ACCT 324 Final Exam Answers

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ACCT 324 Final Exam Answers

Question 1.(TCOs 2&3) Evelyn sold her personal residence to Drew on March 1 for $300,000. Before the sale, Evelyn paid the real estate taxes of $3,000 for the calendar year. For income tax purposes, the real estate tax deduction is apportioned as follows: $750 to Evelyn and $2,250 to Drew. Drews basis in the residence is:

Question 2.(TCOs3, 4, 5, & 7) In the current year, Galaxy Corporation, a closely held C corporation that is not a personal service corporation, has $80,000 of passive losses, $60,000 of active business income, and $10,000 of portfolio income. How much of the passive loss may Galaxy deduct in the current year?

Question 3.(TCOs3, 4, 5, & 7) Dorothy holds two jobs. Her main job is with Eggplant Corporation, and her part-time job is with Carrot Company. On a typical workday, she drives her car as follows: home to Eggplant, Eggplant to Carrot, and Carrot to home. Applicable mileage is as follows:

MilesHome to Eggplant 4Eggplant to Carrot 10Carrot to home 14

On a typical day, Dorothys deductible mileage is:

Question 4.(TCOs3, 4, 5, & 7) Carrie owns a mineral property that had a basis of $15,000 at the beginning of the year. The property qualifies for a 22% depletion

rate. Gross income from the property was $150,000, and net income before the percentage depletion deduction was $100,000. What is Carries tax preference for excess depletion?

Question 5.(TCOs3, 4, 5, & 7) During the past two years, through extensive advertising and improved customer relations, Beech Corporation estimated that it had developed customer goodwill worth $100,000. For the current year, determine the amount of goodwill Beech Corporation may amortize.

Question 6.(TCOs 3, 4, 5, & 7) Damien, not a dealer in real estate, sold real estate with a basis of $250,000 for $500,000 cash, a note for $250,000, and the buyer assumed Damiens mortgage on the property of $125,000. During the year, the purchaser paid Damien $30,000 principal and $72,000 interest on the note and paid $6,000 principal and $18,000 interest on the mortgage he assumed. The contract price for the above transaction is what amount?

Question 7.(TCOs3, 4, 5, & 7) Which of the following is not an itemized deduction allowed for AMT purposes?

Question 8.(TCOs3, 4, 5, & 7) Alex works as an auditor for a major CPA firm. During the months of August and September of each year, he is permanently assigned to the team auditing of Hummingbird Corporation. As a result, every day he drives from his home to Hummingbird and returns home after work. Mileage is as follows:

MilesHome to office 15Home to Hummingbird 22Office to Hummingbird 6

For the period of August and September, Alexs deductible mileage for each workday is:

Question 9.(TCOs7, 8, & 9) Matt and Shanekwa, ages 45 and 44, respectively, file a joint tax return for 2012. They provided all of the support for their 24-year-old son, who had $2,500 of gross income. Their 23-year-old daughter, a full-time student until her graduation on June 14, 2012, earned $6,000, which was 45% of her total support during 2012. Her parents provided the remaining support. Matt and Shanekwa also provided total support for Shanekwas father who is a citizen and life-long resident of Portugal. How many personal and dependency exemptions can Matt and Shanekwa claim on their 2012 income tax return?

Question 10.(TCOs2, 8, &9) Shaquille operates a drug-running operation and incurred the following expenses:

Salaries $200,000Illegal kickbacks $32,000Bribes to border guards $24,000Cost of goods sold $300,000Rent $12,000Interest $18,000

Which of the above amounts reduces his taxable income?

Question 11.(TCOs2, 8, &9) During 2012, Robin sold the following assets: business equipment for a $6,000 loss, stock investment for a $15,000 loss, and her principal residence for a $14,000 loss. Presuming adequate income, how much of these losses may Robin claim on her 2012 return?

Question 12.(TCOs2 & 11) Nicholas loaned Lyle (a friend) $30,000 in 2011 with the agreement that the loan would be repaid in two years. In 2012, Lyle filed for bankruptcy and Nicholas learned that he could expect to receive $0.50 on the dollar. In 2012, final settlement was made and Nicholas received $16,000. Assuming the loan is a nonbusiness bad debt, how should Nicholas account for the bad debt?

Question 13.(TCOs 2 & 11) Kelsey, a stock broker, owns a separate business in which he participates in the current year. He has one employee who works part-time in the business. Which of the following statements iscorrect?

Question 14.(TCOs2 & 11) During the year, Clara took a trip from Chicago to Rome. She was away from home for 20 days. She spent6 days vacationing and14 days on business (including the3 travel days). Her expenses are as follows:

Airfare $1,600Lodging (20 days x $70) $1,400Meals (20 days x $120) $2,400Valet service (cleaning of laundry) $160

Chriss deduction is:

Question 15.(TCOs2 & 11) In January, Charlie sold stock with a cost basis of $40,000 to his brother Allen for $30,000, the fair market value of the stock on the date of sale. Five months later, Allen sold the same stock through his broker for $45,000. What is the tax effect of these transactions?

Question 1.(TCO 1) Which of the following is a judicial source of the tax law?

Question 2.(TCOs2, 3, 6, 8, 9, & 10) Which, if any, of the following is a deductionfromAGI?

Question 3.(TCOs2, 3, 6, 8, 9, & 10) Sergio lives in an apartment building and has a 2-year lease that began13 months ago. His landlord is willing to pay Sergio $2,000 to vacate the apartment immediately. The landlord wants to sell the building to a buyer who will convert the building into condominiums. Sergios

lease on the apartment is a capital asset, but has no tax basis. The $2,000 Sergio will receive if he accepts the landlords offer will be:

Question 4.(TCOs2, 3, 6, 8, 9, & 10) Rockwell purchased a tract of land for $125,000 in 2004 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $300,000. Highway engineers surveyed the property and indicated that he would probably get $200,000. The highway project was abandoned in 2012, and the value of the land fell to $80,000. What is the amount of loss Rockwell can claim in 2012?

Question 5.(TCOs2, 3, 6, 8, 9, & 10) Donald has a $20,000 disallowed loss from a sale of property to a related taxpayer. The property was sold for $70,000. Donald uses the $70,000 to purchase different property than the property that was sold. Which of the statements below is correct concerning the property Donald purchased?