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Wiley CPA Exam Review Problems And Solutions Vol 2 2011-2012 38th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
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 ofa. Convertible debentures.b. Convertible preferred stock.c. Partnership interests.d. Rental real
Tom Gow owned a parcel of investment real estate that had an adjusted basis of $25,000 and a fair market value of$40,000. During 2011, Gow exchanged his investment real estate for the items of property listed below.Land to be held for investment (fair market value) $35,000 A small sailboat to be
On July 1, 2006, Lila Perl paid $90,000 for 450 shares of Janis Corp. common stock. Lila received a nontaxable stock dividend of 50 new common shares in August 2010.On December 20, 2010, Lila sold the 50 new shares for$11,000. How much should Lila report in her 2010 return as long-term capital
The holding period for the preferred stock starts ina. January 2011.b. March 2011.c. September 2011.d. December 2011.
After the distribution of the preferred stock, Joan’s bases for her Orban stocks are Common Preferreda. $300 $0b. $225 $ 75c. $200 $100d. $150 $150
Lois should treat the 1,000 shares of Elin stock as aa. Short-term Section 1231 asset.b. Long-term Section 1231 asset.c. Short-term capital asset.d. Long-term capital asset.Items 14 and 15 are based on the following data:In January 2011, Joan Hill bought one share of Orban Corp. stock for $300. On
Lois’ basis for gain or loss on sale of the 1,000 shares of Elin stock isa. $ 5,000b. $ 8,000c. $ 9,000d. $11,000
Fred Zorn died on June 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
On February 1, 2011, Ben Rork sold 500 shares of Kul Corp. stock. Rork had received this stock on May 1, 2010, as a bequest from the estate of his uncle, who died on December 1, 2009. Rork’s basis was determined by reference to the stock’s fair market value on December 1, 2009.Rork’s holding
If Laura sells the 500 shares of Liba stock in 2011 for$3,500, what is the reportable gain or loss in 2011?a. $3,500 gain.b. $ 500 gain.c. $ 500 loss.d. $0.
If Laura sells the 500 shares of Liba stock in 2011 for$2,000, her basis isa. $4,000b. $3,000c. $2,000d. $0
If Laura sells the 500 shares of Liba stock in 2011 for$5,000, her basis isa. $5,000b. $4,000c. $3,000d. $0
Ruth’s holding period of the stock for purposes of determining her lossa. Started in 2008.b. Started in 2010.c. Started in 2011.d. Is irrelevant because Ruth received the stock for no consideration of money or money’s worth.Items 7 through 9 are based on the following data:Laura’s father,
If Ruth sells the shares of stock in 2011 for $7,000, Ruth’s recognized loss would bea. $3,000b. $2,000c. $1,000d. $0
Julie received a parcel of land as a gift from her Aunt Agnes. At the time of the gift, the land had a fair market value of $83,000 and an adjusted basis of $23,000. This was the only gift that Julie received from Agnes during 2011. If Agnes paid a gift tax of $14,000 on the transfer of the gift to
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. $0b. $1,100c. $1,300d. $2,500
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 isa. $40,000b. $40,200c. $90,000d. $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: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
An accuracy-related penalty applies to the portion of tax underpayment attributable to I. Any substantial gift or estate tax valuation understatement II. Any substantial income tax valuation overstatement.a. I only.b. II only.c. Both I and II.d. Neither I nor II.
A taxpayer filed his income tax return after the due date but neglected to file an extension form. The return indicated a tax liability of $50,000 and taxes withheld of$45,000. On what amount would the penalties for late filing and late payment be computed?a. $0b. $ 5,000c. $45,000d. $50,000
Richard Baker filed his 2009 individual income tax return on April 15, 2010. On December 31, 2010, he learned that 100 shares of stock that he owned had become worthless in 2009. Since he did not deduct this loss on his 2009 return, Baker intends to file a claim for refund. This refund claim must
A married couple filed their joint 2009 calendar-year return on March 15, 2010, and attached a check for the balance of tax due as shown on the return. On June 15, 2011, the couple discovered that they had failed to include $2,000 of home mortgage interest in their itemized deductions. In order for
If an individual paid income tax in 2010 but did not file a 2010 return because his income was insufficient to require the filing of a return, the deadline for filing a refund claim isa. Two years from the date the tax was paid.b. Two years from the date a return would have been due.c. Three years
A claim for refund of erroneously paid income taxes, filed by an individual before the statute of limitations expires, must be submitted on Forma. 1139b. 1045c. 1040Xd. 843
If a taxpayer omits from his or her income tax return an amount that exceeds 25% of the gross income reported on the return, the Internal Revenue Service can issue a notice of deficiency within a maximum period ofa. Three years from the date the return was filed, if filed before the due date.b.
