 2010, Ryan's principal residence was sold for the net amount of $400,000 after all selling expenses. Ryan bought the house in 1997 and occupied it until sold. On the date of sale, the house had a basis of $180,000. Ryan does not intend to buy another residence. What is the maximum exclusion of gain on sale of the residence that may be claimed in Ryan's 2010 income tax return?

a) $250,000
b) $220,000
c) $125,000
d) $0


Answer: b) $220,000

Al and Beth owned their home jointly and had occupied it as their principal residence since acquiring the home in 1993. In June 2010, the Orans bought a condo for $190,000 to be used as their principal residence. What amount of gain must the Orans recognize on their 2010 joint return from the sale of their residence?

Al and Beth owned their home jointly and had occupied it as their principal residence since acquiring the home in 1993. In June 2010, the Orans bought a condo for $190,000 to be used as their principal residence. What amount of gain must the Orans recognize on their 2010 joint return from the sale of their residence?

a) $ 90,000
b) $150,000
c) $340,000
d) $400,000


Answer: a) $ 90,000

In March 2010, Davis, who is single, purchased a new residence for $200,000. During that same month he sold his former residence for $380,000 and paid the realtor a $20,000 commission. The former residence, his first home, had cost $65,000 in 1991. Davis added a bathroom for $5,000 in 2006. What amount of gain is recognized from the sale of the former residence on Davis' 2010 tax return?

In March 2010, Davis, who is single, purchased a new residence for $200,000. During that same month he sold his former residence for $380,000 and paid the realtor a $20,000 commission. The former residence, his first home, had cost $65,000 in 1991. Davis added a bathroom for $5,000 in 2006. What amount of gain is recognized from the sale of the former residence on Davis' 2010 tax return?

a) $160,000
b) $ 90,000
c) $ 40,000
d) $0


Answer: c) $ 40,000

An office building owned by Elmer Bass was condemned by the state on January 2, 2009. Bass received the condemnation award on March 1, 2010. In order to qualify for nonrecognition of gain on this involuntary conversion, what is the last date for Bass to acquire qualified replacement property?

An office building owned by Elmer Bass was condemned by the state on January 2, 2009. Bass received the condemnation award on March 1, 2010. In order to qualify for nonrecognition of gain on this involuntary conversion, what is the last date for Bass to acquire qualified replacement property?

a) August 1, 2011.
b) January 2, 2012.
c) March 1, 2013.
d) December 31, 2013.


Answer: d) December 31, 2013.

On October 1, 2010, Donald Anderson exchanged an apartment building having an adjusted basis of $375,000 and subject to a mortgage of $100,000 for $25,000 cash and another apartment building with a fair market value of $550,000 and subject to a mortgage of $125,000. The property transfers were made subject to the outstanding mortgages. What amount of gain should Anderson recognize in his tax return for 2010?

On October 1, 2010, Donald Anderson exchanged an apartment building having an adjusted basis of $375,000 and subject to a mortgage of $100,000 for $25,000 cash and another apartment building with a fair market value of $550,000 and subject to a mortgage of $125,000. The property transfers were made subject to the outstanding mortgages. What amount of gain should Anderson recognize in his tax return for 2010?

a) $0
b) $ 25,000
c) $125,000
d) $175,000


Answer: b) $ 25,000

On July 1, 2010, Riley exchanged investment real property, with an adjusted basis of $160,000 and subject to a mortgage of $70,000, and received from Wilson $30,000 cash and other investment real property having a fair market value of $250,000. Wilson assumed the mortgage. What is Riley's recognized gain in 2010 on the exchange?

On July 1, 2010, Riley exchanged investment real property, with an adjusted basis of $160,000 and subject to a mortgage of $70,000, and received from Wilson $30,000 cash and other investment real property having a fair market value of $250,000. Wilson assumed the mortgage. What is Riley's recognized gain in 2010 on the exchange?

a) $ 30,000
b) $ 70,000
c) $ 90,000
d) $100,000


Answer: d) $100,000

Pat Leif owned an apartment house that he bought in 1997. Depreciation was taken on a straight-line basis. In 2010, when Pat's adjusted basis for this property was $200,000, he traded it for an office building having a fair market value of $600,000. The apartment house has 100 dwelling units, while the office building has 40 units rented to business enterprises. The properties are not located in the same city. What is Pat's reportable gain on this exchange?

Pat Leif owned an apartment house that he bought in 1997. Depreciation was taken on a straight-line basis. In 2010, when Pat's adjusted basis for this property was $200,000, he traded it for an office building having a fair market value of $600,000. The apartment house has 100 dwelling units, while the office building has 40 units rented to business enterprises. The properties are not located in the same city. What is Pat's reportable gain on this exchange?

a) $400,000 Section 1250 gain.
b) $400,000 Section 1231 gain.
c) $400,000 long-term capital gain.
d) $0.


Answer: d) $0.

In a "like-kind" exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of

In a "like-kind" exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of

a) Convertible debentures.
b) Convertible preferred stock.
c) Partnership interests.
d) Rental real estate located in different states.


Answer: d) Rental real estate located in different states.

Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, 2009, and an additional 100 shares for $13,000 on December 30, 2009. On January 3, 2010, Smith sold the shares purchased on December 15, 2009, for $13,000. What amount of loss from the sale of Core stock is deductible on Smith's 2009 and 2010 income tax returns?

Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, 2009, and an additional 100 shares for $13,000 on December 30, 2009. On January 3, 2010, Smith sold the shares purchased on December 15, 2009, for $13,000. What amount of loss from the sale of Core stock is deductible on Smith's 2009 and 2010 income tax returns?

2009
2010

a) $0
$0
b) $0
$2,000
c) $1,000
$1,000
d) $2,000
$0


Answer: a) $0
$0

Miller, an individual calendar-year taxpayer, purchased 100 shares of Maples Inc. common stock for $10,000 on July 10, 2009, and an additional fifty shares of Maples Inc. common stock for $4,000 on December 24, 2009. On January 8, 2010, Miller sold the 100 shares purchased on July 10, 2009, for $7,000. What is the amount of Miller's recognized loss for 2010 and what is the basis for her remaining fifty shares of Maples Inc. stock?

Miller, an individual calendar-year taxpayer, purchased 100 shares of Maples Inc. common stock for $10,000 on July 10, 2009, and an additional fifty shares of Maples Inc. common stock for $4,000 on December 24, 2009. On January 8, 2010, Miller sold the 100 shares purchased on July 10, 2009, for $7,000. What is the amount of Miller's recognized loss for 2010 and what is the basis for her remaining fifty shares of Maples Inc. stock?

a) $3,000 recognized loss; $4,000 basis for her remaining stock.
b) $1,500 recognized loss; $5,500 basis for her remaining stock.
c) $1,500 recognized loss; $4,000 basis for her remaining stock.
d) $0 recognized loss; $7,000 basis for her remaining stock.


Answer: b) $1,500 recognized loss; $5,500 basis for her remaining stock.

Al Eng owns 50% of the outstanding stock of Rego Corp. During 2010, Rego sold a trailer to Eng for $10,000, the trailer's fair value. The trailer had an adjusted tax basis of $12,000, and had been owned by Rego and used in its business for three years. In its 2010 income tax return, what is the allowable loss that Rego can claim on the sale of this trailer?

Al Eng owns 50% of the outstanding stock of Rego Corp. During 2010, Rego sold a trailer to Eng for $10,000, the trailer's fair value. The trailer had an adjusted tax basis of $12,000, and had been owned by Rego and used in its business for three years. In its 2010 income tax return, what is the allowable loss that Rego can claim on the sale of this trailer?

a) $0
b) $2,000 capital loss.
c) $2,000 Section 1231 loss.
d) $2,000 Section 1245 loss.


Answer: c) $2,000 Section 1231 loss.

On May 1, 2010, Daniel Wright owned stock (held for investment) purchased two years earlier at a cost of $10,000 and having a fair market value of $7,000. On this date he sold the stock to his son, William, for $7,000. William sold the stock for $6,000 to an unrelated person on July 1, 2010. How should William report the stock sale on his 2010 tax return?

On May 1, 2010, Daniel Wright owned stock (held for investment) purchased two years earlier at a cost of $10,000 and having a fair market value of $7,000. On this date he sold the stock to his son, William, for $7,000. William sold the stock for $6,000 to an unrelated person on July 1, 2010. How should William report the stock sale on his 2010 tax return?

a) As a short-term capital loss of $1,000.
b) As a long-term capital loss of $1,000.
c) As a short-term capital loss of $4,000.
d) As a long-term capital loss of $4,000.


Answer: a) As a short-term capital loss of $1,000.

