Concepts in Federal Taxation 2016 23rd Edition

Chapter 1 Cengage Learning Testing, Powered by Cognero Page 18 Cengage Learning Testing, Powered by Cognero Page 18 Cengage Learning Testing, Powered by Cognero Page 18 ANSWER: b ANSWER: b ANSWER: b 79. How long does a taxpayer have to file a petition with the U.S.

Chapter 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. A tax is an enforced contribution used to finance the functions of government. a. True b. False ANSWER: True

Chapter 10 Cengage Learning Testing, Powered by Cognero Page 14 Cengage Learning Testing, Powered by Cognero Page 14 Cengage Learning Testing, Powered by Cognero Page 14 Computers Feb 6 5 years $60,000 Office furniture June 24 7 years $110,000 Fax machine Aug 3 5 years $100,000 Sidewalk Dec

Chapter 10 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. The earlier the depreciation deduction can be taken, the greater the present value of the tax savings will be to the

Chapter 11 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. The amount realized equals the gross selling price less any selling expenses. a. True b. False ANSWER: True ANSWER:

Chapter 11 Cengage Learning Testing, Powered by Cognero Page 17 Cengage Learning Testing, Powered by Cognero Page 17 Cengage Learning Testing, Powered by Cognero Page 17 No net Section 1231 losses have been deducted as ordinary losses in prior years. How much of the 2015 Section 1231 gains

Chapter 12 Cengage Learning Testing, Powered by Cognero Page 14 Cengage Learning Testing, Powered by Cognero Page 14 Cengage Learning Testing, Powered by Cognero Page 14 c. $3,828 Section 1245 ordinary income. d. $6,000 Section 1245 ordinary income e. $9,828 section 1245 ordinary income and

Chapter 12 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. Classification of a nonrecognition transaction as a continuation of an investment requires a qualified replacement asset. a. True b.

Chapter 13 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. Continuity of life refers to whether an entity continues to operate or technically dissolves and ceases to exist in its present

Chapter 13 Cengage Learning Testing, Powered by Cognero Page 13 Cengage Learning Testing, Powered by Cognero Page 13 Cengage Learning Testing, Powered by Cognero Page 13 II. Based on the wherewithal-to-pay concept, each owner is taxed on the cash they contributed to the corporation. III. Sergio will recognize

Chapter 14 Cengage Learning Testing, Powered by Cognero Page 13 Cengage Learning Testing, Powered by Cognero Page 13 Cengage Learning Testing, Powered by Cognero Page 13 include the amount it realized on the sale of a building for $330,000. The building was purchased in 2004 for $250,000 and

Chapter 14 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. A sole proprietor may deduct investment interest and investment expense without limitations if investments are made in the name of the

Chapter 15 Cengage Learning Testing, Powered by Cognero Page 13 Cengage Learning Testing, Powered by Cognero Page 13 Cengage Learning Testing, Powered by Cognero Page 13 61. On January 22, 2013, Dalton Corporation granted Kathleen an option to acquire 1,500 shares of the company's stock for $7 per

Chapter 15 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. Tim has a 25% interest in Hill and Associates, a partnership. Tim is eligible for coverage as an employee under the

Chapter 16 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. A tax treaty with a foreign country negotiated by the president is considered a legislative source of tax law. a.

Chapter 2 Cengage Learning Testing, Powered by Cognero Page 20 Cengage Learning Testing, Powered by Cognero Page 20 Cengage Learning Testing, Powered by Cognero Page 20 arrangement for tax purposes? a. Assignment of Income Doctrine. b. Claim of Right Doctrine. c. All-inclusive Income Concept.

Chapter 2 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. Under the pay-as-you-go concept, the tax base used to compute the taxpayers income tax liability is a net income number.

Chapter 3 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. Connie was walking her dog when she came across a paper bag with $20,000 in it. She turned the money into

Chapter 3 Cengage Learning Testing, Powered by Cognero Page 21 Cengage Learning Testing, Powered by Cognero Page 21 Cengage Learning Testing, Powered by Cognero Page 21 statements about the tax effect of the sale is/are correct? I. If Elizabeth is an art dealer and she sold the painting

Chapter 3 Cengage Learning Testing, Powered by Cognero Page 33 Cengage Learning Testing, Powered by Cognero Page 33 Cengage Learning Testing, Powered by Cognero Page 33 throw it away. However, she noticed what appeared to be another painting behind the one she bought. Curious, she took the painting

Chapter 4 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. Gifts received are not subject to income taxation; however the donor is subject to the gift tax rules on the making

Chapter 4 Cengage Learning Testing, Powered by Cognero Page 21 Cengage Learning Testing, Powered by Cognero Page 21 Cengage Learning Testing, Powered by Cognero Page 21 89. Items that are excluded from gross income include all of the following with the exception of: a. gifts. b.

