Accounting Multiple Choice Questions

Kristen and Jeff are married taxpayers who file a joint return. In 2012, they had AGI of $600,000 and their preliminary itemized deductions totaled $40,000. In 2013, they also had AGI of $600,000 and preliminary itemized deductions of $40,000. In 2012 and 2013 their itemized deductions include mortgage interest. Which of the following is TRUE?

a. When comparing their 2012 and 2013 returns, they will deduct more itemized deductions on their 2013 return
b. When comparing their 2012 and 2013 returns, they will deduct the same amount of itemized deductions on each return
c. When comparing their 2012 and 2013 returns, they will deduct more itemized deductions on their 2012 return
d. They will not deduct any itemized deductions on either their 2012 return or their 2013 return

Which of the following statements is TRUE?

a. Taxpayers usually prefer deductions FROM AGI to deductions FOR AGI
b. The U.S. government always “breaks-even” with regards to alimony payments (i.e., because the reduction in taxes for the spouse paying the alimony will always equal the increase in taxes for the spouse receiving the alimony)
c. A dependent’s earned income amount could never impact the size/amount of his/her standard deduction amount
d. The amount of tax-exempt interest received by a taxpayer could impact the amount of his/her Social Security benefits that are subject to taxation

Assume that Tamella received some unique payments in 2013. Which of the following items may Tamella exclude from gross income?

a. $75,000 of punitive damages received from a lawsuit against Big Company, Inc.
b. $500 received from her NCAA basketball pool winnings
c. $10,000 received as a gift from Tamella’s college buddy
d. All of the above

In early 2013, Yenisey received a gift of a home valued at $500,000 (from Yenisey’s Uncle, Moses). Moses also gave Yenisey a $50,000 cash gift. During 2013, Yenisey rented the home to Mellissa. As a result of the lease with Mellissa, Yenisey earned net rental income of $20,000 (for 2013). What amount of income should Yenisey’s 2013 tax return include from these transactions?

a. $570,000
b. $70,000
c. $20,000
d. $0

Johnathan has AGI of $100,000 in 2013. During 2013, Johnathan also had an uninsured personal casualty loss of $25,000 (after the $100 reduction). The personal casualty loss related to an accident that Johnathan had with Pedro. Johnathan carried no collision insurance and Pedro was also an uninsured motorist. Assume Johnathan itemizes deductions in 2013. What is the casualty loss amount that Johnathan may deduct on his return?

a. $25,000
b. $15,000
c. $10,000
d. $0

Refer to the facts in the previous question. However, for purposes of this question assume that Johnathan takes the standard deduction in 2013. What is the casualty loss amount that Johnathan may deduct on his return?

a. $25,000
b. $15,000
c. $10,000
d. $0
TXX5761 Inc. paid all of the premiums for a $200,000 group-term life insurance policy on its 68-year-old President, Janice. Assume that pursuant to the applicable table, the cost per $1,000 of protection for a 1-month period is $1.27 (for a person aged 65 to 69). What amount relating to the policy (if any) must be included in Janice’s Gross Income for the year (assume Janice was covered for all twelve months)?

a. $200,000
b. $150,000
c. $2,286
d. $0

On January 1, 2013, Yanela purchased a 20-year annuity for $80,000 from INYAM & ASSOCIATES (an established insurance company). Under the annuity, Yanela will receive payments of $740 for each month of annuity’s life. What amount of the annuity payments may be excluded from Yanela’s Gross Income for 2013 (assume all 12 monthly payments are made in 2013)?

a. $0
b. $4,000
c. $4,880
d. $8,880

Assuming the same facts as in the previous problem, what amount of the annuity payments from INYAM & ASSOCIATES must be included in Yanela’s Gross Income for 2013?

a. $0
b. $4,000
c. $4,880
d. $8,880
In March 2013, Pedro, a calendar-year taxpayer, purchased new 7-year property for $1,000,000. The property was immediately placed into service (and is being used exclusively in Pedro’s extremely profitable business). No other personal property will be purchased by Pedro in 2013. Pedro wants to take the largest possible tax deduction in 2013 relating to the equipment. Compute the largest tax deduction possible in 2013 for the equipment (consider the Section 179 election, Bonus Depreciation, and MACRS, if applicable):

a. $1,000,000
b. $785,725
c. $500,000
d. $139,000

During 2013, 5-year MACRS property was placed in service by Charles, a calendar-year taxpayer. Assume that Charles does NOT make a Section 179 election or take any bonus depreciation. The property will most likely be depreciated over:

a. Six calendar years
b. Five calendar years
c. Two and one-half calendar years
d. One calendar year
Janice’s business incurred a casualty loss in 2013. Immediately before the casualty, her business truck had an adjusted basis of $35,000 and a fair market value of $40,000. Immediately after the casualty, the truck had a fair market value of $30,000. Because of the truck damage, Janice’s insurance company provided $5,000 as a reimbursement in 2013. What was Janice’s 2013 casualty loss deduction?

a. $30,000
b. $10,000
c. $5,000
d. Unknown

In 2007, Moses (a single taxpayer) loaned $10,000 to his friend Jamie. In 2013, Jamie declared bankruptcy, with the result that the debt became totally worthless. How should Moses treat the loss relating to this debt (assume that the debt is a nonbusiness debt that is a bona fide debt that arose from a debtor-creditor relationship)?

a. As an itemized deduction
b. As a short-term capital loss
c. As a long-term capital loss
d. Moses may not take any deduction relating to the debt (it is a nonbusiness debt)

Assume the facts stated in the prior question. Assume further that Moses has no other capital gains or losses in 2013 (or any prior years). What is the maximum amount (related to the bad debt) that Moses can deduct in 2013?

a. $10,000
b. $7,000
c. $3,000
d. $0

Assume the facts stated in the prior two questions. Assume further that for 2013 Moses will offset his wages (with any deduction related to the debt) to the maximum extent permitted by law. What is the amount of Moses’s capital loss carryover to 2014?

a. $10,000
b. $7,000
c. $3,000
d. $0

Compute the casualty loss on Yanela’s uninsured rental property under the following facts:

Adjusted basis $200,000
FMV before the loss $300,000
FMV after the loss $0

a. N/A
b. $100,000
c. $200,000
d. $300,000

Batista Corporation acquired new computer equipment on May 13, 2013, for $70,000. Batista did not elect immediate expensing under Section 179. Batista also elects not to take the additional first-year depreciation. Determine Batista’s cost recovery for 2013.

a. $70,000
b. $14,000
c. $7,000
d. $0

On August 5, 2013, Kristen purchased a new office building for $3 million. On October 3, 2013, she began to rent out office space in the building. What is Kristen’s cost recovery for 2013?

a. $0
b. $16,050
c. $92,973
d. $3,000,000

Assume the same facts as in the previous problem. Assume further that Kristen sells the office building on July 12, 2017. What is Kristen’s cost recovery for 2017?

a. $0
b. $41,665
c. $76,920
d. $92,973

Janice and Jamie recently formed a corporation named J&J Inc. (or “J&J”). On December 31, 2012, J&J issued 800,000 shares of common stock to Jamie and 800,000 shares of common stock to Janice. Jamie and Janice each paid $0.01 per share for their stock ($0.01 equaled the per share fair market value on December 31, 2012). Their stock is subject to a 4-year “repurchase option” (at cost) in favor of J&J. Each J&J repurchase option will “lapse” over time so that on December 31 (of 2013, 2014, 2015 and 2016), 200,000 shares will be released from the repurchase option. For example, if Jamie quits J&J before December 31, 2016, J&J can repurchase Jamie’s “unvested shares” for $0.01 per share (no matter what the fair market value is on that date).

Assume that Janice DID NOT file a timely “83(b) election.” On December 31, 2013, Janice is still working at J&J and thus 200,000 of Janice’s 800,000 shares are “released” from the J&J repurchase option (i.e., 200,000 of Janice’s shares “vest” on December 31, 2013). On that same day, the fair market value of the J&J stock equals $1.01 per share. What 2013 income, if any, must Janice report as a result of these events?

a. $800,000
b. $202,000
c. $200,000
d. $0

Assume that Jamie DID file a timely “83(b) election.” On December 31, 2013, Jamie is also still working at J&J and thus 200,000 of Jamie’s 800,000 shares are also “released” from the J&J repurchase option (i.e., 200,000 of Jamie’s shares “vest” on December 31, 2013). On that same day, the fair market value of the J&J stock equals $1.01 per share. What 2013 income, if any, must Jamie report as a result of these events?

a. $800,000
b. $202,000
c. $200,000
d. $0


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