Among which of the following related parties are losses from sales and exchanges not recognized for tax purposes?

Among which of the following related parties are losses from sales and exchanges not recognized for tax purposes?

a) Mother-in-law and daughter-in-law.
b) Uncle and nephew.
c) Brother and sister.
d) Ancestors, lineal descendants, and all in-laws.


Answer: c) Brother and sister.

In 2010, Fay sold 100 shares of Gym Co. stock to her son, Martin, for $11,000. Fay had paid $15,000 for the stock in 2007. Subsequently in 2010, Martin sold the stock to an unrelated third party for $16,000. What amount of gain from the sale of the stock to the third party should Martin report on his 2010 income tax return?

In 2010, Fay sold 100 shares of Gym Co. stock to her son, Martin, for $11,000. Fay had paid $15,000 for the stock in 2007. Subsequently in 2010, Martin sold the stock to an unrelated third party for $16,000. What amount of gain from the sale of the stock to the third party should Martin report on his 2010 income tax return?

a) $0
b) $1,000
c) $4,000
d) $5,000


Answer: b) $1,000

Conner purchased 300 shares of Zinco stock for $30,000 in 2006. On May 23, 2010, Conner sold all the stock to his daughter Alice for $20,000, its then fair market value. Conner realized no other gain or loss during 2010. On July 26, 2010, Alice sold the 300 shares of Zinco for $25,000.

Conner purchased 300 shares of Zinco stock for $30,000 in 2006. On May 23, 2010, Conner sold all the stock to his daughter Alice for $20,000, its then fair market value. Conner realized no other gain or loss during 2010. On July 26, 2010, Alice sold the 300 shares of Zinco for $25,000.

What amount of the loss from the sale of Zinco stock can Conner deduct in 2010?

a) $0
b) $3,000
c) $5,000
d) $10,000


Answer: a) $0

What was Alice's recognized gain or loss on her sale?

a) $0.
b) $5,000 long-term gain.
c) $5,000 short-term loss.
d) $5,000 long-term loss.


Answer: a) $0.

Laura's father, Albert, gave Laura a gift of 500 shares of Liba Corporation common stock in 2010. Albert's basis for the Liba stock was $4,000. At the date of this gift, the fair market value of the Liba stock was $3,000.

Laura's father, Albert, gave Laura a gift of 500 shares of Liba Corporation common stock in 2010. Albert's basis for the Liba stock was $4,000. At the date of this gift, the fair market value of the Liba stock was $3,000.

If Laura sells the 500 shares of Liba stock in 2010 for $5,000, her basis is

a) $5,000
b) $4,000
c) $3,000
d) $0


Answer: b) $4,000

If Laura sells the 500 shares of Liba stock in 2010 for $2,000, her basis is

a) $4,000
b) $3,000
c) $2,000
d) $0


Answer: b) $3,000

If Laura sells the 500 shares of Liba stock in 2010 for $3,500, what is the reportable gain or loss in 2010?

a) $3,500 gain.
b) $500 gain.
c) $500 loss.
d) $0.


Answer: d) $0.

On April 1, 2010, George Hart, Jr. acquired a 25% interest in the Wilson, Hart and Company partnership by gift from his father. The partnership interest had been acquired by a $50,000 cash investment by Hart, Sr. on July 1, 2004. The tax basis of Hart, Sr.'s partnership interest was $60,000 at the time of the gift. Hart, Jr. sold the 25% partnership interest for $85,000 on December 17, 2010. What type and amount of capital gain should Hart, Jr. report on his 2010 tax return?

On April 1, 2010, George Hart, Jr. acquired a 25% interest in the Wilson, Hart and Company partnership by gift from his father. The partnership interest had been acquired by a $50,000 cash investment by Hart, Sr. on July 1, 2004. The tax basis of Hart, Sr.'s partnership interest was $60,000 at the time of the gift. Hart, Jr. sold the 25% partnership interest for $85,000 on December 17, 2010. What type and amount of capital gain should Hart, Jr. report on his 2010 tax return?

a) A long-term capital gain of $25,000.
b) A short-term capital gain of $25,000.
c) A long-term capital gain of $35,000.
d) A short-term capital gain of $35,000.


Answer: a) A long-term capital gain of $25,000.

In 2007 Iris King bought shares of stock as an invest-ment, at a cost of $10,000. During 2009, when the fair market value was $8,000, Iris gave the stock to her daughter, Ruth.

In 2007 Iris King bought shares of stock as an invest-ment, at a cost of $10,000. During 2009, when the fair market value was $8,000, Iris gave the stock to her daughter, Ruth.

If Ruth sells the shares of stock in 2010 for $7,000, Ruth's recognized loss would be

a) $3,000
b) $2,000
c) $1,000
d) $0


Answer: c) $1,000

Ruth's holding period of the stock for purposes of determining her loss

a) Started in 2007.
b) Started in 2009.
c) Started in 2010.
d) Is irrelevant because Ruth received the stock for no consideration of money or money's worth.


Answer: b) Started in 2009.

Smith made a gift of property to Thompson. Smith's basis in the property was $1,200. The fair market value at the time of the gift was $1,400. Thompson sold the property for $2,500. What was the amount of Thompson's gain on the disposition?

Smith made a gift of property to Thompson. Smith's basis in the property was $1,200. The fair market value at the time of the gift was $1,400. Thompson sold the property for $2,500. What was the amount of Thompson's gain on the disposition?

a) $0
b) $1,100
c) $1,300
d) $2,500


Answer: c) $1,300

In 2004, Edwin Ryan bought 100 shares of a listed stock for $5,000. In June 2009, when the stock's fair market value was $7,000, Edwin gave this stock to his sister, Lynn. No gift tax was paid. Lynn died in October 2009, bequeathing this stock to Edwin, when the stock's fair market value was $9,000. Lynn's executor did not elect the alternate valuation. What is Edwin's basis for this stock after he inherits it from Lynn's estate?

In 2004, Edwin Ryan bought 100 shares of a listed stock for $5,000. In June 2009, when the stock's fair market value was $7,000, Edwin gave this stock to his sister, Lynn. No gift tax was paid. Lynn died in October 2009, bequeathing this stock to Edwin, when the stock's fair market value was $9,000. Lynn's executor did not elect the alternate valuation. What is Edwin's basis for this stock after he inherits it from Lynn's estate?

a) $0
b) $5,000
c) $7,000
d) $9,000


Answer: b) $5,000

With regard to the federal estate tax, the alternate valuation date

With regard to the federal estate tax, the alternate valuation date

a) Is required to be used if the fair market value of the estate's assets has increased since the decedent's date of death.
b) If elected on the first return filed for the estate, may be revoked in an amended return provided that the first return was filed on time.
c) Must be used for valuation of the estate's liabilities if such date is used for valuation of the estate's assets.
d) Can be elected only if its use decreases both the value of the gross estate and the estate tax liability.


Answer: d) Can be elected only if its use decreases both the value of the gross estate and the estate tax liability.

On March 1, 2009, Lois Rice learned that she was bequeathed 1,000 shares of Elin Corp. common stock under the will of her uncle, Pat Prevor. Pat had paid $5,000 for the Elin stock in 2004. Fair market value of the Elin stock on March 1, 2009, the date of Pat's death, was $8,000 and had increased to $11,000 six months later. The executor of Pat's estate elected the alternative valuation for estate tax pur¬poses. Lois sold the Elin stock for $9,000 on May 1, 2009, the date that the executor distributed the stock to her.

On March 1, 2009, Lois Rice learned that she was bequeathed 1,000 shares of Elin Corp. common stock under the will of her uncle, Pat Prevor. Pat had paid $5,000 for the Elin stock in 2004. Fair market value of the Elin stock on March 1, 2009, the date of Pat's death, was $8,000 and had increased to $11,000 six months later. The executor of Pat's estate elected the alternative valuation for estate tax pur¬poses. Lois sold the Elin stock for $9,000 on May 1, 2009, the date that the executor distributed the stock to her.

Lois' basis for gain or loss on sale of the 1,000 shares of Elin stock is

a) $ 5,000
b) $ 8,000
c) $ 9,000
d) $11,000


Answer: c) $ 9,000

Lois should treat the 1,000 shares of Elin stock as a

a) Short-term Section 1231 asset.
b) Long-term Section 1231 asset.
c) Short-term capital asset.
d) Long-term capital asset.


Answer: d) Long-term capital asset.