Harold Thompson, a self-employed individual, had income transactions for 2009 (duly reported on his return filed in April 2010) as follows:Gross receipts $400,000 Less cost of goods sold and deductions 320,000 Net business income $ 80,000 Capital gains 36,000 Gross income $116,000 In November 2010,
A calendar-year taxpayer files an individual tax return for 2010 on March 20, 2011. The taxpayer neither committed fraud nor omitted amounts in excess of 25% of gross income on the tax return. What is the latest date that the Internal Revenue Service can assess tax and assert a notice of
Jackson Corp., a calendar-year corporation, mailed its 2010 tax return to the Internal Revenue Service by certified mail on Friday, March 11, 2011. The return, postmarked March 11, 2011, was delivered to the Internal Revenue Service on March 17, 2011. The statute of limitations on Jackson’s
Ray Birch, age sixty, is single with no dependents.Birch’s only income is from his occupation as a selfemployed plumber. Birch must file a return for 2010 if his net earnings from self-employment are at leasta. $ 400b. $ 950c. $3,650d. $5,700
John Smith is the executor of his father’s estate. His father, a calendar-year taxpayer, died on July 15, 2010. As executor of his father’s estate, John is required to file a final income tax return Form 1040 for his father’s 2010 tax year.What is the due date of his father’s 2010 federal
Krete, an unmarried taxpayer, had income exclusively from wages. By December 31, 2010, Krete’s employer had withheld $16,000 in federal income taxes and Krete had made no estimated tax payments. On April 15, 2011, Krete timely filed an extension request to file her individual tax return and paid
Chris Baker’s adjusted gross income on her 2010 tax return was $160,000. The amount covered a twelve-month period. For the 2011 tax year, Baker may avoid the penalty for the underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of I. 90% of the tax on
Which one of the following statements concerning the lifetime learning credit is not correct?a. The credit is 20% of the first $10,000 of qualified tuition and related expenses for 2010.b. Qualifying expenses include the cost of tuition for graduate courses at an eligible educational institution.c.
Which one of the following statements concerning the 2010 Hope scholarship credit is not correct?a. The credit is available for the first four years of postsecondary education program.b. The credit is available on a per student basis.c. To be eligible for the credit, the student must be enrolled
Which one of the following statements is not correct with regard to the child tax credit?a. The credit is $1,000 per qualifying child for tax years beginning in 2010.b. The amount of credit is reduced if modified adjusted gross income exceeds certain thresholds.c. To qualify for the credit, a
Which one of the following statements is correct regarding the credit for adoption expenses?a. The credit for adoption expenses is a refundable credit.b. The maximum credit is $5,000 for the adoption of a child with special needs.c. Qualified adoption expenses are taken into account in the year
Which of the following tax credits cannot be claimed by a corporation?a. Foreign tax credit.b. Earned income credit.c. Alternative fuel production credit.d. General business 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
Kent qualified for the earned income credit in 2010.This credit could result in aa. 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
Which of the following credits can result in a refund even if the individual had no income tax liability?a. Lifetime learning credit.b. Credit for the elderly or the disabled.c. Earned income credit.d. Child and dependent care credit.
Foreign income taxes paid by a corporationa. 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.
The following information pertains to Wald Corp.’s operations for the year ended December 31, 2010:Worldwide taxable income $300,000 US source taxable income 180,000 US income tax before foreign tax credit 96,000 Foreign nonbusiness-related interest earned 30,000 Foreign income taxes paid on
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
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 incurreda. Yes Yesb. No Noc. Yes Nod. No Yes
Robert and Mary Jason, filing a joint tax return for 2010, had a tax liability of $9,000 based on their tax table income and three exemptions. Robert and Mary had earned income of $30,000 and $22,000, respectively, during 2010.In order for Mary to be gainfully employed, the Jasons incurred the
Nora Hayes, a widow, maintains a home for herself and her two dependent preschool children. In 2010, Nora’s earned income and adjusted gross income was $44,000.During 2010, Nora paid work-related expenses of $6,000 for a housekeeper to care for her children. How much can Nora claim for child care
Melvin Crane is sixty-six years old, and his wife, Matilda, is sixty-five. They filed a joint income tax return for 2010, 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 2010. How much can they claim on Form 1040
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.
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.
Smith, a retired corporate executive, earned consulting fees of $8,000 and director’s fees of $2,000 in 2010.Smith’s gross income from self-employment for 2010 isa. $0b. $ 2,000c. $ 8,000d. $10,000 MODULE 35 INDIVIDUAL TAXATION 881
Alex Berger, a retired building contractor, earned the following income during 2010:Director’s fee received from Keith Realty Corp. $ 600 Executor’s fee received from the estate of his deceased sister 7,000 Berger’s gross income from self-employment for 2010 isa. $0b. $ 600c. $7,000d. $7,600
An employee who has had social security tax withheld in an amount greater than the maximum for a particular year, may claima. Such excess as either a credit or an itemized deduction, at the election of the employee, if that excess resulted from correct withholding by two or more employers.b.
The self-employment tax isa. Fully deductible as an itemized deduction.b. Fully deductible in determining net income from self-employment.c. One-half deductible from gross income in arriving at adjusted gross income.d. Not deductible.
Rich is a cash-basis self-employed air-conditioning repairman with 2010 gross business receipts of $20,000.Rich’s cash disbursements were as follows:Air conditioning parts $2,500 Yellow Pages listing 2,000 Estimated federal income taxes on self-employment income 1,000 Business long-distance
Freeman, a single individual, reported the following income in the current year:Guaranteed payment from services rendered to a partnership $50,000 Ordinary income from an S corporation 20,000 What amount of Freeman’s income is subject to selfemployment tax?a. $0b. $20,000c. $50,000d. $70,000
The following information pertains to Joe Diamond, a cash-method sole proprietor for 2010:Gross receipts from business $150,000 Interest income from personal investments 10,000 Cost of goods sold 80,000 Other business operating expenses 40,000 What amount of net earnings from self-employment would
The alternative minimum tax (AMT) is computed as thea. Excess of the regular tax over the tentative AMT.b. Excess of the tentative AMT over the regular tax.c. The tentative AMT plus the regular tax.d. Lesser of the tentative AMT or the regular tax.
The credit for prior year alternative minimum tax liability may be carrieda. Forward for a maximum of five years.b. Back to the three preceding years or carried forward for a maximum of five years.c. Back to the three preceding years.d. Forward indefinitely.
An individual’s alternative minimum tax adjustments include Net long-term capital gain in excess of net shortterm capital loss Home equity interest expense where loan proceeds not used to buy, build, or improve homea. Yes Yesb. Yes Noc. No Yesd. No No
In 2010, Don Mills, a single taxpayer, had $70,000 in taxable income before personal exemptions. Mills had no tax preferences. His itemized deductions were as follows:State and local income taxes $5,000 Home mortgage interest on loan to acquire residence 6,000 Miscellaneous deductions that exceed
In 2009, Karen Miller had an alternative minimum tax liability of $20,000. This was the first year that she paid an alternative minimum tax. When she recomputed her 2009 alternative minimum tax using only exclusion preferences and adjustments, her alternative minimum tax was $9,000.For 2010, Karen
Randy Lowe reported the following items in computing his regular federal income tax for 2010:Personal exemption $3,650 Itemized deduction for state taxes 1,500 Cash charitable contributions 1,250 Net long-term capital gain 700 Tax-exempt interest from private activity bonds issued in 2008 1,000
Which of the following itemized deductions are deductible when computing the alternative minimum tax for individuals?a. State income taxes.b. Home equity mortgage interest when the loan proceeds were used to purchase an auto.c. Unreimbursed employee expenses in excess of 2%of adjusted gross
Poole, forty-five years old and unmarried, is in the 15% tax bracket. He had 2010 adjusted gross income of$20,000. The following information applies to Poole:Medical expenses $7,500 Standard deduction 5,700 Personal exemption 3,650 Poole wishes to minimize his income tax. What is Poole’s 2010
Mrs. Irma Felton, by herself, maintains her home in which she and her unmarried twenty-six-year-old son reside.Her son, however, does not qualify as her dependent. Mrs.Felton’s husband died in 2009. What is Mrs. Felton’s filing status for 2010?a. Single.b. Qualifying widow with dependent
Nell Brown’s husband died in 2007. Nell did not remarry, and continued to maintain a home for herself and her dependent infant child during 2008, 2009, and 2010, providing full support for herself and her child during these three years. For 2007, Nell properly filed a joint return. For 2010,
Emil Gow’s wife died in 2008. Emil did not remarry, and he continued to maintain a home for himself and his dependent infant child during 2009 and 2010, providing full support for himself and his child during these years. For 2008, Emil properly filed a joint return. For 2010, Emil’s filing
A husband and wife can file a joint return even ifa. The spouses have different tax years, provided that both spouses are alive at the end of the year.b. The spouses have different accounting methods.c. Either spouse was a nonresident alien at any time during the tax year, provided that at least
For head of household filing status, which of the following costs are considered in determining whether the taxpayer has contributed more than one-half the cost of maintaining the household?Insurance on the home Rental value of homea. Yes Yesb. No Noc. Yes Nod. No Yes
Which of the following is(are) among the requirements to enable a taxpayer to be classified as a “qualifying widow(er)”?I. A dependent has lived with the taxpayer for six months.II. The taxpayer has maintained the cost of the principal residence for six months.a. I only.b. II only.c. Both I and
Mr. and Mrs. Vonce, both age sixty-two, filed a joint return for 2010. They provided all the support for their daughter, who is nineteen, legally blind, and who has no income. Their son, age twenty-one and a full-time student at a university, had $6,200 of income and provided 70% of his own support
Sara Hance, who is single and lives alone in Idaho, has no income of her own and is supported in full by the following persons:Amount of support Percent of total Alma (an unrelated friend) $2,400 48 Ben (Sara’s brother) 2,150 43 Carl (Sara’s son) 450 9$5,000 100 MODULE 35 INDIVIDUAL TAXATION
In 2010, Alan Kott provided more than half the support for his following relatives, none of whom qualified as a member of Alan’s household:Cousin Niece Foster parent None of these relatives had any income, nor did any of these relatives file an individual or joint return. All of these relatives
In 2010, Sam Dunn provided more than half the support for his wife, his father’s brother, and his cousin. Sam’s wife was the only relative who was a member of Sam’s household. None of the relatives had any income, nor did any of them file an individual or a joint return. All of these
Jim Planter, who reached age sixty-five on January 1, 2010, filed a joint return for 2010 with his wife Rita, age fifty. Mary, their twenty-one-year-old daughter, was a fulltime student at a college until her graduation on June 2, 2010. The daughter had $6,500 of income and provided 25% of her own
Albert and Lois Stoner, age sixty-six and sixty-four, respectively, filed a joint tax return for 2010. They provided all of the support for their blind nineteen-year-old son, who has no gross income. Their twenty-three-year-old daughter, a full-time student until her graduation on June 14, 2010,
John and Mary Arnold are a childless married couple who lived apart (alone in homes maintained by each) the entire year 2010. On December 31, 2010, they were legally separated under a decree of separate maintenance. Which of the following is the only filing status choice available to them when
During 2010 Robert Moore, who is fifty years old and unmarried, maintained his home in which he and his widower father, age seventy-five, resided. His father had$4,700 interest income from a savings account and also received$2,400 from social security during 2010. Robert provided 60% of his
Al and Mary Lew are married and filed a joint 2010 income tax return in which they validly claimed the $3,650 personal exemption for their dependent seventeen-year-old daughter, Doris. Since Doris earned $5,400 in 2010 from a part-time job at the college she attended full-time, Doris was also
Joe and Barb are married, but Barb refuses to sign a 2010 joint return. On Joe’s separate 2010 return, an exemption may be claimed for Barb ifa. Barb was a full-time student for the entire 2010 school year.b. Barb attaches a written statement to Joe’s income tax return, agreeing to be claimed
Jim and Kay Ross contributed to the support of their two children, Dale and Kim, and Jim’s widowed parent, Grant. For 2010, Dale, a twenty-year-old full-time college student, earned $4,500 from a part-time job. Kim, a twentythree-year-old bank teller, earned $18,000. Grant received$5,000 in
In 2010, Smith, a divorced person, provided over onehalf the support for his widowed mother, Ruth, and his son, Clay, both of whom are US citizens. During 2010, Ruth did not live with Smith. She received $9,000 in social security benefits. Clay, a full-time graduate student, and his wife lived with
Which one of the following is not included in determining the total support of a dependent?a. Fair rental value of dependent’s lodging.b. Medical insurance premiums paid on behalf of the dependent.c. Birthday presents given to the dependent.d. Nontaxable scholarship received by the dependent.
