Business Taxation Final Exam
Course Introduction
Business Taxation offers an in-depth exploration of the principles, laws, and practices surrounding the taxation of businesses. The course covers topics such as the determination of taxable income for various business structures, tax compliance and reporting, the impact of taxation on business decision-making, and strategies for tax planning and minimization. Students will gain an understanding of corporate, partnership, and sole proprietorship taxation, as well as indirect taxes that affect business operations. Emphasis is placed on the interpretation and application of tax legislation, preparing students to address real-world tax issues and manage the tax obligations of different types of business entities.
Recommended Textbook Fundamentals of Taxation 2018 Edition 11th Edition by Ana M. Cruz Dr
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Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040EZ
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Q1) What is the average tax rate and how is it determined?
Answer: The average tax rate is the proportion of tax that is assessed,on average,on the total taxable income of a taxpayer.It is determined by dividing the total tax liability by the total taxable income (or tax base).
Q2) The U.S.individual income tax system is an example of a progressive tax rate structure.
A)True
B)False
Answer: True
Q3) Joe is an employee of Adams Company.Joe properly completed his Form 1040EZ tax return and was required to pay the IRS $1,372 at the time of filing.Joe's tax liability for the year is $1,372.
A)True
B)False
Answer: False
Q4) The average tax rate is the total tax liability divided by the taxable income.
A)True
B)False
Answer: True
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Chapter
2:
Expanded Tax Formula, forms 1040A and 1040, and Basic Concepts
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Q1) A taxpayer who either is 65 or older or blind can claim an additional standard deduction.
A)True
B)False
Answer: True
Q2) The interest charged by the IRS for the first three months of 2017 was:
A)3%.
B)5%.
C)4%.
D)6%.
Answer: C
Q3) A head of household taxpayer with a dependent child had wages of $47,200.Which is the simplest form this person can file?
A)1040EZ.
B)1040ES.
C)1040A.
D)1040.
Answer: C
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) When is an original issue discount (OID)created? How is the initial OID computed?
Answer: An original issue discount (OID)is created when someone purchases a debt instrument,such as a bond,from an issuer for an amount less than par.The initial OID is equal to the difference between the acquisition price and the maturity value.
Q2) Which one of the following items is not exempt under the umbrella of compensation for injuries or sickness?
A)Payments received for damages as a result of personal physical injuries.
B)Employer-provided adoption assistance.
C)Payments received under workers' compensation acts.
D)Disability income received from a terrorist attack in a foreign country while employed by the U.S.government.
Answer: B
Q3) Jury duty pay is taxable income,but it can be deducted from gross income if the amount must be given to the employer.
A)True
B)False
Answer: True
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) Tuition,fees,books,supplies,room,board,and other necessary expenses of attendance are qualified education expenses for purposes of the student loan interest deduction.
A)True
B)False
Q2) The early withdrawal penalty is deductible as an:
A)itemized deduction on Schedule A.
B)above-the-line deduction for AGI.
C)adjustment on Schedule B.
D)none of these.
Q3) Which of the following is not a deductible alimony payment?
A)Payments for child support required by the divorce decree.
B)Payments for life insurance premiums required by the divorce decree.
C)Half of the mortgage payment on a home jointly owned with the ex-spouse when required by the decree of divorce.
D)Payments for dental expenses of the ex-spouse under terms of the divorce agreement.
Q4) What is meant by a penalty on early withdrawal of savings and under what circumstances is it deductible?
Q5) What is a Health Savings Account (HSA)?
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Chapter 5: Itemized Deductions
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Q1) On December 31,2017,Roger charged a $1,800 contribution to a qualified charitable organization to his credit card.He will not pay the credit card bill until January 2018.The $1,800 contribution is deductible on Roger's 2017 tax return.
A)True
B)False
Q2) Malika and Henry's vacation home was completely destroyed by fire.They had no insurance to cover the loss.On which of the following forms would they report their loss?
A)Form 4684,Casualties and Thefts,and Form 1040,U.S.Individual Income Tax Return,as an adjustment to gross income.
B)Schedule A,Itemized Deductions,only.
C)Form 4684,Casualties and Thefts,and Schedule A,Itemized Deductions.
D)Form 4684,Casualties and Thefts,only.
Q3) Donations to what types of organizations are tax deductible?
Q4) How is the medical expense deduction calculated? How is it limited?
Q5) When are travel costs deductible as medical costs? How are medical travel costs calculated?
Q6) Define a personal casualty loss.
Q7) What are four major categories of deductible taxes for individual returns?
Page 7
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Q1) The luxury auto limits on depreciation must be reduced if business use is less than 100%.
A)True
B)False
Q2) Which expenses incurred in a trade or business are deductible?
A)Fines and penalties.
B)Supplies expenses.
C)Political lobbying expenses.
D)Bribes.
Q3) Terry,a CPA,flew from Dallas to New York to attend a conference.The conference lasted four days.Then she took three days of vacation to go sightseeing.Terry's expenses for the trip are as follows:
\(\begin{array}{lr}
\text { Airfare }&\$525\\\text { Lodging }(7 \text { days } \times \$ 155)&1,085\\\text { Meals }(7 \text { days } \times \$ 120)&840\\\text { Taxi from airport to hotel and back }&70
\end{array}\)
Calculate Terry's travel expense deduction.
Q4) Describe each of the depreciation conventions and when each is applicable.
Q5) List and define the criteria for an expenditure to be deductible on Schedule C.
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Chapter 7: Capital Gains and Other Sales of Property
Schedule D and Form 4797
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Q1) All gains and losses on the sale of property that was held for more than one year is subject to preferential tax rates.
A)True
B)False
Q2) In general,the basis of property purchased is the cost of the asset including cash,debt obligations,and other property or services included in acquiring the asset.
A)True
B)False
Q3) Beatrice,a single taxpayer,has W-2 income of $93,700.She also has a short-term capital loss of $7,000,a short-term capital gain of $1,000,and a long-term capital gain of $2,000.What is Yolanda's AGI for 2017?
A)$96,750.
B)$90,700.
C)$90,750.
D)$89,750.
Q4) A computer used exclusively in a sole proprietor's business is a capital asset.
A)True
B)False
Page 9
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Chapter 8: Rental Property, Royalties, and Income From
Flow- Through Entities Line 17, form 1040, and Schedule E
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Q1) All advance rental payments received,including security deposits for a rental property,must be reported as income when received.
A)True
B)False
Q2) A taxpayer with a rental activity may be allowed up to $25,000 of rental losses against other (active or portfolio)income.
A)True
B)False
Q3) Jennifer's beach house,rented for 175 days and used by her and her family for 15 days,is considered personal/rental property.
A)True
B)False
Q4) Joey and Susan rented their house for 2 weeks and used it for personal use for the remainder of the year.The house is considered personal/rental property.
A)True
B)False
Q5) Define royalty income.What criteria determine which form is used and where the royalties are reported?
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Chapter
Credits
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Q1) The earned income credit (EIC)is a nonrefundable credit.
A)True
B)False
Q2) The adoption credit is only available for domestic adoptions.
A)True
B)False
Q3) Dean and Sue are married filing jointly with AGI of $28,000.They made a $1,500 contribution to a qualified retirement plan.How much is their retirement savings contributions credit?
A)$0.
B)$150.
C)$300.
D)$750.
Q4) Patricia is single and her son Quinn is age 11.If her AGI is $77,000,what amount of child tax credit can she claim?
A)$0.
B)$400.
C)$900.
D)$1,000.
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Chapter 10: Payroll Taxes
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Q1) If on any day during the month,an employer accumulates $100,000 or more in tax liability,the taxes must be deposited:
A)By the next banking day.
B)Before the close of the business day in which the liability occurs.
C)By the last day of the week if the employer is a monthly depositor.
D)By either the following Wednesday or Friday if the employer is a semiweekly schedule depositor.
Q2) Self-employed taxpayers who also receive wages from an employer are not subject to FICA or federal withholding taxes.
A)True
B)False
Q3) Only wages paid in cash are subject to federal withholding.
A)True
B)False
Q4) Nikki's salary is $209,950 in 2017.How much social security and Medicare taxes will be withheld from Nikki's salary for the year? (Round your answer to 2 decimal places. )
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) If a retirement plan is funded with dollars that have not been taxed,the distributions will not be taxed.
A)True
B)False
Q2) Paolo is age 77.He paid $240,000 for a single life annuity contract that will pay him $43,200 per year for life.The tax-free amount of the first $43,200 payment is A)$11,321.
B)$19,835.
C)$21,771.
D)$21,429.
Q3) Godfrey is age 77.He paid $240,000 for a single life annuity contract that will pay him $28,800 per year for life.The taxable amount of the first $28,800 payment is A)$7,371.
B)$8,965.
C)$17,479.
D)$21,429.
Q4) What are some of the significant tax benefits for both employees and employers associated with a qualified pension plan?
Page 13
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Chapter 12: Special Property Transactions
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Q1) Pierre sold a parcel of land for $50,000.He received $10,000 this year and signs a contract to receive four additional payments of $10,000 each plus interest.If Pierre had a basis in the land of $10,000 and incurred $2,500 in selling expenses,what is his gross profit percentage?
A)10%.
B)25%.
C)75%.
D)100%.
Q2) The exchange of a 5-year class asset for a 7-year class asset would not qualify for "like-kind" treatment.
A)True
B)False
Q3) The purpose of the wash sale rules is to disallow a tax loss on the sale of securities where the ownership of a company is not reduced.
A)True
B)False
Q4) The like-kind exchange provisions are elective provisions.
A)True
B)False
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) Which of the following is a passive activity?
A)A limited partnership interest.
B)Rental real estate activities where the owner is a real estate professional and works 800 hours per year.
C)A trade or business in which the taxpayer materially participates.
D)All of these.
Q2) When determining whether a limited partnership loss is deductible,a taxpayer must first:
A)Apply only the passive activity loss rules.
B)Apply only the at-risk rules.
C)Apply the passive activity loss rules and then the at-risk rules.
D)Apply the at-risk rules and then the passive activity loss rules.
Q3) The IRC require income/loss items to be separated into two categories: active income/loss and passive income/loss.
A)True
B)False
Q4) An equipment leasing activity is not subject to the at-risk rules.
A)True
B)False
Q5) Identify factors that increase or decrease the at-risk amount.
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Chapter 14: Partnership Taxation
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Q1) On April 30 of the current year,Ashley contributes a building with a $155,000 basis and a $235,000 FMV in exchange for a partnership interest.She purchased the building eight years ago.
a.What is Ashley's basis in her partnership interest?
b.What is Ashley's holding period of her partnership interest?
c.What is the basis of the building in the hands of the partnership?
d.What is the holding period of the building in the hands of the partnership?
e.How will the partnership depreciate the building in the year of contribution?
Q2) Raul contributes the following assets to a partnership for a 50% interest: \(\begin{array}{lccc}
& \text { Raul's Basis } & & \text { FIMV } \\
\text { Building }& \$ 75,00 0 & & \$ 125,00 \\
\text { Computer Equipment }& \$ 72,000 & & \$ 30,000 \\
\text { Total }& \$ 100,00 0 & & \$ 55,000 \\
\hline
\end{array}\) What is Raul's basis in his partnership interest?
A)$0.
B)$50,000.
C)$100,000.
D)$155,000.
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Chapter 15: Corporate Taxation
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Q1) The corporate alternative minimum tax exemption amount is $150,000.
A)True
B)False
Q2) Alabaster Company is a Subchapter S corporation.It properly reported net income of $250,000 for financial statement purposes.It had net capital gains of $60,000 and charitable contributions of $20,000.What is the ordinary business income (loss)of Alabaster Company that will be reported to its shareholders on Schedule K-1?
A)$210,000.
B)$270,000.
C)$290,000.
D)$330,000.
Q3) Barrie owns 100% of a Subchapter S corporation and her basis in the stock is $200,000.In the current year,the corporation reports an ordinary loss of $250,000 and interest income of $20,000.How much of the loss can Barrie claim in the current year?
A)$200,000.
B)$220,000.
C)$250,000.
D)The amount cannot be determined with the information provided.
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