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1. Question : What is a corporation’s alternative minimum tax rate? Student Answer: 15% 20% 26% 28% 2. Question : Which of the following business entities does not file a separate tax return to report business operations? Student Answer: Sole proprietorship S corporation C corporation Partnership 3. Question : Hoku Corporation (a C corporation) had the following history of income and loss: Year Income (Loss) 2009 $40,000 2010 $70,000 2011 ($10,000) How much of a tax refund can Hoku Corporation receive by carrying back its 2011 loss? Student Answer: $1,500 $2,500 $3,500 None; it cannot carry its loss back 4. Question : Which of these persons never pays taxes directly? Student Answer: Individual Partnership C corporation Fiduciary 5. Question : Which of the following is not a characteristic of an S corporation? Student Answer: Owners have limited liability The corporation is taxed directly on operating income The corporation can have no more than 100 shareholders Shareholders must consent to the S election by the corporation 6. Question : The Mercury Corporation must decide whether to invest in some new machinery for its business. Which tax rate is the most relevant for making this decision? Student Answer: The average tax rate The marginal tax rate The nominal tax rate The effective tax rate 7. Question : What is the gain or loss on the sale of an asset for $68,000 if the asset cost $185,000, depreciation expense deducted was $124,000, repair costs were $12,000, and there was a $19,000 major addition to the asset? Student Answer: $0 $12,000 loss $7,000 gain $24,000 loss UNIT – 2 1. All of the following are part of the tax research process except: (Points : 1) Establish the facts Locate relevant authority Identify the issues Communicate the findings All are part of the tax research process 2. CK Corporation can invest $100,000 in a project. After taxes, the project is expected to generate $40,000 of net income the first year and $75,000 of net income the second year. If the company uses a 10 percent discount rate to evaluate projects, what is the project’s net cash flow? (Points : 1) $15,000 $1,690 ($1,690) ($1,315) 3. Changing which of the following factors as indicated would decrease the after-tax net cash flow of a project: (Points : 1) Delaying the years in which inflows occur Delaying revenue recognition Increasing the discount rate All decrease cash flows None decrease cash flows 4. What effect does an increased discount rate have on project evaluations? (Points : 1) Increases net cash flow Decreases net cash flow Increases the probability that a project will be accepted It has no effect on project evaluation 5. Which of the following does not deal with a CPA’s standard of conduct (Points : 1) Treasury Circular 230 AICPA Code of Conduct Internal Revenue Service Manual Statement of Standards for Tax Services 6. Which of the following explain why it is important to determine the period in which income is recognized? (Points : 1) Marginal tax rates may be different in different periods. Tax laws may change The time value of money All of the above are explanations a. and b. only are explanations 7. All of the following are allowable tax years except: (Points : 1) The last Friday of July December 31 The Sunday closest to March 1 August 31 8. All of the following are acceptable methods of accounting for revenue and expenses for tax purposes except: (Points : 1) Cash method Accrual method Percentage-of-completion Hybrid method All are acceptable methods 9. Which of the following is an application of the wherewithal-to-pay concept? (Points : 1) Percentage-of-completion Hybrid method of accounting Installment method Accrual method of accounting 10. Windjammer Corporation, a cash-basis, calendar-year corporation sold $30,000 of merchandise to Jackpot Company in January, year 1. In November, Jackpot declared bankruptcy without paying Windjammer. In year 4, Jackpot had reorganized under a new owner and paid all its old debts including the $30,000 owed Windjammer. How does Windjammer treat these events? (Points : 1) Recognize $30,000 revenue in year 1 only. Recognize $30,000 revenue in year 4 only. Deduct $30,000 as a bad debt in year 1. Deduct $30,000 as a bad debt in year 1; recognize $30,000 income in year 4. UNIT-3 1. Which of the following is included as part of APB 23? (Points : 5) A parent corporation can exclude a foreign subsidiary’s income if earnings will not be repatriated. A parent corporation can exclude deferred taxes on foreign income if earnings will not be repatriated. A parent must meet a more-likely-than not standard to determine the effect of a tax benefit. A parent must disclose details relating to tax uncertainties of its subsidiaries. 2. If an expense is reported on the tax return before it is reported on the financial accounting books (Points : 5) the result is a deferred tax asset the result is a deferred tax liability there could be either a deferred tax asset or liability there is no effect as this is not a timing difference 3. The more-likely-than-not standard (Points : 5) is based on a more-than 50 percent probability. applies only to contested liabilities is used to determine if a deferred tax liability should be recognized. is spelled out in APB 23. 4. Waldo bought two tickets for a Packers game on Ebay for $400. The tickets had a face value of $50 each. He took a client to the game and they had a dinner afterwards where they discussed business. The cost of the dinner was $70. What is Waldo’s deduction for these expenses? (Points : 5) $470 $235 $170 $85 5. What is the purpose of a per diem allowance? (Points : 5) Eliminate the substantiation requirement for business expenses. Reduce the amount an employer must reimburse for employee business expenses. Eliminate paper work for certain employee business expenses. Reduce reimbursement disagreements between employer and employee. 6. Which of the following is a working condition fringe benefit? (Points : 5) Flowers for an ill employee A holiday cocktail party A subscription to a professional journal A bus pass 7. Howard is a cash-basis, calendar-year taxpayer. He works for Clyde Corporation, an accrual-basis, calendar-year corporation. Clyde authorizes a $10,000 bonus for Howard on December 20, year 1. It pays the bonus on March 31 of year 2. Which of the following is correct? (Points : 5) Howard recognizes income in year 1 and Clyde takes a deduction in year 1. Howard recognizes income in year 1 and Clyde takes a deduction in year 2. Howard recognizes income in year 2 and Clyde takes a deduction in year 1. Howard recognizes income in year 2 and Clyde takes a deduction in year 2. Unit-4 1. The adjusted basis of an asset is: (Points : 5) Its acquisition price only Acquisition cost less cost recovery Acquisition cost less selling price Only the cash used to purchase the asset 2. Momee Corporation, a calendar-year corporation, bought only one asset in 2006, a crane it purchased for $700,000 on November 24. It disposed of the asset in April, 2011. What is its depreciation deduction for this asset in 2011 if cost recovery was determined using only regular MACRS? (Points : 5) $62,510 $61,110 $31,255 $22,916 3. Coley Corporation has an $800 net short-term capital loss and a $6,000 net long-term capital gain in the current year. It also has an $8,000 long-term capital loss carryover from the prior year. What is Coley’s capital loss carryover to the next year? (Points : 5) $0 $2,000 $2,800 $8,800 4. Alpha Corporation had income from operations of $30,000. What is the corporation’s taxable income including the following property transactions: Gain on investment stock = $8,000; loss on machinery held three years = $6,000; $4,000 loss on equipment held 10 months; $4,000 gain on land used for six years for storage of trucks. (Points : 5) $25,000 $27,000 $30,000 $32,000 5. All of the following are characteristics of percentage depletion except: (Points : 5) Depletion is determined using a statutory percentage times gross income. Percentage depletion can exceed the property’s cost. Depletion in excess of cost results in a negative basis for property. Is an investment incentive provision. 6. Angel sells the following depreciable assets from her sole proprietorship: Asset Cost Age Gain/Loss Office furniture $10,0004 years ($2,400) Truck $20,0005 years 3,100 Bakery equipment $25,0009 months (4,500) What should Angel report on her income tax return relative to these property transactions? (Points : 5) $3,800 capital loss $3,100 Section 1245 recapture; $2,400 Section 1231 loss; $4,500 ordinary loss $3,800 ordinary loss $700 Section 1231 gain; $4,500 ordinary loss None of the above 7. Jack did not depreciate one of his machines that cost $40,000 because he had net operating losses for the last two years. Which of the following statements is true? (Points : 5) Jack’s basis in the asset is $40,000 this year. Jack can deduct three year’s depreciation in the current year. Jack must file amended returns to claim the depreciation for prior years. If Jack sells the machine for $20,000 this year, he has a $20,000 loss. Unit-5 1. Trudi Corporation has a building that it needs to sell or exchange because of growth in its business. If Trudi sells the building, it will have a gain of $450,000. What is the amount of taxes that Trudi will avoid paying if it can exchange the building? The corporation has $1,000,000 of taxable income from operations for the current year. (Points : 1) $90,000 $153,000 $175,500 $450,000 None of the above 2. In early 2011, Conrad Corporation discovered their bookkeeper had embezzled $30,000 over the last three years at a rate of approximately $10,000 per year. Conrad also suffered uninsured hurricane damage of $40,000 late in 2011 in a presidentially declared disaster area. If Conrad wants to deduct its losses at the earliest time possible, what are the amounts and year(s) of its loss deduction? (Points : 1) 2011 = $70,000 2010 = $30,000, 2010 = $40,000 2010 = $40,000, 2011 = $30,000 2009 = $10,000, 2010 = $10,000; 2011 = $50,000 None of the above 3. Sam’s land was condemned for a sewage treatment plant. He received $600,000 for the land that had a basis of $650,000. What is his realized and recognized gain or loss, respectively, on this involuntary conversion? (Points : 1) ($50,000), ($50,000) ($50,000), 0 $50,000, $50,000 0, 0 None of the above 4. Which of the following is not a characteristic of involuntary conversions? (Points : 1) Gain only is deferred The taxpayer can receive cash to invest in qualifying replacement property The provision applies