Week 8 : Final Exam - Final Exam

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Question 1.1. (TCO E) For federal tax purposes, the gain from the sale of stocks and bonds is
classified as: (Points : 5)
active income.
portfolio income.
passive income.
None of the above


Question 2.2. (TCO D) Which of the following is not an example of a nontaxable like-kind
exchange? (Points : 5)
Inventory for a locomotive
A printer for a computer
Land for an office building
The trade of an apartment building for a store building


Question 3.3. (TCO H) Bob filed a single return for the 2012 tax year. His adjusted gross income is
$80,000. He had net investment income of $9,000. In 2012, he had the following interest expenses:
Personal credit card interest: $4,000
Home mortgage interest: $8,000
Qualified mortgage insurance premiums: $1,500
Investment interest (on loans used to buy stocks): $10,000
What is the interest deduction for Bob for the 2012 tax year? (Points : 5)
$17,000
$18,500
$12,000
$18,000


Question 4.4. (TCO B) A business machine valued at $800 was contributed to a charitable organization
during the year. The machine cost $1,000 but was depreciated down to $600 before the donation was
made. Indicate the correct income tax treatment with respect to the donation. (Points : 5)
Contribution of $600 (no income recognized)
Contribution of $1,000 (income of $200 recognized)
Contribution of $800 (income of $200 recognized)
Contribution of $800 (no income recognized)


Question 5.5. (TCO A) Which of the following expenditures is always an itemized deduction for
individual taxpayers? (Points : 5)
Charitable contributions
State and local income taxes
Moving expenses
All of the above


Question 6.6. (TCO E) Adam sold a piece of business equipment that had an adjusted basis to him of
$50,000. In return for the equipment, Adam received $80,000 cash and a painting with a fair market
value of $20,000 from the buyer. The buyer also assumed Adam's $25,000 loan on the equipment.
Adam paid $5,000 in selling expenses. What is the amount of Adam's gain on the sale? (Points : 5)
$90,000
$125,000
$80,000
$70,000


Question 7.7. (TCO I) Which of the following statements concerning property qualifying for like-kind
exchange treatment is incorrect? (Points : 5)
The property must be held for productive use in a trade or business or for investment.
The transfer of partnership interests qualify for like-kind exchange treatment.
The exchange of inventory for a business automobile does not qualify for like-kind exchange
treatment.
The exchange of unimproved property for improved property qualifies for like-kind exchange
treatment.


Question 8.8. (TCO I) Under the cash method of tax accounting, income is generally recognized
when: (Points : 5)
cash is received.
the liability arises.
there is net income to absorb the expense.
revenue is earned.


Question 9.9. (TCO D) Sean, a calendar year taxpayer, purchased stock on October 18, 2011 for
$7,000. The stock became worthless on March 10, 2012. What is Sean's loss in 2012? (Points : 5)
$7,000 long-term capital loss
$7,000 short-term capital loss
No loss
$7,000 itemized deduction for investments


Question 10.10. (TCO A) Which of the following is a primary source of tax authority? (Points : 5)
Revenue ruling
Tax Court case
Temporary regulation
All of the above


Question 11.11. (TCO F) Trade or business expenses are only deductible if they are: (Points : 5)
necessary and ordinary.
reasonable in amount.
not capital in nature.
All of the above


Question 12.12. (TCO A) The art of using existing tax laws to pay the least amount of tax legally
possible is known as: (Points : 5)
tax evasion.
tax avoidance.
tax elusion.
None of the above


Question 13.13. (TCO C) Which of the following items is not taxable? (Points : 5)
Interest on U.S. Treasury bills, notes, and bonds issued by an agency of the United States
Interest on federal income tax refund
Interest on New York State bonds
Discount income in installment payments received on notes bought at a discount


Question 14.14. (TCO B) Under the terms of their divorce agreement executed in October 2011, Keith
transferred Corporation M stock to his former wife, Karen, as a property settlement. At the time of the
transfer, the stock had a basis to Keith of $20,000 and a fair market value of $50,000. What is the tax
consequence of this transaction to Keith, and what is Karen's basis in the Corporation M stock? (Points :
5)
Keith has a gain of $30,000; Karen's basis is $20,000.
Keith has a gain of $30,000; Karen's basis is $50,000.
Keith has no gain or loss; Karen's basis is $20,000.
Keith has no gain or loss; Karen's basis is $50,000.


Question 15.15. (TCO G) On June 3, 2012, Leon Wren, an electrician, was injured in an accident
during the course of his employment. As a result of injuries sustained, he received the following
payments during 2012:
Damages for personal injuries: $8,000
Worker's compensation: $3,000
Reimbursement from his employer's accident and health plan for medical expenses paid by
Wren: $1,200
The amount to be included in Wren's 2012 gross income should be: (Points : 5)
$0.
$1,200.
$3,000.
$12,200.


Question 16.16. (TCO F) Job-seeking expenses are deductible if incurred by an individual who is
presently employed and looking for work in the same trade or business: (Points : 5)
only if the individual actually finds a new job.
regardless of whether or not the individual finds a new job.
if the expenses relate to the individual's first job.
Both A and B