Fred Zorn died on January 5, 2009, bequeathing his entire $4,000,000 estate to his sister, Ida. The alternate valuation date was validly elected by the executor of Fred's estate. Fred's estate included 2,000 shares of listed stock for which Fred's basis was $380,000. This stock was distributed to Ida nine months after Fred's death. Fair market values of this stock were

Fred Zorn died on January 5, 2009, bequeathing his entire $4,000,000 estate to his sister, Ida. The alternate valuation date was validly elected by the executor of Fred's estate. Fred's estate included 2,000 shares of listed stock for which Fred's basis was $380,000. This stock was distributed to Ida nine months after Fred's death. Fair market values of this stock were

At the date of Fred's death
$400,000
Six months after Fred's death
450,000
Nine months after Fred's death
480,000
Ida's basis for this stock is

a) $380,000
b) $400,000
c) $450,000
d) $480,000


Answer: c) $450,000

On February 1, 2010, Ben Rork sold 500 shares of Kul Corp. stock. Rork had received this stock on May 1, 2009, as a bequest from the estate of his uncle, who died on March 1, 2009. Rork's basis was determined by reference to the stock's fair market value on March 1, 2009. Rork's holding period for this stock was

On February 1, 2010, Ben Rork sold 500 shares of Kul Corp. stock. Rork had received this stock on May 1, 2009, as a bequest from the estate of his uncle, who died on March 1, 2009. Rork's basis was determined by reference to the stock's fair market value on March 1, 2009. Rork's holding period for this stock was

a) Short-term.
b) Long-term.
c) Short-term if sold at a gain; long-term if sold at a loss.
d) Long-term if sold at a gain; short-term if sold at a loss.


Answer: b) Long-term.

An individual's losses on transactions entered into for personal purposes are deductible only if

An individual's losses on transactions entered into for personal purposes are deductible only if

a) The losses qualify as casualty or theft losses.
b) The losses can be characterized as hobby losses.
c) The losses do not exceed $3,000 ($6,000 on a joint return).
d) No part of the transactions was entered into for profit.


Answer: a) The losses qualify as casualty or theft losses.

Fred Berk bought a plot of land with a cash payment of $40,000 and a purchase money mortgage of $50,000. In addition, Berk paid $200 for a title insurance policy. Berk's basis in this land is

Fred Berk bought a plot of land with a cash payment of $40,000 and a purchase money mortgage of $50,000. In addition, Berk paid $200 for a title insurance policy. Berk's basis in this land is

a) $40,000
b) $40,200
c) $90,000
d) $90,200


Answer: d) $90,200

Ralph Birch purchased land and a building which will be used in connection with Birch's business. The costs associated with this purchase are as follows:

Ralph Birch purchased land and a building which will be used in connection with Birch's business. The costs associated with this purchase are as follows:

Cash down payment - $ 40,000
Mortgage on property - 350,000
Survey costs - 2,000
Title and transfer taxes - 2,500
Charges for hookup of gas, water, and sewer lines - 3,000
Back property taxes owed by the seller that were paid by Birch - 5,000

What is Birch's tax basis for the land and building?


a) $ 44,500
b) $394,500
c) $397,500
d) $402,500


Answer: d) $402,500

During August 2011, Roe Corp. purchased and placed in service a machine to be used in its manufacturing operations. This machine cost $2,014,000. What portion of the cost may Roe elect to treat as an expense rather than as a capital expenditure?

During August 2011, Roe Corp. purchased and placed in service a machine to be used in its manufacturing operations. This machine cost $2,014,000. What portion of the cost may Roe elect to treat as an expense rather than as a capital expenditure?

a) $236,000
b) $250,000
c) $486,000
d) $500,000


Answer: c) $486,000

Aviation Corp. manufactures model airplanes for children. During 2011, Aviation purchased $820,000 of production machinery to be used in its business. For 2011, Aviation's taxable income before any Sec. 179 expense deduction was $195,000. What is the maximum amount of Sec. 179 expense election Aviation will be allowed to deduct for 2011 and the maximum amount of Sec. 179 expense election that can carryover to 2012?

Aviation Corp. manufactures model airplanes for children. During 2011, Aviation purchased $820,000 of production machinery to be used in its business. For 2011, Aviation's taxable income before any Sec. 179 expense deduction was $195,000. What is the maximum amount of Sec. 179 expense election Aviation will be allowed to deduct for 2011 and the maximum amount of Sec. 179 expense election that can carryover to 2012?

a) Expense Carryover
$195,000 $305,000
b) Expense Carryover
$195,000 $55,000
c) Expense Carryover
$500,000 $0
d) Expense Carryover
$820,000 $0


Answer: a) Expense Carryover
$195,000 $305,000

Which of the following conditions must be satisfied for a taxpayer to expense, in the year of purchase, under Internal Revenue Code Section 179, the cost of new or used tangible depreciable personal property?

Which of the following conditions must be satisfied for a taxpayer to expense, in the year of purchase, under Internal Revenue Code Section 179, the cost of new or used tangible depreciable personal property?

I. The property must be purchased for use in the taxpayer's active trade or business.

II. The property must be purchased from an unrelated party.

a) I only.
b) II only.
c) Both I and II.
d) Neither I nor II.


Answer: c) Both I and II.

With regard to depreciation computations made under the general MACRS method, the half-year convention provides that

With regard to depreciation computations made under the general MACRS method, the half-year convention provides that

a) One-half of the first year's depreciation is allowed in the year in which the property is placed in service, regardless of when the property is placed in service during the year, and a half-year's depreciation is allowed for the year in which the property is disposed of.
b) The deduction will be based on the number of months the property was in service, so that one-half month's depreciation is allowed for the month in which the property is placed in service and for the month in which it is disposed of.
c) Depreciation will be allowed in the first year of acquisition of the property only if the property is placed in service no later than June 30 for calendar-year corporations.
d) Depreciation will be allowed in the last year of the property's economic life only if the property is disposed of after June 30 of the year of disposition for calendar-year corporations.


Answer: a) One-half of the first year's depreciation is allowed in the year in which the property is placed in service, regardless of when the property is placed in service during the year, and a half-year's depreciation is allowed for the year in which the property is disposed of.

Under the modified accelerated cost recovery system (MACRS) of depreciation for property placed in service after 1986,

Under the modified accelerated cost recovery system (MACRS) of depreciation for property placed in service after 1986,

a) Used tangible depreciable property is excluded from the computation.
b) Salvage value is ignored for purposes of computing the MACRS deduction.
c) No type of straight-line depreciation is allowable.
d) The recovery period for depreciable realty must be at least 27.5 years.


Answer: b) Salvage value is ignored for purposes of computing the MACRS deduction.

Data Corp., a calendar-year corporation, purchased and placed into service office equipment during October 2010. No other equipment was placed into service during 2010. Under the general MACRS depreciation system, what convention must Data use?

Data Corp., a calendar-year corporation, purchased and placed into service office equipment during October 2010. No other equipment was placed into service during 2010. Under the general MACRS depreciation system, what convention must Data use?

a) Full-year.
b) Half-year.
c) Midquarter.
d) Midmonth.


Answer: c) Midquarter.

On June 29, 2010, Sullivan purchased and placed into service an apartment building costing $360,000 including $30,000 for the land. What was Sullivan's MACRS deduction for the apartment building in 2010?

On June 29, 2010, Sullivan purchased and placed into service an apartment building costing $360,000 including $30,000 for the land. What was Sullivan's MACRS deduction for the apartment building in 2010?

a) $7,091
b) $6,500
c) $6,000
d) $4,583


Answer: b) $6,500

Krol Corp., a calendar-year taxpayer, purchased used furniture and fixtures for use in its business and placed the property in service on November 1, 2010. The furniture and fixtures cost $56,000 and represented Krol's only acquisition of depreciable property during the year. Krol did not elect to expense any part of the cost of the property under Sec. 179. What is the amount of Krol Corp.'s depreciation deduction for the furniture and fixtures under the Modified Accelerated Cost Recovery System (MACRS) for 2010?

Krol Corp., a calendar-year taxpayer, purchased used furniture and fixtures for use in its business and placed the property in service on November 1, 2010. The furniture and fixtures cost $56,000 and represented Krol's only acquisition of depreciable property during the year. Krol did not elect to expense any part of the cost of the property under Sec. 179. What is the amount of Krol Corp.'s depreciation deduction for the furniture and fixtures under the Modified Accelerated Cost Recovery System (MACRS) for 2010?

a) $ 2,000
b) $ 2,667
c) $ 8,000
d) $16,000


Answer: a) $ 2,000

To qualify for the child care credit on a joint return, at least one spouse must

To qualify for the child care credit on a joint return, at least one spouse must

-Have an adjusted gross income of $10,000 or less
-Be gainfully employed when related expenses are incurred

a) YesYes
b) No No
c) Yes No
d) No Yes


Answer: b) No No

Nora Hayes, a widow, maintains a home for herself and her two dependent preschool children. In 2009, Nora's earned income and adjusted gross income was $44,000. During 2009, Nora paid work-related expenses of $6,000 for a housekeeper to care for her children. How much can Nora claim for child care credit in 2009?

Nora Hayes, a widow, maintains a home for herself and her two dependent preschool children. In 2009, Nora's earned income and adjusted gross income was $44,000. During 2009, Nora paid work-related expenses of $6,000 for a housekeeper to care for her children. How much can Nora claim for child care credit in 2009?

a) $0
b) $960
c) $1,200
d) $2,100


Answer: c) $1,200

Which one of the following statements is correct with regard to the earned income credit?

Which one of the following statements is correct with regard to the earned income credit?

a) The credit is available only to those individuals whose earned income is equal to adjusted gross income.
b) For purposes of the earned income test, "earned income" includes workers' compensation benefits.
c) The credit can result in a refund even if the individual had no tax withheld from wages.
d) The credit is available on a tax return that covers less than twelve months.


Answer: c) The credit can result in a refund even if the individual had no tax withheld from wages.

Kent qualified for the earned income credit in 2009. This credit could result in a

Kent qualified for the earned income credit in 2009. This credit could result in a

a) Refund even if Kent had no tax withheld from wages.
b) Refund only if Kent had tax withheld from wages.
c) Carryback or carryforward for any unused portion.
d) Subtraction from adjusted gross income to arrive at taxable income.


Answer: a) Refund even if Kent had no tax withheld from wages.

Assuming that the Jasons do not claim any other credits against their tax, what is the amount of the child care tax credit they should report on their tax return for 2009?

Assuming that the Jasons do not claim any other credits against their tax, what is the amount of the child care tax credit they should report on their tax return for 2009?

a) $ 500
b) $ 600
c) $ 700
d) $1,050


Answer: b) $ 600

Melvin Crane is sixty-six years old, and his wife, Matilda, is sixty-five. They filed a joint income tax return for 2009, reporting an adjusted gross income of $20,200, on which they owed a tax of $60. They received $3,000 from social security benefits in 2009. How much can they claim on Form 1040 in 2009, as a credit for the elderly?

Melvin Crane is sixty-six years old, and his wife, Matilda, is sixty-five. They filed a joint income tax return for 2009, reporting an adjusted gross income of $20,200, on which they owed a tax of $60. They received $3,000 from social security benefits in 2009. How much can they claim on Form 1040 in 2009, as a credit for the elderly?

a) $0
b) $60
c) $255
d) $675


Answer: a) $0

Foreign income taxes paid by a corporation

Foreign income taxes paid by a corporation

a) May be claimed either as a deduction or as a credit, at the option of the corporation.
b) May be claimed only as a deduction.
c) May be claimed only as a credit.
d) Do not qualify either as a deduction or as a credit.


Answer: a) May be claimed either as a deduction or as a credit, at the option of the corporation.

Sunex Co., an accrual-basis, calendar-year domestic C corporation, is taxed on its worldwide income. In the current year, Sunex's US tax liability on its domestic and foreign-source income is $60,000 and no prior year foreign income taxes have been carried forward. Which factor(s) may affect the amount of Sunex's foreign tax credit available in its current year corporate income tax return?

Sunex Co., an accrual-basis, calendar-year domestic C corporation, is taxed on its worldwide income. In the current year, Sunex's US tax liability on its domestic and foreign-source income is $60,000 and no prior year foreign income taxes have been carried forward. Which factor(s) may affect the amount of Sunex's foreign tax credit available in its current year corporate income tax return?

-Income Source
-Foreign Tax Rate

a) Yes Yes
b) Yes No
c) No Yes
d) No No


Answer: a) Yes Yes

Which of the following credits is a combination of several tax credits to provide uniform rules for the current and carryback-carryover years?

Which of the following credits is a combination of several tax credits to provide uniform rules for the current and carryback-carryover years?

a) General business credit.
b) Foreign tax credit.
c) Minimum tax credit.
d) Enhanced oil recovery credit.


Answer: a) General business credit.

Which one of the following credits is not a component of the general business credit?

Which one of the following credits is not a component of the general business credit?

a) Disabled access credit.
b) Employer social security credit.
c) Foreign tax credit.
d) Work opportunity credit.


Answer: c) Foreign tax credit.