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1 ACC 307 Final Exam Part 1 & Part 2 For more classes visit Amy works as an auditor for a large major CPA firm. During the months of September through November of each year, she is permanently assigned to the team auditing Garnet Corporation. As a result, every day she drives from her home to Garnet and returns home after work. Mileage is as follows ======================================================== ACC 307 Final Exam Part 1 For more classes visit

2 1. The 222 deduction for tuition and related expenses is available: 2. A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the following reasons: 3. Aaron is a self-employed practical nurse who works out of his home. He provides nursing care for disabled persons living in their residences. During the day he drives his car as follows 4. Jordan performs services for Ryan. Which of the following factors indicate that Jordan is an independent contractor, rather than an employee? 5. Aiden performs services for Lucas. Which of the following factors indicate that Aiden is an employee, rather than an independent contractor? 6. Paul, a calendar year married taxpayer, files a joint return for Information for 2013 includes the following:

3 AGI $175,000 State income taxes 13,500 State sales tax 3,000 Real estate taxes 18,900 Gambling losses (gambling gains were $12,000) 6,800 Paul s allowable itemized deductions for 2013 are: 7. Pedro s child attends a school operated by the church the family attends. Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200. In addition, Pedro paid the regular tuition of $6,000 to the school. Based on this information, what is Pedro s charitable contribution? 8. Barry and Larry, who are brothers, are equal owners in Chickadee Corporation. On July 1, 2013, each loans the corporation $10,000 at an annual interest rate of 10%. Both shareholders are on the cash method of accounting, while Chickadee Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2014, Chickadee repays the loans of $20,000 together with the specified interest of $2,000. How much of the interest can Chickadee Corporation deduct in 2013? 9. Your friend Scotty informs you that he received a tax-free reimbursement in 2013 of some medical expenses he paid in Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income? 10. Emily, who lives in Indiana, volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization). She was in Louisiana for three weeks. She normally makes $500 per week as a carpenter s assistant and plans to deduct $1,500 as a charitable contribution. In addition, she incurred the following costs in connection with the trip: $600 for

4 transportation, $1,200 for lodging, and $400 for meals. What is Emily s deduction associated with this charitable activity? 11. Josh has investments in two passive activities. Activity A (acquired three years ago) produces income of $30,000 this year, while Activity B (acquired two years ago) produces a loss of $50,000. What is the amount of Josh s suspended loss for the year? 12. Rick, a computer consultant, owns a separate business (not real estate) in which he participates. He has one employee who works part-time in the business 13. Charles owns a business with two separate departments. Department A produces $100,000 of income and Department B incurs a $60,000 loss. Charles participates for 550 hours in Department A and 100 hours in Department B. He has full-time employees in both departments 14. Sandra acquired a passive activity three years ago. Until last year, the activity was profitable and her at-risk amount was $300,000. Last year, the activity produced a loss of $100,000, and in the current year, the loss is $50,000. Assuming Sandra has received no passive income in the current or prior years, her suspended passive loss from the activity is: 15. Nell sells a passive activity with an adjusted basis of $45,000 for $105,000. Suspended losses attributable to this property total $45,000. The total gain and the taxable gain are: ======================================================== ACC 307 Final Exam Part 2 For more classes visit

5 1. An employer calculates the amount of income tax withheld from salary or wages based on the information an employee provides on the following form: 2. Black Company paid wages of $180,000, of which $40,000 was qualified wages for the work opportunity tax credit under the general rules. Black Company s deduction for wages for the year is: 3. Several years ago, Tom purchased a structure for $300,000 that was originally placed in service in Three and one-half years ago he incurred qualifying rehabilitation expenditures of $600,000. In the current year, Tom sold the property in a taxable transaction. Calculate the amount of the recapture of the tax credit for rehabilitation expenditures. In terms of the withholding procedures, which statement does not reflect current rules?

6 4. The ceiling amount and percentage for 2013 for the Medicare portion of the self-employment tax are: 5. If the taxpayer qualifies under 1033 (nonrecognition of gain from an involuntary conversion), makes the appropriate election, and the amount reinvested in replacement property is less than the amount realized, realized gain is: 6. Mary sells her personal use automobile for $20,000. She purchased the car two years ago for $17,000. What is Mary s recognized gain or loss? It increased in value due to its excellent mileage, yet safe design. 7. Neal and his wife Faye reside in Texas, a community property state. Their community property consists of real estate (adjusted basis of $800,000; fair market value of $6 million) and personal property (adjusted basis of $390,000; fair market value of $295,000). Neal dies first and leaves his estate to Faye. What is Faye s basis in the property after Neal s death? 8. Which of the following exchanges qualifies for nonrecognition treatment as a 1031 like-kind exchange? 9. Lynn purchases a house for $52,000. She converts the property to rental property when the fair market value is $115,000. After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000. What is her recognized gain or loss? 10. Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks. He patents the device, but does not reduce it to practice. Hiram has a zero tax basis for the patent. In consideration of $800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company. Hiram assigned all substantial rights in the patent. Which of the following is correct?

7 11. Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $65,000. If Lynne sold the property, she would have a $53,000 gain. The initial characterization of the gain would be: 12. Which of the following creates potential 1245 depreciation recapture and potential 1231 gain? 13. A business taxpayer sells inventory for $80,000. The adjusted basis of the property is $58,000 at the time of the sale and the inventory had been held more than one year. The taxpayer has: 14. Section 1239 (relating to the sale of certain property between related taxpayers) does not apply unless the property: ======================================================== ACC 307 Mid Term Exam Part 1 For more classes visit

8 A characteristic of FUTA is that: 2. Which of the following statements best describes the history of the Federal income tax? 3. Taxes not imposed by the Federal government include: 4. A VAT (value added tax): 5. Which of the following transactions will decrease a taxing jurisdiction s ad valorem tax revenue imposed on real estate? 6. In 2013, Cindy had the following transactions: Salary $90,000 Short-term capital gain from a stock investment 4,000 Moving expense to change jobs (11,000)

9 Received repayment of $20,000 loan she made to her sister in 2009 (includes no interest) 20,000 State income taxes (5,000) Cindy s AGI is: 7. Millie, age 80, is supported during the current year as follows: Percent of Support Weston (a son) 20% Faith (a daughter) 35% Jake (a cousin) 25% Brayden (unrelated close family friend) 20% During the year, Millie lives in an assisted living facility. Under a multiple support agreement, indicate which parties can qualify to claim Millie as a dependent. 8. Which of the following is a deduction for AGI? 9. Emily, whose husband died in December 2012, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2013? (Note: Emily is the executor of her husband s estate.) 10. Which of the following items is deductible? 11. Our tax laws encourage taxpayers to assets that have appreciated in value and assets that have declined in value 12. Harry and Wanda were married in Texas, a community property state, but moved to Virginia, a common law state. The calculation of their income on a joint return

10 13. Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation. Sarah is not an employee of the corporation 14. The purpose of the tax rules that apply to below-market loans between family members is to: 15. Margaret owns land that appreciates at the rate of 10% each year. Ralph owns a zero coupon (i.e., all of the interest is paid at maturity but is taxed annually) corporate bond with a yield to maturity of 10%. At the end of 10 years, the bond will mature and the land will be sold. At the end of the 10 years 16. The exclusion of interest on educational savings bonds 17. Employees of the Valley Country Club are allowed to use the golf course without charge before and after working hours on Mondays, when the number of players on the course is at its lowest. Tom, an employee of the country club played 40 rounds of golf during the year at no charge when the non-employee charge was $20 per round. 18. The Royal Motor Company manufactures automobiles. Employees of the company can buy a new automobile for Royal s cost plus 2%. The automobiles are sold to dealers at cost plus 20%. Generally, employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealer s cost. Officers of Local Dealer are allowed to use a company vehicle (for personal use) at no cost 19. Jena is a full-time undergraduate student at State University and is claimed by her parents as a dependent. Her only source of income is a $10,000 athletic scholarship ($1,000 for books, $5,500 tuition, $500 student activity fee, and $3,000 room and board). Jena s gross income for the year is 20. Olaf was injured in an automobile accident and received $25,000 for his physical injury, $50,000 for his loss of income, and $10,000 punitive damages. As a result of the award, the amount Olaf must include in gross income is: ======================================================== ACC 307 Mid Term Exam Part 2 For more classes visit

11 1. In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions? 2. Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, any investigation expenses are 3. Payments by a cash basis taxpayer of capital expenditures 4. Which of the following is not deductible? 5. Velma and Bud divorced. Velma s attorney fee of $5,000 is allocated as follows: 6. Five years ago, Tom loaned his son John $20,000 to start a business. A note was executed with an interest rate of 8%, which is the Federal rate. The note required monthly payments of the interest

12 with the $20,000 due at the end of ten years. John always made the interest payments until last year. During the current year, John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800. Tom is an accrual basis taxpayer whose only income is salary and interest income. The proper treatment for the nonpayment of the note is 7. Jed is an electrician. Jed and his wife are accrual basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement. Jed was able to collect the judgement but not the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year? 8. Norm s car, which he uses 100% for personal purposes, was completely destroyed in an accident in The car s adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insurance policy. Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is Norm s deductible loss? 9. Which of the following events would produce a deductible loss? 10. Ivory, Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in Ivory s domestic production activities deduction is 11. Bhaskar purchased a new factory building on September 10, 2013, for $3,700,000. Five hundred thousand of the purchase price was allocated to the land. He elected the alternative depreciation system (ADS). Determine the cost recovery deduction for Howard s business is raising and harvesting peaches. On March 10, 2013, Howard purchased 10,000 new peach trees at a cost of $60,000. Howard does not elect to expense assets under 179. If eligible, Howard takes additional first-year depreciation. Determine the cost recovery deduction for 2013.

13 13. James purchased a new business asset (three-year property) on July 23, 2013, at a cost of $40,000. James takes additional first-year depreciation. Determine the cost recovery deduction for Alice purchased office furniture on September 20, 2012, for $100,000. On October 10, 2012, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, Alice did not elect to expense any of the assets under 179, nor did she elect straight-line cost recovery. She did not take additional first-year depreciation. Determine the cost recovery deduction for the business assets for Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2, Determine the cost recovery deduction for the year of the sale. ========================================