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Wiley CPA Exam Review Regulation 2012 9th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
Dunn and Shaw are partners who share profits and losses equally.In the computation of the partnership’s 2010 book income of$100,000, guaranteed payments to partners totaling $60,000 and charitable contributions totaling $1,000 were treated as expenses.What amount should be reported as ordinary
Which of the following limitations will apply in determining a partner’s deduction for that partner’s share of partnership losses?At-risk Passive lossa. Yes Nob. No Yesc. Yes Yesd. No No
In computing the ordinary income of a partnership, a deduction is allowed fora. Contributions to recognized charities.b. The first $100 of dividends received from qualifying domestic corporations.c. Short-term capital losses.d. Guaranteed payments to partners.
Thompson’s basis in Starlight Partnership was $60,000 at the beginning of the year. Thompson materially participates in the partnership’s business. Thompson received $20,000 in cash distributions during the year. Thompson’s share of Starlight’s current operations was a $65,000 ordinary loss
Basic Partnership, a cash-basis calendar-year entity, began business on February 1, 2011. Basic incurred and paid the following during 2011:Filing fees incident to the creation of the partnership $ 3,600 Accounting fees to prepare the representations in offering materials 12,000 If Basic wishes to
On September 1, 2011, James Elton received a 25% capital interest in Bredbo Associates, a partnership, in return for services rendered plus a contribution of assets with a basis to Elton of$25,000 and a fair market value of $40,000. The fair market value of Elton’s 25% interest was $50,000. How
The holding period of property acquired by a partnership as a contribution to the contributing partner’s capital accounta. Begins with the date of contribution to the partnership.b. Includes the period during which the property was held by the contributing partner.c. Is equal to the contributing
The following information pertains to Carr’s admission to the Smith & Jones partnership on July 1, 2011:Carr’s contribution of capital: 800 shares of Ed Corp. stock bought in 1998 for $30,000; fair market value $150,000 on July 1, 2011.Carr’s interest in capital and profits of Smith & Jones:
The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the datea. The partner is admitted to the partnership.b. The partner transfers the asset to the partnership.c. The partner’s holding period of the capital asset began.d. The partner is
The following information pertains to property contributed by Gray on July 1, 2011, for a 40% interest in the capital and profits of Kag & Gray, a partnership:As of June 30, 2011 Adjusted basis Fair market value$24,000 $30,000 After Gray’s contribution, Kag & Gray’s capital totaled
Ola Associates is a limited partnership engaged in real estate development. Hoff, a civil engineer, billed Ola $40,000 in 2011 for consulting services rendered. In full settlement of this invoice, Hoff accepted a $15,000 cash payment plus the following:Fair market value Carrying amount on Ola’s
On June 1, 2011, Kelly received a 10% interest in Rock Co., a partnership, for services contributed to the partnership. Rock’s net assets at that date had a basis of $70,000 and a fair market value of$100,000. In Kelly’s 2011 income tax return, what amount must Kelly include as income from
At partnership inception, Black acquires a 50% interest in Decorators Partnership by contributing property with an adjusted basis of $250,000. Black recognizes a gain if I. The fair market value of the contributed property exceeds its adjusted basis.II. The property is encumbered by a mortgage with
David Price owned machinery which he had acquired in 2010 at a cost of $100,000. During 2011, the machinery was destroyed by fire. At that time it had an adjusted basis of $86,000. The insurance proceeds awarded to Price amounted to $125,000, and he immediately acquired a similar machine for
For the year ended December 31, 2010, McEwing Corporation, a calendar-year corporation, reported book income before income taxes of $120,000. Included in the determination of this amount were the following gain and losses from property that had been held for more than one year:Loss on sale of
Thayer Corporation purchased an apartment building on January 1, 2007, for $200,000. The building was depreciated using the straight-line method. On December 31, 2010, the building was sold for $220,000, when the asset balance net of accumulated depreciation was $170,000. On its 2010 tax return,
On January 2, 2009, Bates Corp. purchased and placed into service seven-year MACRS tangible property costing $100,000. On July 31, 2011, Bates sold the property for $102,000, after having taken $47,525 in MACRS depreciation deductions. What amount of the gain should Bates recapture as ordinary
Tally Corporation sold machinery that had been used in its business for a loss of $22,000 during 2011. The machinery had been purchased and placed in service sixteen months earlier. For 2011, the$22,000 loss will be treated as aa. Capital loss.b. Sec. 1245 loss.c. Sec. 1231 loss.d. Casualty loss
Vermont Corporation distributed packaging equipment that it no longer needed to Michael Jason who owns 20% of Vermont’s stock.The equipment, which was acquired in 2007, had an adjusted basis of $2,000 and a fair market value of $9,000 at the date of distribution. Vermont had properly deducted
Which one of the following would not be Sec. 1231 property even though held for more than twelve months?a. Business inventory.b. Unimproved land used for business.c. Depreciable equipment used in a business.d. Depreciable real property used in a business.
