Multiple choice questions are worth 2.5 points each; short answer questions are worth 6.25 points each.

Put you answers on a separate sheet of paper and put in the assignment folder.

1. Which of the following nominal rates does not apply to a C corporation?

a. 10%

b. 15%

c. 25%

d. 35%

2. Which of the following is never included in gross income?

a. Loss on stock sale

b. Social security benefits

c. Unemployment benefits

d. Gifts

3. What is Freds gross income if he has the following: Salary =

$78,000; Dividends = $4,000; interest on city of San Francisco bonds =

$2,000; a gain of $14,000 on a stock sale and a $4,000 loss on a small sole proprietorship that he owns.

a. $78,000 b. $84,000 c. $92,000 d. $96,000

4. Purple Corporation (a C corporation) sold $100,000 of merchandise for which it paid $40,000. It also paid $35,000 of other expenses. All transactions were in cash. What is Purples Corporations after-tax net cash inflow?

a. $100,000 b. $60,000 c. $25,000 d. $21,250

5. Coral Corporation can invest in a project that costs $400,000. The project is expected to have an after-tax return of $250,000 in each of years 1 and 2. Coral normally uses a 10 percent discount rate to evaluate projects but feels it should use 12 percent to compensate for inflation. How much difference does the rate make in the after-tax net present value of the project?

a. $50,000 b. $22,500 c. $20,000 d. $11,250

6. A decision in the small case division of the Tax Court can be appealed only to

a. Court of Appeals

b. Supreme Court

c. Regular Tax Court

d. Federal District Court

e. None of the above

7. Ginny sold 100 shares of ABC stock for $2,100 and 300 shares of XYZ stock for $8,900. She purchased the ABC stock four years ago for

$1,200 and the XYZ stock two years ago for $9,100. What is the net effect of these sales on Ginnys income?

a. $200 net gain

b. $700 net gain

c. $900 net gain

d. $1,100 net gain

8. Crispen Corporation received permission to change its tax years-end from December 31 to August 31 in 2016. Its income from January 1 through August 31 is $278,000. What is Crispens tax liability?

a. $91,670 b. $94,520 c. $108,420 d. $141,780

9. Wilma owns 6,000 shares of KLM stock, 2,000 shares of BBT Mutual fund, and 10,000 shares of Centex Corporation. Her 1099-DIV forms from these investments showed the following:

KLM: $3 per share distribution all reinvested in KLM BBT Mutual fund: $5 per share distribution, $1 of which

represents a capital gain distribution; none of this is reinvested. Centex: $2 per share distribution, all of which represents a return of capital.

How much must Wilma include in her income in the current year? a. $48,000

b. $20,000 c. $28,000 d. $19,000

10. Cora is CEO of and owns 100 percent of WT Enterprises, a cash- basis, calendar-year corporation. The company has always been profitable but over the last five years Coras salary has increased from over $400,000 per year to over $1,000,000 and it has failed to pay dividends. Which of the following will not occur if the IRS determines that $500,000 of her salary is unreasonable?

a. Cora will pay an additional tax on the $500,000 re-characterized as dividend.

b. Cora will be eligible for a refund of Medicare taxes.

c. WT will lose a $500,000 deduction for the re-characterized dividend.

d. WT will be eligible for a refund of a portion of FICA taxes paid.

11. What are Carls deductible moving expenses for 2016 if he spends

$4,000 for packing and moving household goods, $1,200 to break the lease on his apartment, and $1,500 to store the household goods for 45 days? In April he drove his car 1,400 miles to his new home and spent

$250 for motels and $80 for meals while traveling to the new home. a. $5,516

b. $5,596 c. $6,516 d. $6,596

12. George, age 44, wants to contribute the maximum allowed to a Roth IRA in 2016. He is single and his AGI is $120,000. How much can he contribute to the Roth IRA?

a. $6,500 b. $5,500 c. $4,400 d. $3,300

13. In April 2015, Harry was assigned to a job in the next county for the day. He drove 75 miles each way to the job, paid $4 in tolls, $7 for parking and $9 for lunch. What is his allowable business expense deduction?

a. $81 b. $85 c. $92 d. $101

14. How much may Orange Corporation, a calendar-year accrual-basis corporation, deduct if it paid $3,000 on April 1 for an insurance policy for the next three years, prepaid six months interest of $450 on November 1, and paid $2,000 rent for December and January on December 1.

a. $1,900 b. $2,450 c. $2,600 d. $5,450

15. In 2015, Theresa loaned her friend Janelle $5,000 to invest in various stocks. Janelle signed a note to repay the principal with interest. In 2016, the stock market plunged and Janelle incurred large losses. In late 2016, Janelle declared personal bankruptcy and Theresa was unable to collect any of her loan. Theresa had no other gains or losses in 2015 or 2016. Her income from wages in both 2015 and 2016 was $50,000. The result is:

a. Theresa deducts a business bad debt of $5,000 in 2016.

b. Theresa deducts a $5,000 capital loss in 2016.

c. Theresa deducts a business bad debt of $3,000 in 2016 and carries $2,000 over to subsequent years.

d. Theresa deducts a $3,000 capital loss in 2016 and carries $2,000 over to subsequent years.

e. Theresa must amend her 2015 tax return to deduct the loss.

15. Betty gives an asset valued at $12,000 with a basis of $10,000 to Mary; Betty dies six-months later leaving an asset valued at $10,000 with a basis of $12,000 to Larry. What are Marys and Larrys bases in these assets?

a. Mary = $12,000; Larry = $12,000 b. Mary = $12,000; Larry = $10,000 c. Mary = $10,000; Larry = $12,000 d. Mary = $10,000; Larry = $10,000

16. The first and last years of MACRS depreciation deductions for a 5- year asset costing $10,000 using the half-year convention are:

a. $2,000 and $2,000 b. $2,000 and $576

c. $2,000 and $1,152 d. $2,000 and $1,000

17. Ron purchased a new car on August 1, 2015 for $14,500. His records indicate that he uses the car 45 percent for business and 55 percent for personal use. What are his cost recovery deductions for 2015 and 2016?

a. $653; $1,305 b. $1,377; $2,205 c. $1,305; $2,088 d. $798; $1,595

18. Blue Corporation had income from operations of $29,000. What is the corporations taxable income including the following property transactions: Gain on investment stock = $8,000; loss on machinery

held three years = $6,000; $4,000 loss on equipment held 10

months; $4,000 gain on land used for six years for storage of trucks.

What is Blues Corporation's taxable income?

a. $33,000 b. $31,000 c. $27,000 d. $25,000

19. Bobby sells the following depreciable assets from her sole proprietorship:

Asset Cost

Office furniture $10,000

Age

Gain/Loss

4 years ($2,400)

Truck $2,000 5 years 3,100

Bakery equipment $25,000 9 months (4,500)

What should Bobby report on her income tax return relative to these property transactions?

a. $3,800 capital loss

b. $3,100 Section 1245 recapture; $2,400 Section 1231 loss; $4,500 ordinary loss

c. $3,800 ordinary loss

d. $700 Section 1231 gain; $4,500 ordinary loss

e. None of the above

20. Emily has a $10,000 loss on some collectibles, a $5,000 Sec. 1202 gain, and an $11,000 gain on some securities. If all gains and losses are long-term and Emily is in the 25 percent tax bracket, how is her net gain taxed?

a. $5,000 at 25%; $1,000 at 15%

b. $6,000 at 15%

c. $5,000 at 28%; $1,000 at 15%

d. $6,000 at 28%

e. None of the above

21. Red corporation exchanges a building (fair market value =

$800,000, adjusted basis = $600,000) that has a $100,000 mortgage for another building owned by Dan Corporation (fair market value =

$1,100,000, adjusted basis = $600,000) that is encumbered by a

$400,000 mortgage. Each party assumed the mortgage on the building received. What are Reds and Dans realized gains on this exchange, respectively?

a. $200,000, $500,000 b. $200,000, $600,000 c. $500,000, $600,000 d. $500,000, $500,000

e. None of the above

22. Donalds investment real estate was condemned on November 14, 2015. On February 14, 2016, he received $250,000 for the property that had a basis of $210,000. What is the last date that Donald can acquire replacement property to avoid gain recognition?

a. November 14, 2018

b. February 14, 2019

c. December 31, 2018

d. December 31, 2019

e. None of the above

23. Craig owned a small rental property, which was condemned by the county to expand a local park. His adjusted basis in the property was

$40,000 and he received a payment of $75,000 from the county. A year later he purchased a similar piece of real estate for

$70,000.What is Craigs recognized gain on the involuntary conversion of his rental property?

a. 0

b. $5,000 c. $10,000 d. $30,000 e. $35,000

24. Corporation Parent owns 85 percent of Corporation A1; Corporation A1 owns 60 percent of Corporation A2; Corporation A2 owns 90 percent of A3; Corporation A3 owns 60 percent of Corporation A4 and 15 percent of Corporation A2; Corporation A4 owns 100 percent of Corporation A5. Identify the consolidated group(s) of corporations.

a. P-A1-A2-A3-A4-A5

b. P-A1 only

c. P-A1and A2-A3-A4-A5

d. P-A1; A2-A3; and A4-A5

e. P-A1 and A2-A3

25. Sam received a $25,000 distribution from Yellow Corporation that the corporation identified as $15,000 dividend and $10,000 return of capital. What effect does this distribution have on Sams taxable income if his basis in the stock of Yellow is $8,000?

a. Increase of $25,000

b. Increase of $17,000

c. Increase of $15,000

d. Increase of $10,000

26. Azure Co. has had taxable income of $450,000, $570,000,

$760,000 and $680,000 in years 2012 through 2015, respectively. What were the equal minimum quarterly estimated tax payments for 2015 that Azure Co. should have made in 2015 to avoid any penalty?

a. $56,000 b. $57,676 c. $64,600 d. $170,000

27. Which of the following is not a separately stated item on a partnerships Schedule K?

a. A $5,000 long-term capital loss

b. $20,000 of unrecaptured Section 1250

c. $3,000 charitable contribution

d. $5,000 bond interest

e. All are separately stated.

28. Bryan is a 30 percent general partner in BTP Partnership. His basis in his partnership interest at the beginning of the year was

$40,000. During the year, the partnership reported a $30,000 loss and paid off a $120,000 recourse debt. What is Bryans year-end basis in his partnership interest?

a. 9,000 b. $5,000 c. $4,000

d. $0

29. Emma and Lisa form the MLE General Partnership. Emma contributed $20,000 cash in exchange for her 50 percent partnership interest. During the first year of partnership operations, the partnership reported net taxable income of $10,000, Emma withdrew $8,000 cash from the partnership, and the partnership took out an $18,000 loan on the last day of the year. Emma's adjusted basis for her partnership interest at year end is:

a. $38,000 b. $30,000 c. $26,000 d. $25,000 e. $20,000 f. $17,000

Short Answer Questions

Show and label all your work, zero points will be given if your work is not labeled and/ or all calculations are not shown, on all the following questions. Show me what you have learned. Show even very simple and obvious calculations.

30. Colleen divorced Warren last year. This year she received the title to their boat that cost $45,000 and is now worth $55,000. Warren paid Colleen $1,500 per month, $500 for alimony and $1,000 for support of their two children. Colleen owed $60,000 to the bank for a loan on a failed business. To satisfy the debt, she transferred title of the boat to the bank and paid an additional $15,000. What are the all the tax consequences of these transactions for Warren and Colleen?

31. Determine the amount of the gain or loss in each of the following transactions and state whether the gain or loss is long term or short term and ordinary or capital. And what the net gain or loss is:

a. 100 shares of Bilco stock bought for $8,000 on January 22 of year 3 and sold for $10,000 on January 22 of year 4.

b. 20 acres of investment land bought for $8,000 on January 31 of year 3 and sold for $7,000 on February 2 of year 4.

c. 150 shares of Data stock bought for $15,000 on April 1 of year 2 and sold for $17,000 on May 28 of year 4.

33. When Pat died on April 16, he had interests in the following assets:

a. A $300,000 home held in joint tenancy with his wife

b. A $25,000 bank account in his name only

c. A $12,000 car that was jointly titled with his son

d. A $500,000 term life insurance policy owned by him with his wife the named beneficiary

e. Pats living trust held title to his 50 percent ownership in the Zebra Corporation valued at $2,000,000

Last year Pat transferred ownership of a $100,000 life insurance policy on his life to his daughter, electing gift splitting. At the time, the policy had a cash surrender value of $20,000 and $22,000 at his death.

What is Pats probate estate?

What is Pats gross estate?

34. Patsy operates a daycare center in her home as a sole proprietorship. She has gross revenues of

$15,000 and the following expenses:

Cost of food $1,200; allocated costs of using the home $900; allowable depreciation $500; reasonable salary for her 16 year old daughter for after-school help $3,000.

a. Determine Patsys net income from the sole proprietorship in 2015.

b. Determine Patsys total of self-employment and income taxes if her marginal tax rate is 25 percent.