to both realty and personalty All of these are characteristics None of these are characteristics 5. The taxpayer-use test for qualifying replacement property (Points : 1) applies only to personalty requires replacement property used by the taxpayer to be used in the same business as the converted property only requires leased realty to be replaced with other leased realty Is more restrictive than the functional-use test 6. Which of the following would be an indication that corporate debt is disguised equity? (Points : 1) Debt is issued to the shareholders in the same proportion as stock The debt has a specified maturity date The debt has a specified interest rate Interest is paid annually None of the above 7. A corporation that owns 72 percent of all the outstanding stock of another corporation: (Points : 1) May not file a consolidate return May file a consolidated return May take a 100 percent dividend received deduction May take a 70 percent dividend received deduction Is the parent of the 72 percent-owned company 8. A clothing manufacturing corporation donates last year’s inventory to the Red Cross for use in its disaster relief efforts. The clothes have a fair market value of $200,000 and a basis to the corporation of $75,000. What is its charitable contribution deduction? (Points : 1) $200,000 $150,000 $137,500 $75,000 9. A corporation has pre-tax book income of $324,000. In determining this income, the corporation included $2,000 of tax-exempt interest, $6,000 of dividends from an affiliated corporation, a capital loss of $50,000 and $3,000 of excess book depreciation. What is the corporation’s taxable income? (Points : 1) $369,000 $328,000 $269,000 $263,000 10. The Willow Corporation reported $400,000 of taxable income. In making a conversion to book income, the accountant had to adjust for the following: a $25,000 Section 179 deduction, but book depreciation would have been $5,000; a fine of $12,500 for overweight trucks; and a net capital loss of $10,000. What is Willow Corporation’s book income? (Points : 1) $422,500 $412,500 $402,500 $397,500 None of the above UNIT-6 1. John has $120,000 of net income from his sole proprietorship in 2011. What is his deduction for AGI for self-employment taxes? (Points : 1) $8,478 $9,180 $4,239 $0 2. James owns 60% of the James and Peter Partnership. The partnership reports $300,000 of construction revenue, $120,000 of construction expenses, and $80,000 of other expenses that include $4,000 of doctor expenses paid for James, and a $6,000 charitable contribution. What is the bottom line net income reported on Jame’s Schedule K-1? (Points : 1) $100,000 $104,000 $106,000 $110,000 3. Mary has $30,000 of passive losses, $25,000 of passive gains, $27,000 of active income and $24,000 of active losses during the year. What is Mary’s current year net taxable income or loss? (Points : 1) $2,000 loss $0 $3,000 income $5,000 income 4. Will and Grace are equal partners in Will and Grace Partnership. Grace is employed full-time and receives a guaranteed salary from the partnership of $60,000 annually. If there is profit remaining after that salary, Will receives an allowance of $5,000 for his excess partner capital balance. Any remainder is divided equally among Will and Grace. If the accounting income before either of these payments is $80,000, what is the amount of income or loss allocated to Grace? (Points : 1) $60,000 $67,500 $12,500 $5,000 5. Which of the following is not a requirement to make an S election? (Points : 1) Minimum of 2 shareholders Maximum of 100 shareholders One class of shareholders d.It must be a domestic corporation 6. Karen has a $30,000 basis in her 40% ownership in an S Corporation and lent the corporation $10,000 last year. The corporation has other debt outstanding of $60,000 during the entire year. This year the S Corporation reported a $200,000 loss. How much of this loss may Karen deduct? (Points : 1) $0 $80,000 $24,000 $40,000 7. Williams Company is a S Corporation owned equally by Smith and Weston. Williams had taxable income of $60,000 for the current taxable year. Smith and Weston received distribution during the tax year of $20,000 each. What is Smith’s taxable income from Williams Company for the current taxableyear? (Points : 1) $0 $20,000 $30,000 d.$50,000 8. Joy purchased a 50% interest in an S corporation on April 1 of the current year and sells one-half of her interest on October 1. If the S corporation reported $40,000 of income for the year, what income does it report on Joy’s Schedule K-1? (Points : 1) $20,000 $15,000 $12,548 $10,000 9. Samantha and Ashley form the MAS General Partnership. Samantha contributed $20,000 cash in exchange for her 50 percent partnership interest. During the first year of partnership operations, the partnership reported net taxable income of $10,000, Samantha withdrew $8,000 cash from the partnership, and the partnership took out an $18,000 loan on the last day of the year. Samantha’s adjusted basis for her partnership interest at year end is: (Points : 1) $38,000 $30,000 $26,000 $25,000 $20,000 $17,000 10. Which of the following is not a characteristic of sole proprietorships? (Points : 1) Owners pay self-employment taxes Formation is always tax-free Distributions of entity income are tax-free Loss is recognized on liquidation