For 2009, Dole’s adjusted gross income exceeds$500,000. After the application of any other limitation, itemized deductions are reduced bya. The lesser of 3% of the excess of adjusted gross income over the applicable amount or 80% of certain itemized deductions.b. The lesser of 3% of the excess of
Which items are not subject to the phaseout of the amount of certain itemized deductions that may be claimed by high-income individuals for 2009?a. Qualified residence interest.b. Charitable contributions.c. Investment interest expenses.d. Real estate taxes.
Harold Brodsky is an electrician employed by a contracting firm. His adjusted gross income is $25,000. During the current year he incurred and paid the following expenses:Use of personal auto for company business (reimbursed under an accountable plan by employer for $200) $300 Specialized work
Magda Micale, a public school teacher with adjusted gross income of $10,000, paid the following items in 2010 for which she received no reimbursement:Initiation fee for membership in teachers’ union $100 Dues to teachers’ union 180 Voluntary unemployment benefit fund contributions to
Joel Rich is an outside salesman, deriving his income solely from commissions, and personally bearing all expenses without reimbursement of any kind. During 2010, Joel paid the following expenses pertaining directly to his activities as an outside salesman:Travel $10,000 Secretarial 7,000 Telephone
Hall, a divorced person and custodian of her twelveyear-old child, submitted the following information to the CPA who prepared her 2010 return:During 2010, Hall spent a total of $1,000 for state lottery tickets. Her lottery winnings in 2010 totaled $200.Hall’s lottery transactions should be
Hall, a divorced person and custodian of her twelveyear-old child, submitted the following information to the CPA who prepared her 2010 return:The divorce agreement, executed in 2007, provides for Hall to receive $3,000 per month, of which $600 is designated as child support. After the child
Which of the following is not a miscellaneous itemized deduction?a. Legal fee for tax advice related to a divorce.b. IRA trustee’s fees that are separately billed and paid.MODULE 35 INDIVIDUAL TAXATION 877c. Appraisal fee for a charitable contribution.d. Check-writing fees for a personal checking
The appraisal fee to determine the amount of the Hoyts’ fire loss wasa. Deductible from gross income in arriving at adjusted gross income.b. Subject to the 2% of adjusted gross income floor for miscellaneous itemized deductions.c. Deductible after reducing the amount by $100.d. Not deductible.
What amount of fire loss were the Hoyts entitled to deduct as an itemized deduction on their 2010 return?a. $5,000b. $2,500c. $1,600d. $1,500
Hall, a divorced person and custodian of her twelveyear-old child, filed her 2010 federal income tax return as head of a household. During 2010 Hall paid a $490 casualty insurance premium on her personal residence. Hall does not rent out any portion of the home, nor use it for business.The casualty
Alex and Myra Burg, married and filing joint income tax returns, derive their entire income from the operation of their retail candy shop. Their 2010 adjusted gross income was $50,000. The Burgs itemized their deductions on Schedule A for 2010. The following unreimbursed cash expenditures were
In 2010, Joan Frazer’s residence was totally destroyed by fire. The property had an adjusted basis and a fair market value of $130,000 before the fire. During 2010, Frazer received insurance reimbursement of $120,000 for the destruction of her home. Frazer’s 2010 adjusted gross income was
Taylor, an unmarried taxpayer, had $90,000 in adjusted gross income for 2010. During 2010, Taylor donated land to a church and made no other contributions. Taylor purchased the land in 1997 as an investment for $14,000.The land’s fair market value was $25,000 on the day of the donation. What is
Jimet, an unmarried taxpayer, qualified to itemize 2010 deductions. Jimet’s 2010 adjusted gross income was$30,000 and he made a $2,000 cash donation directly to a needy family. In 2010, Jimet also donated stock, valued at$3,000, to his church. Jimet had purchased the stock four months earlier for
During 2010, Vincent Tally gave to the municipal art museum title to his private collection of rare books that was assessed and valued at $60,000. However, he reserved the right to the collection’s use and possession during his lifetime.For 2010, he reported an adjusted gross income of$100,000.
Under a written agreement between Mrs. Norma Lowe and an approved religious exempt organization, a ten-yearold girl from Vietnam came to live in Mrs. Lowe’s home on August 1, 2010, in order to be able to start school in the US on September 3, 2010. Mrs. Lowe actually spent $500 for food,
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