Which of the following is not an advantage of a limited liability company (LLC)?

A) ability to choose between taxation as a partnership or corporation B) limited liability for all members of a LLC C) All of the above are advantages of an LLC. D) default tax treatment as a corporation, unless otherwise elected

3.

Empire Corporation purchased an office building for $500,000 cash on April 1. Prior to renting it out to tenants on July 1, Empire spent $200,000 on materials and labor to renovate the property. It funded $50,000 of the renovation cost with its own funds and borrowed the remaining $150,000. As of July 1, $2,000 of interest had been paid to the bank, but none of the principal had been repaid. The basis of the building on July 1 is

A) $500,000. B) $702,000. C) $502,000. D) $700,000.

4.

Thomas and Sally were divorced last year. As a result, Thomas must pay Sally alimony of $100,000 per year starting this year and relinquish the house and car with a combined value of $170,000 and a combined cost basis of $155,000. The house and car are given as a property settlement. As a result of these transactions Thomas has a deduction of

A) $170,000. B) $100,000. C) $270,000. D) $155,000.

5.

Ben, age 67, and Karla, age 58, have two children who live with them and for whom they provide total support. Their daughter is 21 years old, blind, is not a full-time student and has no income. Her twin brother is 21 years old, has good sight, is a full-time student and has income of $4,500. Ben and Karla can claim how many personal and dependency exemptions on their tax return?

A) 4 B) 3 C) 5 D) 2

6.

Sally divorced her husband three years ago and has not remarried. Since the divorce she has maintained her home in which she and her now sixteen-year-old daughter reside. The daughter is a qualified child. Sally signed the dependency exemption over to her ex-spouse by filing the appropriate IRS form. What is Sally's filing status for the current year and how many exemptions may she claim?

A) surviving spouse and one B) single and one C) head of household and two D) head of household and one

7.

In 2014 Bonnie, a sole proprietor, loaned her employee, John, $10,000 to help him buy a car. In 2015, before he repaid the $10,000, Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance. How should John treat the amount forgiven?

A) excludable gift in year of loan B) taxable income in year of forgiveness C) excludable gift in year of forgiveness D) taxable income in year of loan

8.

Martha is self-employed in 2015. Her business profits are $140,000. What is her self-employment tax?

A) None of the above. B) $18,130 C) $21,420 D) $18,754

9.

If an individual with a marginal tax rate of 15% has a long-term capital gain, it is taxed at

A) 10%. B) 20%. C) 0%. D) 15%.

10.

Rebecca is the beneficiary of a $500,000 insurance policy on her husband's life. She elects to receive $52,000 per year for 10 years rather than receive the entire amount in a lump sum. Of the amount received each year

A) $5,000 per year is tax free as a death benefit. B) $50,000 is taxable income. C) $52,000 is taxable income. D) $2,000 is taxable income.

11.

Steven and Susie Tyler have three dependent children ages 13, 15, and 17. Their modified AGI is $108,000. What is the amount of the child credit to which they are entitled?

A) $2,000 B) $3,000 C) $0 D) $1,000

12.

Which of the following is not a taxpaying entity?

A) C Corporation B) All of the above are taxpayers. C) Partnership D) Individual

13.

Shane and Alyssa (a married couple) have AGI of $345,000 in 2015. They bought a house this year and paid $16,000 of interest expense on the mortgage and paid $6,500 of property taxes. They will be allowed a deduction from AGI of

A) $21,447. B) $22,500. C) $14,947. D) $16,000.

14.

All of the following are classified as flow-through entities for tax purposes except

A) S corporations. B) partnerships. C) C corporations. D) limited liability companies.

15.

Charlie makes the following gifts in the current year: $40,000 to his spouse, $30,000 to his church, $18,000 to his nephew, and $25,000 to a friend. Assuming Charlie does not elect gift splitting with his wife, his taxable gifts in the current year will be

A) $13,000. B) $41,000. C) $25,000. D) $15,000.

16.

Britney is beneficiary of a $150,000 insurance policy on her father's life. Upon his death, she may elect to receive the proceeds in five yearly installments of $32,000 or may take the $150,000 lump sum. She elects to take the lump sum payment. What are the tax consequences in year one?

A) The lump sum payment is taxable. B) There is no taxable income. C) All $32,000 each year is taxable. D) $10,000 interest is taxable in the first year.

17.

Miranda is not a key employee of AB Corporation. AB provides Miranda with group term life insurance coverage of $140,000. The premiums attributable to the excess coverage are $1,300. The uniform one-month group-term premium is one dollar per $1,000 of coverage. How much must Miranda include in income?

A) $1,300 B) $1,680 C) $0 D) $1,080

18.

In an S corporation, shareholders

A) are only taxed on salaries. B) may allocate income among themselves in order to consider special contributions. C) are taxed on their proportionate share of earnings. D) are taxed only on dividends.

19.

Insurance proceeds received because of the destruction of property are

A) excluded from gross income completely. B) included in gross income only to the extent the proceeds exceed the adjusted basis of the replacement property. C) included in gross income in all cases. D) included in gross income to the extent the proceeds are less than the adjusted basis of the replacement property.

20.

When a spouse dies, the surviving spouse for the year of death

A) may file a married filing jointly return only if the death occurred in the last half of the year. B) may file a married filing jointly return. C) must file a tax return using the head of household filing status. D) must file a tax return using the single filing status.

21.

Michael is an employee of StayHere Hotels, Inc. in Washington, DC. On his vacation, Michael travels to San Francisco and stays at a StayHere Hotel for six nights free of charge. The regular rate for a hotel room at StayHere in San Francisco is $300 a night. His ability to stay in the hotel without charge is based on the availability of empty rooms. How much income must Michael report due to the use of the San Francisco hotel room?

A) $1,800 B) $0 C) $360 D) $300

22.

Sarah, who is single, maintains a home in which she, her 15-year old brother, and her 21-year-old niece live. Sarah provides the majority of the support for her brother, her niece, and her cousin, age 18, who is enrolled full-time at the university and lives in an apartment. While the niece and cousin have no income, her brother has a part-time job and earns $4,000 per year. How many personal and dependency exemptions may Sarah claim?

A) 1 B) 4 C) 2 D) 3

23.

Jack exchanged land with an adjusted basis of $65,000 subject to a liability of $22,000 for $50,000 (FMV) of stock owned by Hayden. Hayden takes the land subject to the liability. Jack incurs $500 of selling expenses. What is the amount of Jack's realized gain on the exchange?

A) ($14,000) loss B) $6,500 gain C) $7,000 gain D) ($14,500) loss

24.

Shaquille buys new cars for five of his friends. Each car cost $70,000. What is the amount of Shaquille's taxable gifts?

A) $0 B) $350,000 C) $336,000 D) $280,000

25.

Which of the following statements is false?

A) Under the cash method, prepaid income such as rent is usually taxed when received rather than when earned. B) Alimony received by the taxpayer is taxable. C) Municipal bond interest is taxable. D) Income earned by selling goods on the Internet is taxable.

26.

While using a metal detector at the beach during spring break, Toni uncovered some rare coins with a current fair market value of $9,000. What are her tax consequences regarding this find?

A) She reports the entire FMV as income. B) Under the discovery rules in the tax law, she will never report any amount as taxable since the value is under $10,000. C) Since she "found" the coins, she does not have to report any amount of income until she sells the coins. D) Because it was a "find" she only reports half of the FMV as income.

27.

Carter dies on January 1, 2014. A joint return election is made in 2014 and Marjorie properly qualifies as a surviving spouse for the two following years. Marjorie has one child that she claims as a dependent for this same period. The number of personal and dependency exemptions allowed Marjorie in 2014 and in 2015 is, respectively

A) 1 and 1. B) 2 and 2. C) 3 and 3. D) 3 and 2.

28.

The largest source of revenues for the federal government comes from

A) Social Security and Medicare taxes (FICA). B) corporate income taxes. C) individual income taxes. D) estate and gift taxes.

29.

Cheryl is claimed as a dependent on her parents' tax return. She had a part-time job during 2015 and earned $4,900 during the year, in addition to $600 of interest income. What is her standard deduction?

A) $4,900 B) $1,050 C) $5,250 D) $6,300

30.

Dave, age 59 and divorced, is the sole support of his mother age 83, who is a resident of a local nursing home for the entire year. Dave's mother had no income for the year. Dave's filing status and exemptions claimed are

A) head of household and two exemptions. B) head of household and one exemption. C) single and one exemption. D) single and two exemptions.

31.

Horizontal equity means that

A) all taxpayers should pay the same tax. B) taxpayers with larger amounts of income should pay more tax than taxpayer's with lower amounts of income. C) none of the above. D) taxpayers with the same amount of income pay the same amount of tax.

32.

Kate files her tax return 36 days after the due date. When she files the return, she sends a check for $2,000 which is the balance of the tax owed by her. Kate's penalty for failure to file a return will be

A) 20% per month (or factor thereof). B) 5% per month (or factor thereof) up to a maximum of 25%. C) 0.5% per month (or factor thereof) up to a maximum of 25%. D) 25%.

33.

All of the following statements are true except

A) the net income earned by a sole proprietorship is reported on the owner's individual income tax return. B) the net income of an S corporation is subject to double taxation because it is taxed at the entity level and dividends paid from the S corporation to individual shareholders are also taxed. C) LLCs are generally taxed as partnerships. D) the net income of C corporation is subject to double taxation because it is taxed at the entity level and dividends paid from the C corporation to individual shareholders is also taxed.

34.

Which one of the following is a capital asset?

A) automobile used for personal purposes B) automobile held by car dealer for sale C) B and C only D) automobile used in taxpayer's trade or business

35.

All of the following fringe benefits paid for by the employer may be excluded from an employee's gross income except

A) company-paid parking costing $225 per month to non-employees. B) subscriptions to professional publications. C) recreational facilities on employer's premises. D) discounts on services of 25 percent.

Cafeteria plans are valuable to employers because

A) they allow employers to provide benefits for higher income employees only.

B) they allow employers to avoid paying for benefits that are not needed or desired by employees.

C) None of the above.

D) they allow employees to eat their meals quickly and stay on the premises to be available for work.