Evon Corporation, which was formed in 2008, had $50,000 of net Sec. 1231 gain for its 2011 calendar year. Its net Sec. 1231 gains and losses for its three preceding tax years were as follows:Year Sec. 1231 results 2008 Gain of $10,000 2009 Loss of $15,000 2010 Loss of $20,000 As a result, Evon
An individual’s losses on transactions entered into for personal purposes are deductible only ifa. The losses qualify as casualty or theft losses.b. The losses can be characterized as hobby losses.c. The losses do not exceed $3,000 ($6,000 on a joint return).d. No part of the transactions was
In June 2011, Olive Bell bought a house for use partially as a residence and partially for operation of a retail gift shop. In addition, Olive bought the following furniture:Kitchen set and living room pieces for the residential portion $ 8,000 Showcases and tables for the business portion 12,000
Don Mott was the sole proprietor of a high-volume drug store which he owned for fifteen years before he sold it to Dale Drug Stores, Inc. in 2011. Besides the $900,000 selling price for the store’s tangible assets and goodwill, Mott received a lump sum of $30,000 in 2011 for his agreement not to
Which of the following is a capital asset?a. Delivery truck.b. Personal-use recreation equipment.c. Land used as a parking lot for customers.d. Treasury stock, at cost.
In 2007, Iris King bought a diamond necklace for her own use, at a cost of $10,000. In 2011, when the fair market value was $12,000, Iris gave this necklace to her daughter, Ruth. No gift tax was due.This diamond necklace is aa. Capital asset.b. Section 1231 asset.c. Section 1245 asset.d. Section
Platt owns land that is operated as a parking lot. A shed was erected on the lot for the related transactions with customers. With regard to capital assets and Section 1231 assets, how should these assets be classified?Land Sheda. Capital Capitalb. Section 1231 Capitalc. Capital Section 1231d.
In 2011, a capital loss incurred by a married couple filing a joint returna. Will be allowed only to the extent of capital gains.b. Will be allowed to the extent of capital gains, plus up to $3,000 of ordinary income.c. Will be allowed to the extent of capital gains, plus up to $6,000 of ordinary
In 2011, Ruth Lee sold a painting for $25,000 that she had bought for her personal use in 2005 at a cost of $10,000. In her 2011 return, Lee should treat the sale of the painting as a transaction resulting ina. Ordinary income.b. Long-term capital gain.c. Section 1231 gain.d. No taxable gain.
Joe Hall owns a limousine for use in his personal service business of transporting passengers to airports. The limousine’s adjusted basis is $40,000. In addition, Hall owns his personal residence and furnishings, that together cost him $280,000. Hall’s capital assets amount toa. $320,000b.
Capital assets includea. A corporation’s accounts receivable from the sale of its inventory.b. Seven-year MACRS property used in a corporation’s trade or business.c. A manufacturing company’s investment in US Treasury bonds.d. A corporate real estate developer’s unimproved land that is to
Paul Beyer, who is unmarried, has taxable income of $30,000 exclusive of capital gains and losses and his personal exemption. In 2011, Paul incurred a $1,000 net short-term capital loss and a $5,000 net long-term capital loss. His capital loss carryover to 2012 isa. $0b. $1,000c. $3,000d. $5,000
On July 1, 2011, Kim Wald sold an antique for $12,000 that she had bought for her personal use in 2009 at a cost of $15,000. In her 2011 return, Kim should treat the sale of the antique as a transaction resulting ina. A nondeductible loss.b. Ordinary loss.c. Short-term capital loss.d. Long-term
For assets acquired in 2011, the holding period for determining long-term capital gains and losses is more thana. 18 months.b. 12 months.c. 9 months.d. 6 months.
In 2010, Nam Corp., which is not a dealer in securities, realized taxable income of $160,000 from its business operations. Also, in 2010, Nam sustained a long-term capital loss of $24,000 from the sale of marketable securities. Nam did not realize any other capital gains or losses since it began
For the year ended December 31, 2010, Sol Corp. had an operating income of $20,000. In addition, Sol had capital gains and losses resulting in a net short-term capital gain of $2,000 and a net long-term capital loss of $7,000. How much of the excess of net long-term capital loss over net short-term
Lee qualified as head of a household for 2011 tax purposes. Lee’s 2011 taxable income was $100,000, exclusive of capital gains and losses. Lee had a net long-term capital loss of $8,000 in 2011. What amount of this capital loss can Lee offset against 2011 ordinary income?a. $0b. $3,000c. $4,000d.
For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on thea. Trade date.b. Settlement date.c. Date of receipt of cash proceeds.d. Date of delivery of stock certificate.
Al Eng owns 50% of the outstanding stock of Rego Corp. During 2011, Rego sold a trailer to Eng for $10,000, the trailer’s fair value.The trailer had an adjusted tax basis of $12,000, and had been owned by Rego and used in its business for three years. In its 2011 income tax return, what is the
On May 1, 2011, Daniel Wright owned stock (held for investment) purchased two years earlier at a cost of $10,000 and having a fair market value of $7,000. On this date he sold the stock to his son, William, for $7,000. William sold the stock for $6,000 to an unrelated person on July 1, 2011. How
Among which of the following related parties are losses from sales and exchanges not recognized for tax purposes?a. Mother-in-law and daughter-in-law.b. Uncle and nephew.c. Brother and sister.d. Ancestors, lineal descendants, and all in-laws.
In 2011, Fay sold 100 shares of Gym Co. stock to her son, Martin, for $11,000. Fay had paid $15,000 for the stock in 2007.Subsequently in 2011, Martin sold the stock to an unrelated third party for $16,000. What amount of gain from the sale of the stock to the third party should Martin report on
What was Alice’s recognized gain or loss on her sale?a. $0.b. $5,000 long-term gain.c. $5,000 short-term loss.d. $5,000 long-term loss.
What amount of the loss from the sale of Zinco stock can Conner deduct in 2011?a. $0b. $ 3,000c. $ 5,000d. $10,000
If an individual incurs a loss on a nonbusiness deposit as the result of the insolvency of a bank, credit union, or other financial institution, the individual’s loss on the nonbusiness deposit may be deducted in any one of the following ways except:a. Miscellaneous itemized deduction.b. Casualty
Murd Corporation, a domestic corporation, acquired a 90%interest in the Drum Company in 2007 for $30,000. During 2011, the stock of Drum was declared worthless. What type and amount of deduction should Murd take for 2011?a. Long-term capital loss of $1,000.b. Long-term capital loss of $15,000.c.
On March 10, 2011, James Rogers sold 300 shares of Red Company common stock for $4,200. Rogers acquired the stock in 2008 at a cost of $5,000.On April 4, 2011, he repurchased 300 shares of Red Company common stock for $3,600 and held them until July 18, 2011, when he sold them for $6,000.How should
Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, 2010, and an additional 100 shares for $13,000 on December 30, 2010. On January 3, 2011, Smith sold the shares purchased on December 15, 2010, for $13,000. What amount of loss from
Miller, an individual calendar-year taxpayer, purchased 100 shares of Maples Inc. common stock for $10,000 on July 10, 2010, and an additional fifty shares of Maples Inc. common stock for$4,000 on December 24, 2010. On January 8, 2011, Miller sold the 100 shares purchased on July 10, 2010, for
Ryan, age fifty-seven, is single with no dependents. In January 2011, Ryan’s principal residence was sold for the net amount of$400,000 after all selling expenses. Ryan bought the house in 1998 and occupied it until sold. On the date of sale, the house had a basis of $180,000. Ryan does not
The following information pertains to the sale of Al and Beth Oran’s principal residence:Date of sale February 2011 Date of purchase October 1994 Net sales price $760,000 Adjusted basis $170,000 Al and Beth owned their home jointly and had occupied it as their principal residence since acquiring
In March 2011, Davis, who is single, purchased a new residence for $200,000. During that same month he sold his former residence for $380,000 and paid the realtor a $20,000 commission. The former residence, his first home, had cost $65,000 in 1992. Davis added a bathroom for $5,000 in 2007. What
An office building owned by Elmer Bass was condemned by the state on January 2, 2010. Bass received the condemnation award on March 1, 2011. In order to qualify for nonrecognition of gain on this involuntary conversion, what is the last date for Bass to acquire qualified replacement property?a.
The following information pertains to the acquisition of a sixwheel truck by Sol Barr, a self-employed contractor:Cost of original truck traded in $20,000 Book value of original truck at trade-in date 4,000 List price of new truck 25,000 Trade-in allowance for old truck 6,000 Business use of both
On October 1, 2011, Donald Anderson exchanged an apartment building having an adjusted basis of $375,000 and subject to a mortgage of $100,000 for $25,000 cash and another apartment building with a fair market value of $550,000 and subject to a mortgage of $125,000. The property transfers were made
On July 1, 2011, Riley exchanged investment real property, with an adjusted basis of $160,000 and subject to a mortgage of $70,000, and received from Wilson $30,000 cash and other investment real property having a fair market value of $250,000. Wilson assumed the mortgage. What is Riley’s
Pat Leif owned an apartment house that he bought in 1998.Depreciation was taken on a straight-line basis. In 2011, when Pat’s adjusted basis for this property was $200,000, he traded it for an office building having a fair market value of $600,000. The apartment house has 100 dwelling units,
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 2011. On December 20, 2011, Lila sold the 50 new shares for $11,000. How much should Lila report in her 2011 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.
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, 2010, bequeathing his entire$6,000,000 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 June 1, 2011, Ben Rork sold 500 shares of Kul Corp. stock.Rork had received this stock on May 1, 2011, as a bequest from the estate of his uncle, who died on February 1, 2011. Rork’s basis was determined by reference to the stock’s fair market value on February 1, 2011. 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.A.1.d. Acquired from Decedent
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.
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 A.1.c. Acquired by Gift
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 2010 (duly reported on his return filed in April 2011)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 2011,
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 self-employed plumber. Birch must file a return for 2011 if his net earnings from self-employment are at leasta. $ 400b. $ 950c. $3,650d. $5,700 VIII.B. Assessments
John Smith is the executor of his father’s estate. His father, a calendar-year taxpayer, died on July 15, 2011. As executor of his father’s estate, John is required to file a final income tax return Form 1040 for his father’s 2011 tax year. What is the due date of his father’s 2011 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 2011.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 2011 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 2011.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.VI.O. Credit for Adoption Expenses
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.VI.N. Earned Income 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
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