1. Question : What is a corporation’s alternative minimum tax rate?

Student Answer: 15%

20%

26%

28%

2. Question : Which of the following business entities does not file a separate tax return to report business operations?

Student Answer: Sole proprietorship

S corporation

C corporation

Partnership

3. Question : Hoku Corporation (a C corporation) had the following history of income and loss:

Year Income (Loss)

2009 $40,000

2010 $70,000

2011 ($10,000)

How much of a tax refund can Hoku Corporation receive by carrying back its 2011 loss?

Student Answer: $1,500

$2,500

$3,500

None; it cannot carry its loss back

4. Question : Which of these persons never pays taxes directly?

Student Answer: Individual

Partnership

C corporation

Fiduciary

5. Question : Which of the following is not a characteristic of an S corporation?

Student Answer: Owners have limited liability

The corporation is taxed directly on operating income

The corporation can have no more than 100 shareholders

Shareholders must consent to the S election by the corporation

6. Question : The Mercury Corporation must decide whether to invest in some new machinery for its business. Which tax rate is the most relevant for making this decision?

Student Answer: The average tax rate

The marginal tax rate

The nominal tax rate

The effective tax rate

7. Question : What is the gain or loss on the sale of an asset for $68,000 if the asset cost $185,000, depreciation expense deducted was $124,000, repair costs were $12,000, and there was a $19,000 major addition to the asset?

Student Answer: $0

$12,000 loss

$7,000 gain

$24,000 loss

UNIT – 2

1. All of the following are part of the tax research process except: (Points : 1)

Establish the facts

Locate relevant authority

Identify the issues

Communicate the findings

All are part of the tax research process

2. CK Corporation can invest $100,000 in a project. After taxes, the project is expected to generate $40,000 of net income the first year and $75,000 of net income the second year. If the company uses a 10 percent discount rate to evaluate projects, what is the project’s net cash flow? (Points : 1)

$15,000

$1,690

($1,690)

($1,315)

3. Changing which of the following factors as indicated would decrease the after-tax net cash flow of a project: (Points : 1)

Delaying the years in which inflows occur

Delaying revenue recognition

Increasing the discount rate

All decrease cash flows

None decrease cash flows

4. What effect does an increased discount rate have on project evaluations? (Points : 1)

Increases net cash flow

Decreases net cash flow

Increases the probability that a project will be accepted

It has no effect on project evaluation

5. Which of the following does not deal with a CPA’s standard of conduct (Points : 1)

Treasury Circular 230

AICPA Code of Conduct

Internal Revenue Service Manual

Statement of Standards for Tax Services

6. Which of the following explain why it is important to determine the period in which income is recognized? (Points : 1)

Marginal tax rates may be different in different periods.

Tax laws may change

The time value of money

All of the above are explanations

a. and b. only are explanations

7. All of the following are allowable tax years except: (Points : 1)

The last Friday of July

December 31

The Sunday closest to March 1

August 31

8. All of the following are acceptable methods of accounting for revenue and expenses for tax purposes except: (Points : 1)

Cash method

Accrual method

Percentage-of-completion

Hybrid method

All are acceptable methods

9. Which of the following is an application of the wherewithal-to-pay concept? (Points : 1)

Percentage-of-completion

Hybrid method of accounting

Installment method

Accrual method of accounting

10. Windjammer Corporation, a cash-basis, calendar-year corporation sold $30,000 of merchandise to Jackpot Company in January, year 1. In November, Jackpot declared bankruptcy without paying Windjammer. In year 4, Jackpot had reorganized under a new owner and paid all its old debts including the $30,000 owed Windjammer. How does Windjammer treat these events? (Points : 1)

Recognize $30,000 revenue in year 1 only.

Recognize $30,000 revenue in year 4 only.

Deduct $30,000 as a bad debt in year 1.

Deduct $30,000 as a bad debt in year 1; recognize $30,000 income in year 4.

UNIT-3

1. Which of the following is included as part of APB 23?

(Points : 5)

A parent corporation can exclude a foreign subsidiary’s income if earnings will not be repatriated.

A parent corporation can exclude deferred taxes on foreign income if earnings will not be repatriated.

A parent must meet a more-likely-than not standard to determine the effect of a tax benefit.

A parent must disclose details relating to tax uncertainties of its subsidiaries.

2. If an expense is reported on the tax return before it is reported on the financial accounting books

(Points : 5)

the result is a deferred tax asset

the result is a deferred tax liability

there could be either a deferred tax asset or liability

there is no effect as this is not a timing difference

3. The more-likely-than-not standard (Points : 5)

is based on a more-than 50 percent probability.

applies only to contested liabilities

is used to determine if a deferred tax liability should be recognized.

is spelled out in APB 23.

4. Waldo bought two tickets for a Packers game on Ebay for $400. The tickets had a face value of $50 each. He took a client to the game and they had a dinner afterwards where they discussed business. The cost of the dinner was $70. What is Waldo’s deduction for these expenses? (Points : 5)

$470

$235

$170

$85

5. What is the purpose of a per diem allowance? (Points : 5)

Eliminate the substantiation requirement for business expenses.

Reduce the amount an employer must reimburse for employee business expenses.

Eliminate paper work for certain employee business expenses.

Reduce reimbursement disagreements between employer and employee.

6. Which of the following is a working condition fringe benefit? (Points : 5)

Flowers for an ill employee

A holiday cocktail party

A subscription to a professional journal

A bus pass

7. Howard is a cash-basis, calendar-year taxpayer. He works for Clyde Corporation, an accrual-basis, calendar-year corporation. Clyde authorizes a $10,000 bonus for Howard on December 20, year 1. It pays the bonus on March 31 of year 2. Which of the following is correct? (Points : 5)

Howard recognizes income in year 1 and Clyde takes a deduction in year 1.

Howard recognizes income in year 1 and Clyde takes a deduction in year 2.

Howard recognizes income in year 2 and Clyde takes a deduction in year 1.

Howard recognizes income in year 2 and Clyde takes a deduction in year 2.

Unit-4

1. The adjusted basis of an asset is: (Points : 5)

Its acquisition price only

Acquisition cost less cost recovery

Acquisition cost less selling price

Only the cash used to purchase the asset

2. Momee Corporation, a calendar-year corporation, bought only one asset in 2006, a crane it purchased for $700,000 on November 24. It disposed of the asset in April, 2011. What is its depreciation deduction for this asset in 2011 if cost recovery was determined using only regular MACRS?

(Points : 5)

$62,510

$61,110

$31,255

$22,916

3. Coley Corporation has an $800 net short-term capital loss and a $6,000 net long-term capital gain in the current year. It also has an $8,000 long-term capital loss carryover from the prior year. What is Coley’s capital loss carryover to the next year? (Points : 5)

$0

$2,000

$2,800

$8,800

4. Alpha Corporation had income from operations of $30,000. What is the corporation’s taxable income including the following property transactions: Gain on investment stock = $8,000; loss on machinery held three years = $6,000; $4,000 loss on equipment held 10 months; $4,000 gain on land used for six years for storage of trucks. (Points : 5)

$25,000

$27,000

$30,000

$32,000

5. All of the following are characteristics of percentage depletion except:

(Points : 5)

Depletion is determined using a statutory percentage times gross income.

Percentage depletion can exceed the property’s cost.

Depletion in excess of cost results in a negative basis for property.

Is an investment incentive provision.

6. Angel sells the following depreciable assets from her sole proprietorship:

Asset Cost Age Gain/Loss

Office furniture $10,0004 years ($2,400)

Truck $20,0005 years 3,100

Bakery equipment $25,0009 months (4,500)

What should Angel report on her income tax return relative to these property transactions? (Points : 5)

$3,800 capital loss

$3,100 Section 1245 recapture; $2,400 Section 1231 loss; $4,500 ordinary loss

$3,800 ordinary loss

$700 Section 1231 gain; $4,500 ordinary loss

None of the above

7. Jack did not depreciate one of his machines that cost $40,000 because he had net operating losses for the last two years. Which of the following statements is true?

(Points : 5)

Jack’s basis in the asset is $40,000 this year.

Jack can deduct three year’s depreciation in the current year.

Jack must file amended returns to claim the depreciation for prior years.

If Jack sells the machine for $20,000 this year, he has a $20,000 loss.

Unit-5

1. Trudi Corporation has a building that it needs to sell or exchange because of growth in its business. If Trudi sells the building, it will have a gain of $450,000. What is the amount of taxes that Trudi will avoid paying if it can exchange the building? The corporation has $1,000,000 of taxable income from operations for the current year. (Points : 1)

$90,000

$153,000

$175,500

$450,000

None of the above

2. In early 2011, Conrad Corporation discovered their bookkeeper had embezzled $30,000 over the last three years at a rate of approximately $10,000 per year. Conrad also suffered uninsured hurricane damage of $40,000 late in 2011 in a presidentially declared disaster area. If Conrad wants to deduct its losses at the earliest time possible, what are the amounts and year(s) of its loss deduction? (Points : 1)

2011 = $70,000

2010 = $30,000, 2010 = $40,000

2010 = $40,000, 2011 = $30,000

2009 = $10,000, 2010 = $10,000; 2011 = $50,000

None of the above

3. Sam’s land was condemned for a sewage treatment plant. He received $600,000 for the land that had a basis of $650,000. What is his realized and recognized gain or loss, respectively, on this involuntary conversion? (Points : 1)

($50,000), ($50,000)

($50,000), 0

$50,000, $50,000

0, 0

None of the above

4. Which of the following is not a characteristic of involuntary conversions? (Points : 1)

Gain only is deferred

The taxpayer can receive cash to invest in qualifying replacement property

The provision applies to both realty and personalty

All of these are characteristics

None of these are characteristics

5. The taxpayer-use test for qualifying replacement property (Points : 1)

applies only to personalty

requires replacement property used by the taxpayer to be used in the same business as the converted property

only requires leased realty to be replaced with other leased realty

Is more restrictive than the functional-use test

6. Which of the following would be an indication that corporate debt is disguised equity? (Points : 1)

Debt is issued to the shareholders in the same proportion as stock

The debt has a specified maturity date

The debt has a specified interest rate

Interest is paid annually

None of the above

7. A corporation that owns 72 percent of all the outstanding stock of another corporation: (Points : 1)

May not file a consolidate return

May file a consolidated return

May take a 100 percent dividend received deduction

May take a 70 percent dividend received deduction

Is the parent of the 72 percent-owned company

8. A clothing manufacturing corporation donates last year’s inventory to the Red Cross for use in its disaster relief efforts. The clothes have a fair market value of $200,000 and a basis to the corporation of $75,000. What is its charitable contribution deduction? (Points : 1)

$200,000

$150,000

$137,500

$75,000

9. A corporation has pre-tax book income of $324,000. In determining this income, the corporation included $2,000 of tax-exempt interest, $6,000 of dividends from an affiliated corporation, a capital loss of $50,000 and $3,000 of excess book depreciation. What is the corporation’s taxable income? (Points : 1)

$369,000

$328,000

$269,000

$263,000

10. The Willow Corporation reported $400,000 of taxable income. In making a conversion to book income, the accountant had to adjust for the following: a $25,000 Section 179 deduction, but book depreciation would have been $5,000; a fine of $12,500 for overweight trucks; and a net capital loss of $10,000. What is Willow Corporation’s book income? (Points : 1)

$422,500

$412,500

$402,500

$397,500

None of the above

UNIT-6

1. John has $120,000 of net income from his sole proprietorship in 2011. What is his deduction for AGI for self-employment taxes? (Points : 1)

$8,478

$9,180

$4,239

$0

2. James owns 60% of the James and Peter Partnership. The partnership reports $300,000 of construction revenue, $120,000 of construction expenses, and $80,000 of other expenses that include $4,000 of doctor expenses paid for James, and a $6,000 charitable contribution. What is the bottom line net income reported on Jame’s Schedule K-1? (Points : 1)

$100,000

$104,000

$106,000

$110,000

3. Mary has $30,000 of passive losses, $25,000 of passive gains, $27,000 of active income and $24,000 of active losses during the year. What is Mary’s current year net taxable income or loss? (Points : 1)

$2,000 loss

$0

$3,000 income

$5,000 income

4. Will and Grace are equal partners in Will and Grace Partnership. Grace is employed full-time and receives a guaranteed salary from the partnership of $60,000 annually. If there is profit remaining after that salary, Will receives an allowance of $5,000 for his excess partner capital balance. Any remainder is divided equally among Will and Grace. If the accounting income before either of these payments is $80,000, what is the amount of income or loss allocated to Grace? (Points : 1)

$60,000

$67,500

$12,500

$5,000

5. Which of the following is not a requirement to make an S election? (Points : 1)

Minimum of 2 shareholders

Maximum of 100 shareholders

One class of shareholders

d.It must be a domestic corporation

6. Karen has a $30,000 basis in her 40% ownership in an S Corporation and lent the corporation $10,000 last year. The corporation has other debt outstanding of $60,000 during the entire year. This year the S Corporation reported a $200,000 loss. How much of this loss may Karen deduct? (Points : 1)

$0

$80,000

$24,000

$40,000

7. Williams Company is a S Corporation owned equally by Smith and Weston. Williams had taxable income of $60,000 for the current taxable year. Smith and Weston received distribution during the tax year of $20,000 each. What is Smith’s taxable income from Williams Company for the current taxableyear? (Points : 1)

$0

$20,000

$30,000

d.$50,000

8. Joy purchased a 50% interest in an S corporation on April 1 of the current year and sells one-half of her interest on October 1. If the S corporation reported $40,000 of income for the year, what income does it report on Joy’s Schedule K-1? (Points : 1)

$20,000

$15,000

$12,548

$10,000

9. Samantha and Ashley form the MAS General Partnership. Samantha contributed $20,000 cash in exchange for her 50 percent partnership interest. During the first year of partnership operations, the partnership reported net taxable income of $10,000, Samantha withdrew $8,000 cash from the partnership, and the partnership took out an $18,000 loan on the last day of the year. Samantha’s adjusted basis for her partnership interest at year end is: (Points : 1)

$38,000

$30,000

$26,000

$25,000

$20,000

$17,000

10. Which of the following is not a characteristic of sole proprietorships? (Points : 1)

Owners pay self-employment taxes

Formation is always tax-free

Distributions of entity income are tax-free

Loss is recognized on liquidation

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