1. For federal tax purposes, royalty income not derived in the ordinary course of a business is classified as:
None of the above
2. Which of the following is not an example of a nontaxable like-kind exchange?
An ice cream making machine for inventory of Rocky Road ice cream.
Land for an office building.
A printer for a computer.
The trade of an apartment building for a store building.
3. Al and Amy file a joint return for the 2007 tax year. Their adjusted gross income is $80,000. They had net investment income of $7,000. In 2007, they had the following interest expenses:
Personal credit card interest $4,000;
Home mortgage interest $8,000; and
Investment interest (on loans used to buy stocks) $10,000.
What is the interest deduction for Al and Amy for the 2007 tax year?
4. Charitable contribution deductions for cash donations made by individuals to public charities are limited to:
50% of AGI
40% of AGI
30% of AGI
20% of AGI
5. The following taxes were paid by Tim: Real estate taxes on his home: $2,000; State income taxes: $900; and State gasoline tax (personal use of automobile): $150.
In itemizing his deductions, what is the amount that Tim may claim as a deduction for taxes?
6. Josh sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Josh received $60,000 cash and a painting with a fair market value of $20,000 from the buyer. The buyer also assumed Josh's $25,000 loan on the equipment. Josh paid $5,000 in selling expenses. What is the amount of Josh's gain on the sale?
7. Ben's property, which has an adjusted basis of $85,000, is condemned by the state government. The authorities replace his property with other qualified property which cost them $120,000. What is Ben's recognized gain?
8. Sean, a calendar year taxpayer, purchased stock on June 18, 2006, for $8,000. The stock became worthless on June 4, 2007. What is Sean's loss in 2007?
$8,000 short-term capital loss
$8,000 long-term capital loss
$8,000 itemized deduction for investments
1) B. Portfolio income.
2) A. Properties exchanged have to be "like-kind" (same nature and character). Ice cream making machine and ice cream are not like-kind properties.
3) B. Personal interest is not deductible. Investment interest is deductible to the ...
Multiple Choice Questions Regarding Taxes
1. Gold Ltd. reported deferred tax assets and deferred tax liabilities at the end of 2001 and 2002. For the year ended 2002, Gold should report deferred income tax expense or benefit equal to the
a. Sum of the net changes in deferred tax assets and deferred tax liabilities.
b. Decrease in deferred tax assets.
c. Increase in deferred tax liabilities.
d. Amount of current tax liability plus the sum of the net changes in deferred tax assets and deferred tax liabilities.
2. A deferred tax liability is computed using
a. The current tax laws, unless enacted future laws are different.
b. The current tax laws, regardless of expected or enacted future tax laws.
c. Expected future tax laws, regardless of whether they have been enacted or not.
d. Either current or expected future tax laws, regardless of whether those expected laws have been enacted.
3. Purple Co.'s PTFI was $200,000 and TI was $150,000 in 2001. The difference is due to the following:
Interest on municipal bonds 70,000
Key man life insurance premium (20,000)
Purple's tax rate was 30%. In 2001, what amount should it report as the current provision for income tax expense?
Questions 4 and 5 are based on the following information
Orange Corp. has one temporary difference at the end of 1999 that will reverse out and cause taxable amounts as follows:
2000 2001 2002
55,000 60,000 65,000
Pretax financial income is $300,000 and the tax rate is 30% for all years.
4. For 1999, the income tax expense is:
5. For 1999, the deferred liability is: