1. In year 1, Diamond Construction Company contracts to build an apartment building. The contract will take two years to complete. The contract price is $1,000,000 and Diamond estimates total costs of $800,000. Actual costs are: $600,000 in year 1 and $250,000 in year 2. If Diamond uses the percentage of completion method to account for this long-term contract, what are Diamond?s gross income and deductions for year 1?

1. Gross income: $0 Deductions: $0
2. Gross income: $1,000,000 Deductions: $800,000
3. Gross income: $750,000 Deductions: $600,000
4. Gross income: $750,000 Deductions: $637,500

ACCT 530 - Business Taxation Exam 1 In-class - Version A Spring 2017 Name: Part 1: Multiple Choice 2 Points Each 1. In year 1, Diamond Construction Company contracts to build an apartment building. The contract will take two years to complete. The contract price is $1,000,000 and Diamond estimates total costs of $800,000. Actual costs are: $600,000 in year 1 and $250,000 in year 2. If Diamond uses the percentage of completion method to account for this long-term contract, what are Diamond's gross income and deductions for year 1? a. b. c. d. Gross Gross Gross Gross income: income: income: income: $0 Deductions: $0 $1,000,000 Deductions: $800,000 $750,000 Deductions: $600,000 $750,000 Deductions: $637,500 2. Amanda is a cash basis, calendar year taxpayer that works for Speedy Corporation, an accrual basis, calendar year C Corporation. Speedy's president and sole owner is Martha (also a cash basis taxpayer). In December of year 1, Speedy accrued a $5,000 bonus to Amanda and $20,000 bonus to Martha. Martha's bonus was paid January 31, year 2 and Amanda's bonus was paid March 1, year 2. What is Speedy's compensation deduction for the bonuses in years 1 and 2. a. b. c. d. Year Year Year Year 1: 1: 1: 1: $5,000 and Year 2: $20,000 $25,000 and Year 2: $0 $0 and Year 2: $25,000 $20,000 and Year 2: $5,000 3. Samuel works full-time as an architect for an employer. In addition, Samuel owns a sole proprietorship where he provides architecture services to his clients. In 2015, Samuel earned a $98,000 wage from his employer and had gross receipts of $62,000 and business expenses of $7,000 from the sole proprietorship. What is Samuel's self-employment tax for 2015? a. b. c. d. $8,415 $7,771 $4,137 $4,015 4. Andrew and Marie and married taxpayers and file a joint return. In 2015, Andrew had a salary of $60,000 and Marie had a salary of $155,000. Andrew and Marie also had the following on their 2015 return: $3,000 interest from municipal bonds, $5,000 interest from corporate bonds, $20,000 dividend income, and $35,000 long-term capital gain. What is Andrew and Marie's Net Investment Income tax? a. b. c. d. $950 $1,076 $2,280 $2,356 5. All of the following result in nontaxable income except: a. b. c. d. e. Stock dividend Interest on municipal bonds Distribution identified as return of capital Capital gain distribution reinvested in a mutual fund All of these result in nontaxable income 6. Which of the following business must use the accrual method of accounting for federal income tax purposes? a. b. c. d. e. Control Corporation, a C Corporation that manufactures pesticides, has average annual gross receipts for the last three years of $5,200,000. Madison, Mason, and Miller Partnership, an accounting firm with three individual partners, has average annual gross receipts for the three years of $6,000,000. Simpson Corporation, an S Corporation owned by two individuals that provides marketing services, has average annual gross receipts for the last three years of $7,000,000. Both b and c. All of the above are required to use the accrual method of accounting for federal income tax purposes. 7. Mathew moved from New York to Chicago to pursue a new job opportunity. Matthew's new employer reimbursed the following expenses: $500 Transportation to new residence $100 of meals in route to new residence $1,000 of packing and transporting household goods $1,500 House hunting trip $3,100 Total reimbursement How much must Matthew include in gross income as a result of the reimbursement? a. b. c. d. $0 $1,500 $1,600 $3,100 8. Franklin Corporation, currently a calendar year C Corporation, operates a ski lodge in northern Minnesota. Franklin received permission from the IRS to change from a calendar year to a fiscal year end of March 31 after their season ends. For the short tax year, Franklin has taxable income of $120,000. What is Franklin's tax liability for the short tax year? a. b. c. d. $30,050 $40,800 $153,200 $163,200 9. What is a corporation's annual deduction for capital losses? a. $3,000 b. An amount equal to capital gains only c. An amount equal to capital gains plus $3,000 d. Corporations cannot deduct capital losses 10. If the due date for a tax return is extended for a taxpayer who has a $2,000 balance due, the taxpayer a. has 30 days following the original due date to pay the $2,000 due without penalty b. has 60 days following the original due date to pay the $2,000 due without penalty c. has 6 months following the original due date to pay the $2,000 due without penalty d. must pay the tax due by the original due date to avoid penalty 11. Apple Corporation has taxable income of $400,000 and pays $40,000 in State M income taxes. Beta Corporation has taxable income of $700,000 and pays $105,000 in State M income taxes. Based on these facts what type of tax system exists in State M? a. An aggressive tax system. b. A disproportional tax system. c. A progressive tax system. d. A proportional tax system. e. A regressive tax system. 12. Which of these persons never pays taxes directly? a. Individual b. Partnership c. C corporation d. Fiduciary 13. Charlotte is single and has taxable income of $37,450. Charlotte's tax liability is $4,234. What is Charlotte's marginal rate? a. 25%l b. 28% c. 15% d. 11.3% 14. Barney operates a sole proprietorship and has two employees. During the current year the sole proprietorship had gross receipts of $94,000. Barney paid his employee wages of $20,000 each and had other expenses of $15,000. Barney also withdrew $30,000 for living expenses. What is the net profit from the sole proprietorship? a. $59,000 b. $94,000 c. $9,000 d. $39,000 15. Which of the following is a true statement regarding the statute of limitations on a federal income tax return? a. If the taxpayer fails to file a return, the statute of limitations is 3 years from the date the return should have been filed. b. If the taxpayer files a fraudulent return, statute of limitations increases from 3 to 6 years. c. If the taxpayer fails to file a return, the statute of limitations increases from 3 years to 6 years from the date the return should have been filed. d. If the taxpayer omits gross income in excess of 25% of the gross income reported on the tax return, the statute of limitations increases from 3 years to 6 years. e. If the taxpayer omits gross income in excess of 75% of the gross income reported on the tax return, the statute of limitations increases from 3 years to 6 years. 16. Tom owns 40% of Thompson Corporation (a C corporation). During 2016, Thompson Corporation had $1,000,000 in gross income, deductible business expenses of $600,000 and a business tax credit of $36,000. Thompson paid paid a total of $200,000 in qualified dividends to its shareholders. Tom is single, has modified adjusted gross income of $450,000, and is in the 39.6% marginal tax bracket. What amount of federal income tax must must Thompson Corporation and Tom pay in 2016 as a result of Thompson Corporation's 2016 business operations as a C Corporation? Thompson Corporation Tom a. $340,000. $79,200. b. $204,000. $40,000. c. $136,000. $34,720. d. $100,000. $19,040. e. $87,760. $16,000. 17. In 2015, Ian paid $9,000 for 25% of the stock of an S corporation. On its federal income tax return for 2015, the S corporation reported a loss of $42,000 and made no distributions to its shareholders. On its 2016 federal income tax return, the S corporation reported taxable income of $54,000 and paid distributions to its shareholders totaling $20,000. Ian is in the 28% federal marginal tax bracket for 2015 and 2016. How much income tax (if any) did Ian save in 2015 as a result of the S corporation's operations and how much federal income tax must Ian pay (if any) as a result of the S corporation's operations in 2016? Federal tax savings in 2015 Federal tax paid in 2016 a. $0 $750 b. $0 $1,400 c. $2,520 $3,360 d. $2,520 $1,800 e. $2,940 $3,780 Part 2: Matching Problem 1 (8 Points) The column on the left describes various steps in the federal tax legislative process. The column on the right sets forth when the step on the left occurs. Fill in the letter of the column on the right which you think best matches when the step in the federal tax legislative process occurs. Each item on the right may only be used once. (1 Point Each) When the step occurs Steps in the federal tax legislation process ____1. The tax bill is referred to the Joint Conference Committee. a. First ____2. The Senate Votes on the tax bill. b. Second ____3. Tax bill is referred to the Senate Finance Committee. c. Third ____4. Tax bill is introduced in the House of Representatives. d. Fourth ____5. The tax bill is signed by the President. e. Fifth ____6. The Joint Conference Committee works out f. Sixth g. Seventh h. Eighth the differences between the House and Senate versions of the tax bill. The final version of the tax bill is then voted on by the House of Representatives and Senate. ____7. Tax bill is referred to the House Ways and Means Committee. ____8. The House of Representatives votes on the tax bill. Problem 2 (8 points) The column to the left shows various types of authority. The column to the left classifies the authority as primary or secondary and if primary further classifies the authority as legislative, administrative, or judicial. Fill in the letter from the column in the right which best classifies the authority on the left. ____1. Tax Court decision from a tax court in the first district cited by a taxpayer in the fourth district a. Primary Authority, Legislative ____2. Letter Ruling b. Primary Authority, Administrative ____3. Internal Revenue Code c. Primary Authority, Judicial ____4. Revenue Procedure d. Secondary Authority ____5. District Court decision later reversed by the appellate court ____6. The Tax Adviser ____7. Instructor's Lecture ____8. Committee Reports