Chapter 5 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. In order for a taxpayer to reduce taxable income with a deduction, the tax law must allow it, and it must

Chapter 5 Cengage Learning Testing, Powered by Cognero Page 21 Cengage Learning Testing, Powered by Cognero Page 21 Cengage Learning Testing, Powered by Cognero Page 21 What is James' income or loss from the rental property? a. $- 0 - b. $1,000 loss c.

Chapter 6 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. To be deductible, meals and entertainment must be both an ordinary and necessary business expense and must be either directly related

Chapter 6 Cengage Learning Testing, Powered by Cognero Page 21 Cengage Learning Testing, Powered by Cognero Page 21 Cengage Learning Testing, Powered by Cognero Page 21 b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. ANSWER: c ANSWER:

Chapter 7 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. An operating loss occurs when an entity's deductions exceeds the income generated for the period. a. True b. False

Chapter 7 Cengage Learning Testing, Powered by Cognero Page 17 Cengage Learning Testing, Powered by Cognero Page 17 Cengage Learning Testing, Powered by Cognero Page 17 ANSWER: a ANSWER: a ANSWER: a 74. Which of the following is true concerning capital losses and net operating losses

Chapter 8 Cengage Learning Testing, Powered by Cognero Page 20 Cengage Learning Testing, Powered by Cognero Page 20 Cengage Learning Testing, Powered by Cognero Page 20 Legitimate business entertainment of clients $8,000 Hotels accommodations while on business travel $3,000 Meals while away from home on business travel $2,000

Chapter 8 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. To recognize such basic personal living costs as food and clothing, each individual taxpayer is allowed a personal exemption of $3,950

Chapter 9 Cengage Learning Testing, Powered by Cognero Page 13 Cengage Learning Testing, Powered by Cognero Page 13 Cengage Learning Testing, Powered by Cognero Page 13 58. Sonya inherits 1,000 shares of Big Red Airline Corporation stock from the estate of her Uncle Tony. Tony died on

Chapter 9 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 Cengage Learning Testing, Powered by Cognero Page 1 1. Intangible property lacks a physical existence; the rights exist only because of economic rights the property possesses. a. True

Louise is the marketing manager and a 30% owner of Walker Company. At the beginning of the current year, Louise's basis in Walker Company is $22,000. During the year, Walker borrows $50,000 to finance the construction of a new building. For the year, Walker suffers a $100,000 net operating loss and

Troy Company purchased a printing press on April 13, 2012 at a cost of $30,000. Troy sells the printing press on January 3, 2015 for $16,000. Regular MACRS depreciation on the printing press would be $18,500, while straight-line MACRS depreciation would total $12,000. I. If Troy used straight-line depreciation, it would have

Gross selling price includes I. the amount of a seller's debt assumed by the buyer. II. the fair market value of services received by the seller from the buyer. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. Answer: c Answer: c Answer: c Marlene is a

Which of the following is (are) secondary sources of tax law? I. Revenue Ruling. II. The Tax Adviser. III. Murphy and Higgins' Concepts in Federal Taxation. IV. Tax Treaty with Denmark. a. Statements I, II, and III are correct. b. Statements I and II are correct. c. Statements II and III are correct. d. Only statement

Larry and Louise are both 49 years of age and file a joint return. They provide all of the support for their son, Dylan, who is 20 years old and is at home until he gets called into the army. His income at part-time jobs is $4,500. Their daughter, Phyllis,

Unreimbursed medical costs are deductible only to the extent that they exceed 3.0% of the taxpayer's adjusted gross income. a. True b. False Answer: False Answer: False Answer: False Classification of a nonrecognition transaction as a continuation of an investment requires a qualified replacement asset. a. True b. False Answer: True Answer: True Answer: True The intent of the alimony recapture rules

Ross and Reba are both in their 30's and they are married. Reba earns $64,000 annually, and Ross earns $1,800 annually working part time. Their adjusted gross income is $81,500. Reba participates in an employer-sponsored retirement plan. Ross and Reba contribute the maximum amount allowable annually to their IRAs. What is

