Test II, Multiple Choice

Question 1

0 out of 3.33 points

Under an accrual basis income method for tax, which of the

following transactions is recognized in full when received?
Answer
Selected
Answer:

1.
Receipt of a deposit on goods to be delivered
to customers in three months.

Question 2

0 out of 3.33 points

A taxpayer uses 10% of the family residence exclusively for

business. The business had $20,000 in income and $12,000 in
direct expenses. The indirect expenses for the home were
$70,000. Depreciation on the house was $2,000. What amount of
the expenses is deductible against the business income?
Answer
Selected Answer:

2.
$21,000

Question 3

3.34 out of 3.34 points

When would a taxpayer take a standard deduction?

Answer
Selected Answer:

3.
When it is higher than itemized
deductions.

Question 4

3.33 out of 3.33 points

A taxpayer incurred a personal (non-business) casualty loss,

losing property with a basis of $24,000 and a fair market
value of $9,000. The insurance company reimbursed the taxpayer
$7,000. Assume there is a $100 floor on each casualty loss
incurred. The taxpayer itemizes deductions and has an AGI of

Test II, Multiple Choice

$50,000. How much loss, if any, may the taxpayer take for this
casualty?
Answer
Selected Answer:

4.
$0

Question 5

3.33 out of 3.33 points

A taxpayer forms a new company, incurring both start up costs

and organizational costs. How are these costs generally
treated for tax purposes?
Answer
Selected
Answer:

4.
These costs, subject to dollar limits, are
deductible immediately, with costs over the limit
amortized over 180 months.

Question 6

0 out of 3.33 points

A taxpayer is currently working as an independent contractor

for one business. If the taxpayer is hired as an employee, how
will the taxpayer's status change?
Answer
Selected
Answer:

2.
The taxpayer will owe less FICA taxes, but can
directly deduct unreimbursed business expenses.

Question 7

3.33 out of 3.33 points

Near the April 15th deadline, a taxpayer comes to a CPA

expecting to have a large tax liability for which no estimated
payments or withholdings have been made. The taxpayer fears
she will be unable to pay the amount of the taxes due in full.
Which of the following statements is generally sound advice?
Answer
Selected
Answer:

1.
The taxpayer should file the tax return
currently, and pay what she can with the filing.

Test II, Multiple Choice

Question 8

3.33 out of 3.33 points

A taxpayer has hobby income and expenses. Which statement best

explains how the expenses treated for tax purposes?
Answer
Selected
Answer:

3.
Expenses, up to the amount of hobby income, are
deductible as an itemized deduction, to the extent
they exceed 2% of AGI.

Question 9

0 out of 3.34 points

A taxpayer has the following tax liabilities for Years 1-3:

YR1: Regular tax liability = $17,000; Tentative minimum tax
= $27,000;
YR 2: Regular tax liability = $23,000; Tentative minimum tax =
$16,000;
YR 3: Regular tax liability = $25,000; Tentative minimum tax =
$21,000;
What is the taxpayer's tax liability for Year 3?
Answer
Selected Answer:

2.
$21,000

Question 10

3.33 out of 3.33 points

A married filing joint taxpayer sells a personal residence

for $792,000. The basis in the house is $252,000. This house
has been the primary residence for the taxpayer for the last
12 years. How much of the gain on the sale, if any, is taxed?
Answer
Selected Answer:

1.
$40,000

Test II, Multiple Choice

Question 11

0 out of 3.34 points

A cash-basis company incurs two bad debts for the year: (1)
sales of $14,000 that are determined to be uncollectible, and
(2) a loan of $8,000 cash to a supplier that has subsequently
filed for bankruptcy. What is the company's bad debt expense
for the current year, if any?
Answer
Selected Answer:

3.
$14,000

Question 12

3.33 out of 3.33 points

A taxpayer provides over one-half the support for a 19-year

old dependent child who is a full-time student. The child has
$2,400 in dividend and interest income. How is this income
taxed?
Answer
Selected
Answer:

2.
$500 is taxed at the taxpayer's marginal tax
rate; $950 is taxed at the child's rate.

Question 13

3.33 out of 3.33 points

Which of the following business expenses are at least

partially deductible by the business?
Answer
Selected Answer:

4.
Meals and entertainment expenses.

Question 14

0 out of 3.34 points

Which of the following expenses is not a deduction for AGI for

a self-employed taxpayer?
Answer

Test II, Multiple Choice

Selected Answer:

3.
One-half self-employment taxes.

Question 15

3.33 out of 3.33 points

A taxpayer moves from Corpus Christi to Refugio. Which of the

following factors would support the deductibility of moving
expenses?
Answer
Selected
Answer:

1.
Had the taxpayer not moved, the taxpayer's
commute would have increased by 62 miles.

Question 16

3.33 out of 3.33 points

A taxpayer contributes appreciated stock with a fair market

value of $104,000 to a public charity. The taxpayer's AGI is
$200,000 and the taxpayer itemizes deductions. How may the
$84,000 be deducted, if at all?
Answer
Selected
Answer:

4.
$60,000 may be deducted this year; the remaining
$44,000 may be carried forward for up to five
years.

Question 17

0 out of 3.33 points

During the year, a taxpayer paid $120 in automobile

registration fees (based on the car value) and had $6,200
state income tax withheld from paychecks. Estimated sales
taxes paid were $2,100, and the mortgage company paid $3,200
in real estate taxes from the taxpayer's escrow account. If
the taxpayer itemizes deductions, how much may the taxpayer
deduct for taxes paid?
Answer
Selected Answer:

Question 18

2.
$11,500

Test II, Multiple Choice

3.34 out of 3.34 points

How do accounting methods for GAAP and tax compare?

Answer
Selected
Answer:

1.
GAAP generally tries to slow management's
recognition of income, whereas tax generally tries
to accelerate management's recognition of income.

Question 19

3.33 out of 3.33 points

All of the following are required for a trade or business

deduction to be deductible except :
Answer
Selected Answer:

3.
Expenditure is material in amount.

Question 20

3.33 out of 3.33 points

Which of the following statements best expresses the

presumptive rule for whether an activity is considered a
business rather than a hobby?
Answer
Selected
Answer:

2.
If it's posted a profit in 3 of the last 5
years, it's a business.

Question 21

3.34 out of 3.34 points

A taxpayer has a home used entirely for rental. During the

year, the taxpayer has AGI of $90,000 (before considering the
rental loss) and $29,000 in losses for the year. The taxpayer
has no other passive activities. How much of the loss, if any,
may the taxpayer deduct for the current year?
Answer
Selected Answer:

4.
$25,000

Test II, Multiple Choice

Question 22

3.33 out of 3.33 points

A taxpayer has a home that is rented for eleven months, and is

used ten days by the taxpayer's family. Rental expenses exceed
rental income for the year. How are the excess expenses
treated for tax purposes?
Answer
Selected
Answer:

4.
They are deductible currently, subject to
passive activity loss rules.

Question 23

3.34 out of 3.34 points

A taxpayer incurs $3,600 in employee business expenses. Of

this amount, the employer reimburses $1,200. The taxpayer has
$30,000 in AGI, and itemizes deductions. How much of this
amount, if any, will the taxpayer show as a miscellaneous
itemized deduction?
Answer
Selected Answer:

3.
$1,800

Question 24

3.33 out of 3.33 points

A taxpayer wishes to take out a loan to pay for his children's

college. (The taxpayer's AGI is to high to qualify for most
educational tax breaks.) On which of the following loans may
the taxpayer deduct interest expense?
Answer
Selected
Answer:

Question 25

0 out of 3.34 points

3.
Home equity loans, where the house secures the
mortgage.

Test II, Multiple Choice

A taxpayer purchased a new home in the current year. The

taxpayer borrowed $220,000, paying three points at closing.
Mortgage interest for the year was $10,800. In addition, the
taxpayer had $2,400 in investment interest expense, $2,100 in
investment income, and $8,400 in credit card interest. If the
taxpayer itemizes deductions, how much may the taxpayer deduct
for interest expense?
Answer
Selected Answer:

1.
$12,900

Question 26

0 out of 3.33 points

In April, a taxpayer was hospitalized, incurring $28,000 in

expenses. Insurance reimbursed $7,000. The taxpayer paid
$4,500 in health insurance premiums for the year. If the
taxpayer itemizes deductions and has an AGI of $100,000, how
much of the medical expenses, if any, is deductible?
Answer
Selected Answer:

4.
$13,500

Question 27

3.34 out of 3.34 points

A TV reality show "rents" a home from a taxpayer for 14 days,

tears it down, and re-builds as a basis for a network series.
The "rent paid" is the difference between the fair market
value of the new, improved home and the old one. How is the
rental taxed to the taxpayer?
Answer
Selected
Answer:

3.
It is not because the rental period is less
than 15 days.

Question 28

3.34 out of 3.34 points

Which of the following is a refundable credit?

Answer
Selected Answer:

3.

Test II, Multiple Choice

Earned income credit.

Question 29

3.33 out of 3.33 points

A taxpayer rents a home for 30 days, and resides in that home

the rest of the year. Allocated rental expenses exceed rental
income. How are the excess rental expenses treated for tax
purposes?
Answer
Selected Answer:

1.
They are carried forward to the next year.

Question 30

3.33 out of 3.33 points

A taxpayer owns a business which is operated as a sole

proprietorship. To what extent, if any, is the taxpayer
responsible for contributing to his own social security and
Medicare accounts?
Answer
Selected
Answer:

2.
The taxpayer pays both employee and employer
portions of social security and medicare on the
entire earnings of the business.