QUESTION 1

On December 1 of the current taxable year, Krest, a self-employed cash basis taxpayer, borrowed $200,000 to use in her business. The loan was to be repaid on November 30 of the following year. Krest paid the entire interest amount of $24,000 on December 1 of the current year. What amount of interest was deductible on Krest's current year income tax return?

QUESTION 2

Adams owns a second residence that is used for both personal and rental purposes. During the current year, Adams used the second residence for 50 days and rented the residence for 200 days. Which of the following statements is correct?

		Depreciation may not be deducted on the property under any circumstances.
		A rental loss may be deducted if rental-related expenses exceed rental income.
		Utilities and maintenance on the property must be divided between personal and rental use.
		All mortgage interest and taxes on the property will be deducted to determine the property's net income or loss.

QUESTION 3

Rich is a cash-basis , self-employed air-conditioning repairman with current year gross business receipts of $20,000. Rich's cash disbursements were as follows: Air-conditioning parts ....................................................................................$ 2,500 Yellow Pages listing ........................................................................................2,000 Estimated federal income taxes on self-employment income ........................1,000 Business long-distance telephone calls ............................................................400 Charitable contributions ....................................................................................200 What amount should Rich report as net self-employment income?

QUESTION 4

A taxpayer is trading in an automobile used solely for business purposes for another automobile to be used in his business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is currently worth $20 ,000 and the new automobile the taxpayer wants in exchange is only worth $17,500. The other party also agrees to assume a liability from the taxpayer secured by the old auto of $2 ,500. What is the taxpayer's Amount realized, Recognized gain or loss, and the basis in the new automobile received?