1. Which of the following does not affect the basis of S corporation stock?

a. Tax-exempt income

b. Nondeductible expenses

c. Charitable contributions

d. Capital gains

e. All affect stock basis

2. The accumulated adjustment account

a. is a shareholder account.

b. can be reduced below zero by an excess distribution.

c. determines when there is a tax-free distribution during the post-termination period.

d. is important in applying loss limitation rules.

3. What is the difference in tax savings between a $1,000 tax credit and a $1,000 tax deduction for a single taxpayer with $45,000 in taxable income?

a. 0

b. $850

c. $750

d. $300

e. $250

4. Maurice and Judy (both age 32) have one natural daughter, age 4, and adopted twin boys, age 8. Their adjusted gross income on their joint return is $120,000. If they take the standard deduction, what is their tax liability after any allowable tax credits in 2014?

a. $14,375

b. $11,575

c. $11,175

d. $11,375

5. Stephanie and Cal have three dependent children in college. Sally is a freshman and Teri is a sophomore at a small private college in their town where their expenses are $6,500 per year for each student; Lexi is in her third year of medical school in Wisconsin and her related expenses are $12,500 per year. What is the maximum education credit allowed Stephanie and Cal on their joint tax return if their AGI is $118,000 in 2014?

a. $5,000

b. $6,000

c. $7,000

d. $7,500

Short Answer Questions

6. William has decided to purchase a large apartment complex. He pays $100,000 cash, obtains a loan on the property for $500,000, and assumes the first mortgage balance of $250,000. He also gives the sellers $100,000 of marketable securities that he purchased three years ago for $125,000 and paid a finders fee of $5,000, legal fees of $6,000, and transfer taxes of $12,000. What is Williams acquisition basis for the building? Does he have any other tax consequences as a result of this purchase?