Sandi and Jodie are partners who operate Household Humanities. Sandi owns 60% and Jodie owns 40% of Household. During the current year, Household has the following results: Revenues $165,000 Operating expenses 45,000 Sandi's salary 50,000 Jodie's salary 45,000 Municipal bond interest income 3,000 Long-term capital loss 30,000 Charitable contributions 10,000 a. How must Household report these results to

Generally income tax accounting methods are designed to result in I. a proper matching of expenses to the revenues being generated. II. a denial of a current deduction for costs that will not have to be paid in the near future. a. Only statement I is correct. b. Only statement II is correct. c. Both

When a partnership distributes property that has a fair market value greater than its basis, the partnership must recognize the income as if it sold the property. a. True b. False Answer: False Answer: False Answer: False Using the tests for deductibility discussed in Chapter 5, explain why the following expenses are not deductible. a. Mel is

Which of the following individuals or couples qualify for the child and dependent-care credit? I. Jeff and Marion are married with 2 children ages 5 and 7. Jeff earns $57,000 and Marion is a part-time graduate student at the local university and also works as a volunteer for the local hospital.

Alli is 23 years old, a full time student, and a dependent of her parents. She earns $2,000 from her job as a waitress and receives $3,000 of interest on a savings account established by her grandparents. a. What is Alli's taxable income? b. What is Alli's tax liability on the taxable

Isabel is a self-employed electrician. All cash payments she receives from customers are deposited into a bank account held in the name of her son. Isabel does not have use of the funds. Therefore, she does not think she needs to include the cash receipts in her gross income. What concept

Fillmore's net Section 1231 gains and losses reported for the past five years is presented below. 2010 $15,000 2011 12,000 2012 5,000 2013 (28,000) 2014 (13,000) In 2015, Fillmore has a $15,000 net Section 1231 gain. What amounts and character of income will Fillmore ultimately report in 2015 as a result of this net Section 1231 gain? a.

Chance Corporation has a $20,000 deficit in earnings and profits as of January 1, 2015. During 2015, the corporation has current earnings and profits of $40,000 and makes a $70,000 cash distribution to its shareholders. What part of the distribution is taxable as dividend income to Chance's shareholders? a. $- 0

Francisco's employer establishes Health Savings Accounts (HSA's) for its employees. The plan provides for his employer to pay $1,000 into Francisco's HSA, and Francisco to also contribute $1,000 to his HSA. During the year, the plan pays for $1,500 of Francisco's medical expenses not covered by the employer's regular medical

Brad, an engineering consultant, was given stock valued at $3,000 for services rendered. His basis in the stock he received for the services is zero since he received no cash. a. True b. False Answer: False Answer: False Answer: False Gary won the Nobel Prize in Economics. He receives $1.2 million from the Royal Academy of

Janelle receives a sterling silver tea set valued at $500 from her employer during her retirement dinner for her long years of service. The employer has a tradition of giving awards to some retiring employees, but has no qualified plan. I. $400 is excludable from Janelle's Gross Income. II. The $500 is

Chestnut Furniture Company purchases a delivery van on June 14, 2015, at a cost of $30,000. The delivery van has a 5-year MACRS life and an ADS recovery period of 5 years. What is Chestnut's minimum cost recovery deduction on the van in 2015? a. $- 0 - b. $3,000 c. $4,500 d. $6,000 e.

Which of the following statements related to the Section 179 election to expense is (are) true? I. A Section 179 deduction can be claimed on tangible personal property II. A Section 179 deduction can be claimed on property held for the production of income. III. A Section 179 deduction can be claimed on real

During 2015, Marsha, an employee of G&H CPA firm, drove her car 24,000 miles. The detail of the mileage is as follows: Personal Use 3,000 miles Transportation between home and office 3,000 miles Transportation to and from clients' offices 18,000 miles Marsha's 2015 records show that her car expenses totaled $14,320. The details of

Winston is the sole shareholder of Winston Inc, an S corporation. In 2014, he paid $50,000 for his shares of stock. During the current year, he contributes a building and land to the corporation. No additional shares of stock are issued. The basis of this property is $75,000, and its

For the current year, Salvador's regular tax liability is $17,000, and his tentative alternative minimum tax is $19,000. Salvador has $16,250 withheld from his salary. I. Salvador has a tax due of $750. II. Salvador's alternative minimum tax is $0. III. Salvador has a tax due of $2,750. IV. Salvador's total tax liability is

Connie was walking her dog when she came across a paper bag with $20,000 in it. She turned the money into the police. After the appropriate period of time, no one claimed the money and the police returned the money to Connie. Connie does not have to recognize any taxable

Fay "hires" her four-year-old son to be the office manager of her real estate firm. She deducts his $20,000 annual salary as a business expense. The IRS disallows the deduction upon examination of Fay's tax return. Which of the following supports the IRS position? a. All-Inclusive Income Concept. b. Annual Accounting Period

Paul, age 40 and single, has an 8-year-old son, Larry. Larry resides with his mother, Susan, in her home. Pursuant to the terms of their divorce, Paul properly claims Larry as a dependent on his income tax return. Paul pays child support payments to his ex-wife for support of his

Richard, a cash basis taxpayer, is an 80% owner and president of WLFI TV. WLFI TV is an S corporation and uses the accrual method of accounting. On December 1, 2015, WLFI TV accrues a bonus of $50,000 to Richard. The bonus is payable on January 31, 2016. In what

A tax provision has been discussed that would add an additional marginal tax rate of 42% to be applied to an individual's taxable income in excess of $800,000. If this provision were to become law, what overall distributional impact would it have on our current income tax system? a. Proportional. b. Regressive. c.

Thomas has adjusted gross income of $228,000, total itemized deductions of $39,000 and claims 2 personal and 2 dependency exemptions. Which is his filing status? a. Single. b. Head of household. c. Married filing a joint return. d. Married filing separately. Answer: c Answer: c Answer: c Cindy exchanges investment real estate with Russell. Cindy purchased her realty

The Ottomans own a winter cabin in Durango, Colorado. They purchased the cabin in 2004 for $65,000. During the current year, a blizzard partially destroys the cabin. The fair market value of the cabin after the blizzard is $70,000. The insurance company estimates that the cost of repairing the cabin

In which of the following circumstances will income of the child be taxed at the marginal tax rate of the child's parent? I. Nicole, age 17, has $4,000 of interest income from Microsoft bonds. II. Catherine, age 19, has $2,300 of royalty income from oil producing property. a. Only statement I is correct. b.

Which of the following best describes the tax treatment of a taxpayer's net Section 1231 loss that resulted from the sale of depreciable equipment used in a business activity? a. Such losses are not deductible. b. Such losses are deducted as ordinary losses. c. Such losses are deducted as long-term capital losses. d. Such losses

Peter, proprietor of Peter's Easy Loan Company, loaned Jessie $4,000 on December 1, 2013. The loan is to be repaid on December 1, 2014, along with $600 interest. On July 10, 2014, Peter learns that Jessie has filed for personal bankruptcy and that non-secured creditors will receive only $0.60 on the

Jason purchases a patent at a cost of $24,000. The patent has 8 years of legal life remaining from the date of purchase. I. If the patent is the only asset Jason purchased, he must amortize the patent over 15 years. II. If the patent was part of the purchase of all

Jane is a partner with Smithstone LLP. Smithstone maintains a profit-sharing Keogh plan for its partners and employees. Determine the maximum deductible contribution Jane can make to the plan in each of the following situations: a. Jane's net self-employment income is $80,000. b. Jane's net self-employment income is $280,000. Answer: a. Her contribution

Which of the following taxes is deductible from adjusted gross income when paid by an individual taxpayer? I. State income tax. II. State excise tax on gasoline. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. Answer: a Answer: a Answer: a Phyllis purchased an automobile for $3,000

Derek Builders, LLC, entered into a contract to do extensive remodeling work on Helen's house in October 2014. The bid cost of the job was $5,000 and Helen made a down payment of $2,000 in November 2015. Because Helen was short of cash, Derek agreed to accept payment of the

Helen receives stock worth $1,000 from her grandfather as a graduation gift in May 2015 (her grandfather paid $100 for the stock many years ago). In December 2015, she receives a $100 cash dividend on the stock. Helen is not taxed on the value of the stock received in 2015,

LeRoy has the following capital gains and losses for the current year: Short-term capital gain $10,000 Collectible loss (3,000) Long-term capital gain 5,000 If LeRoy is single and has taxable income from other sources of $52,000, what is the tax on his capital gains? a. $1,800 b. $2,800 c. $2,910 d. $3,000 Answer: b Answer: b Answer: b Penny owns her own

In July 2015, Harriet sells a stamp from her stamp collection at a gain of $500. Harriet purchased the stamp in 2009. If Harriet is in the 33% marginal tax rate bracket and has no other capital asset sales in 2015, what is her tax on the sale of the

During 2015, Jimmy incorporates his data processing business. Jimmy is the sole shareholder. The following assets are transferred to the corporation: Cash $2,000 Computer Equipment: Fair market value 20,000 Adjusted basis 12,000 Original cost 24,000 Furniture: Fair market value 20,000 Adjusted basis 32,000 Original cost 64,000 What will be the basis of the assets to the corporation after the transfer? Computer

Marie earns $80,000 as a sales manager for Household Books. How much Social Security and medicare tax does Marie have to pay for 2015? a. $4,960.00 b. $6,120.00 c. $6,400.00 d. $2,240.00 Answer: b Answer: b Answer: b Rosie inherits 1,000 shares of Northern Skies Airline Corporation stock from the estate of her Uncle Tony. Tony died on

Kevin, single, is an employee of the Colonial Company and is an active participant in its pension plan. Kevin's adjusted gross income for the current year is $59,000. Kevin contributes $1,000 to his conventional individual retirement account. Which of the following statements about Kevin contributions and deduction amounts is (are)

Dustin buys 200 shares of Monroe Corporation common stock on December 1, 2014, for $2,000. He buys an additional 200 shares for $1,800 on December 23, 2015. On December 28, 2015, Dustin sells the first 200 shares for $1,700. He sells the last 200 for $1,600 on June 15, 2016. What

Mario's delivery van is completely destroyed when a tree fell on it. Mario's insurance company pays him $11,000 for the accident. The van cost $20,000 three years ago. Tax depreciation deductions of $6,000 have been taken to date. The "Blue Book value" (i.e., fair market value) of the van is $12,000

A guaranteed payment is a payment made to a partner for specific services performed by the partner and is made without regard to the partnership's income. a. True b. False Answer: True Answer: True Answer: True Wayne purchases a new home during the year, borrowing $725,000 from Century National Bank to finance the purchase. He also

Adjustments to gross selling price include I. the amount of a seller's expenses paid by the buyer. II. the amount of the buyer's debt assumed by the seller. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. Answer: c Answer: c Answer: c Which of the following

In which of the following will the Constructive Receipt Doctrine require reporting income in 2015? I. Cornell's December 2015 salary check is withheld until January 15, 2016, because the employer does not have sufficient cash to cover its December payroll. II. Donnie is an employee of Holt Corporation. The corporation regularly mails payroll

Lynne is a 15% partner with Webb Brothers and has net self-employment income of $100,000 in 2015. The maximum amount that Lynne can contribute to a Keogh profit sharing plan is a. $5,000 b. $13,045 c. $15,000 d. $20,000 e. $25,000 Answer: d Answer: d Answer: d The ability-to-pay concept is fundamental to the income tax structure. Constructs used

Oliver pays sales tax of $7.20 on the purchase of a lamp for $120. Michelle paid sales tax of $9 on the purchase of a similar lamp for $150. Oliver's taxable income for the current year is $40,000. Michelle's taxable income is $55,000. I. The structure of the sales tax is

Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which had a basis of $10,000, Grant pays $4,000 cash and takes out a loan on the new oven for $6,000. The new oven is valued at $22,000. What is Grant's

Ted purchases some forest land in 2013 with the intention of building a log cabin to use as a vacation home. To obtain the land, Ted pays $10,000 cash, assumes the seller's $19,000 mortgage on the land and pays $3,000 in commissions and legal fees related to the purchase. In

Which of the following properties that was sold during January 2015 is Section 1231 property for Baylan Toy Manufacturing Corporation? I. Automobile purchased in 2011. II. Land used in the business since 2012. III. Factory building purchased and placed into service in May 2014. IV. Office building purchased and placed into service in June

Milroy Company manufactures steering wheels. Its taxable income in 2015 before the Qualifying Production Activities Deduction (QPAD) is $2,000,000 and its qualified production activities income is $2,500,000. Milroy's qualifying W-2 wages paid are $400,000. How much may Milroy take as it QPAD deduction in 2015? a. $100,000 b. $180,000 c. $200,000 d. $225,000 e. $280,000 Answer: