Instructions : Please provide 2-3 sentence brief explanation and choose the best multiple choice answer. All sources must be noted. SHOW ALL WORK.

PART A

____ 17. Sally pursued a hobby of knitting seweater. Her AGI before considering the hobby is $50,000. During the year she sold the bedspreads for $12,000. She incurred expenses as follows:

Supplies	$6,000
Interest on loan to get business started	400
Advertising	7,600

Assuming that the activity is deemed a hobby, how should she report these items on her tax return?

a.	Include $12,000 in income and deduct $13,000 for AGI.
b.	Ignore both income and expenses since hobby losses are disallowed.
c.	Include $12,000 in income, deduct nothing for AGI, and claim $14,000 of the expenses as itemized deductions.
d.	Include $12,000 in income and deduct interest of $13,000 from AGI.
e.	None of the above.

PART B

____ 18. Karl paid the following expenses:

Tax return preparation fee	$ 700
Moving expenses	2,500
Alimony paid	1,000
State income taxes	2,000
Investment expenses	600
Expenses associated with rental property	1,400
Interest expense associated with loan to finance tax-exempt bonds	600

Calculate the amount that Karl can deduct from AGI (before any percentage limitations).

a.	$5,600.
b.	$3,300.
c.	$4,800.
d.	$5,400.
e.	None of the above.

PART C

19. Judy divorced. Judys attorney fee of $5,000 is allocated as follows:

General representation in obtaining the divorce	$2,200
Services in obtaining custody of the child	800
Services in settlement of martial property	900
Determining the tax consequences of:
Dependency deduction for child	600
Property settlement	500

Of the $4,000 Judy pays to her attorney, the amount she may deduct as an itemized deduction is:

a.	$0.
b.	$1,100.
c.	$2,800.
d.	$4,000.
e.	None of the above.