Critical thinking problems 1. In September 2013, Bill and Linda, a married couple with $50,000 gross income, cashed qualified Series EE U.S. Savings Bonds which they had purchased in 2008. The proceeds were used to help pay for their son's 2013 college tuition. They received gross proceeds of $3,500, representing principal of $3,000 and interest of $500. The qualified higher education expenses they paid in 2013 totaled $2,100. Their modified adjusted gross income for the year was $20,000. How much of the $500 interest can Bill and Linda exclude from gross income in 2013? a. $0 b. $200 c. $300 d. $500 2. Sandra Bellows purchased a 15-year annuity for $25,000. Starting at the beginning of the year, Sandra will receive $200 per month. What is the total amount that Sandra can exclude from her gross income from her annuity this year? a. $2,400 b. $2,000 c. $1,867 d. $1,667 3. During 2013, a corporation purchased machinery costing $200,000 and a warehouse costing $600,000. These are the only two acquisitions of depreciable property purchased by the corporation in 2013. The maximum deduction the corporation can claim under Code Sec. 179 in 2013 is: a. $500,000 b. $800,000 c. $25,000 d. $200,000 4. A calendar-year corporation incurs $53,000 of start-up costs. If the corporation began business on August 1 of the current year, what is the maximum amount of the start-up costs that it can deduct against business income in the current year? (round your answer to the nearest dollar) a. $3,417 b. $5,000 c. $2,000 d. $6,333 e. none of the above 5. During 2013, Tommy's home was burglarized. Tommy had the following items stolen. A block of securities worth $20,000. Tommy purchased of securities three years ago for $8,000. A block of securities worth $30,000. Tommy purchased the securities for $24,000 two years ago. Tommy's homeowners policy had an $80,000 deductible clause for thefts. How much is Tommy's theft loss for 2013? a. $50,000 b. $32,000 c. $44,000 d. None of the above. 6. Tammy has the following items for the current year: Nonbusiness capital gains $10,000 Nonbusiness capital losses (2,000 ) Interest Income 7,000 Itemized deductions (none of the amount realized from a casualty loss) (9,000 ) In calculating Tammy's net operating loss, and with respect to the above amounts only, what amount must be added back to taxable income (loss)? a. $0 b. $2,000 c. $3,000 d. $6,000 7. Mark Miller, 52, paid the following medical expenses during the year (all in excess of reimbursement): Hospital and doctor bills (for self and wife, 50) $840 Medicine and drugs (for self and wife) $730 Hospitalization insurance premiums $6,200 Medicine and drugs (for dependent mother, age 71) $1,060 Assuming the Millers' adjusted gross income was $60,000, how much of a medical expense deduction may the Millers claim on their joint return? a. $1,770 b. $2,830 c. $4,330 d. $8,830 e. None of the above . 8. During the year, the following items were charged to the interest expense account of Doe Corporation: Interest on additional income taxes assessed two years ago $400 Interest on bank loan to finance installation of new machinery. Bank loan was refinanced when installation was completed $700 Interest deducted by bank from proceeds of Doe Corporation's 60-day note signed December 1, payable in full 60 days later $500 The maximum amount of interest expense that Doe Corporation, an accrual basis taxpayer, can deduct for the current year is: a. $1,600 b. $1,100 c. $1,350 d. $700 e. None of the above