1. A characteristic of FICA is that

A it is imposed only on the employer. B it applies when one spouse works for the other spouse. C it provides a modest source of income in the event of loss of employment. D it is administered by both state and federal governments. E None of the above

2. Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?

A Nonrecognition of gain allowed for involuntary conversions B Net operating loss carryback and carryover provisions C Carryover of excess charitable contributions D Use of the installment method to recognize gain E Carryover of excess capital losses

3. Detroit Corporation sued Chicago Corporation for intentional damage to Detroit's goodwill. Detroit had created its goodwill through providing high-quality services to its customers. Thus, no basis for the goodwill appeared on Detroit's balance sheet. The suit was settled and Detroit received $1,000,000 for the damages to its goodwill. Is the $1,000,000 taxable?

A The $1,000,000 is taxable because Detroit has no basis in the goodwill. B The $1,000,000 is not taxable because Detroit did nothing to earn the money. C The $1,000,000 is taxable because it represents a recovery of capital. D The $1,000,000 is not taxable because Detroit settled the case. E None of the above

4. With respect to income from services, which of the following is true?

A The income is always amortized over the period in which the services will be rendered by an accrual basis taxpayer. B A cash basis taxpayer can spread the income from a 12-month service contract over the contract period. C If an accrual basis taxpayer sells a 24-month service contract on July 1, 2010, for $2,400, the taxpayer's 2011 gross income from the contract is $1,800. D If the accrual basis taxpayer sells a 12-month service contract on July 1, 2010, all of the income is recognized in 2011. E None of the above

5. George, an unmarried cash basis taxpayer, received the following amounts during 2011:

Interest on savings accounts	$2,400
Original issue discount on a certificate of deposit purchased on July 1, 2010, and matured on June 30, 2011	$1,200
Dividends on USG common stock	$200
Interest on U.S. government bonds	$300
Interest on City of Radford school bonds	$600

What amount should George report as gross income from dividends and interest for 2011?

A $4,700

B $4,100

C $3,800 D $3,600 E None of the above

6. Payments by a cash basis taxpayer of capital expenditures

A must be expensed at the time of payment. B must be expensed by the end of the first year after the asset is acquired. C must be deducted over the actual or statutory life of the asset. D can be deducted in the year the taxpayer chooses. E None of the above

7. Melvin is engaged in an illegal drug-running operation. Which of the following expenses will reduce Melvin's taxable income?

A Rent B Bribes paid to border guards C Cost of goods sold D Interest on business indebtedness E None of the above

8. In the current year, Plum Corporation, a computer manufacturer, donated 100 laptop computers to a local school district (a qualified educational organization). The computers were constructed by Plum earlier this year, and the school district allocated the computers among its various schools where they will be used for educational purposes. Plum's basis in the computers is $70,000, and their fair market value is $250,000. What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation)?

A $70,000 B $140,000 C $160,000 D $250,000 E None of the above

9. Bruce, who is single, had the following items for the current year: