Taxation for Accountants Exam Practice Tests
Course Introduction
This course provides an in-depth exploration of taxation principles and practices essential for accountants. Students will examine the structure of tax systems, including income, corporate, and indirect taxes, and analyze their implications for individuals and businesses. The course covers tax compliance, reporting requirements, tax planning strategies, and ethical considerations in tax practice. Emphasis is placed on applying tax laws and interpreting regulations to ensure accurate financial reporting and optimize tax outcomes in a professional accounting setting.
Recommended Textbook Principles of Taxation for Business and Investment Planning 2018 21st Edition by Sally Jones
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Page 2
Chapter 1: Taxes and Taxing Jurisdictions
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Sample Questions
Q1) Which of the following statements concerning sales taxes is false?
A)Sales taxes apply to the purchase of most types of consumer goods.
B)Sales taxes apply to the purchase of most types of consumer services.
C)Sales taxes are collected by the seller when the sale is made.
D)Sales taxes imposed on the purchaser of retail items are consumption taxes.
Answer: B
Q2) Mrs.Renfru is a Brazilian citizen who permanently resides in Houston,Texas.Which of the following statements is true?
A)The U.S.government has no jurisdiction to tax Mrs.Renfru because she is not a U.S.citizen.
B)The U.S.government has jurisdiction to tax Mrs.Renfru only on income that she earns from a source within the United States.
C)The U.S.government has jurisdiction to tax Mrs.Renfru.
D)Mrs.Renfru can elect whether to pay tax to the United States or to Brazil.
Answer: C
Q3) A tax on net income is an example of a transaction-based tax.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Policy Standards for a Good Tax
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Sample Questions
Q1) Jurisdiction P recently increased its income tax rate.A taxpayer who reacts to the increase by working harder to earn more income is demonstrating the income effect of the rate increase.
A)True
B)False
Answer: True
Q2) Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million.The officials could avoid a deficit next year by adopting which of the following fiscal strategies?
A)Reduce the cost of public programs by $4 million.
B)Increase taxes by $4 million.
C)Borrow $4 million by issuing new government bonds.
D)All of these strategies will avoid a deficit.
Answer: D
Q3) If a tax has a progressive rate structure,a taxpayer's average rate is greater than her marginal rate.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Taxes As Transaction Costs
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Sample Questions
Q1) The transacting parties can engage in bilateral tax planning when a transaction occurs in a:
A)Public market
B)Private market
C)Secondary market
D)None of the above
Answer: B
Q2) Mr.Quest plans to engage in a transaction that will generate $10,000 cash flow in year 0,year 1,and year 2 ($30,000 total cash flow).Which of the following statements is true?
A)If the cash flow is not taxable income,the before-tax and after-tax cash flows from the transaction are equal.
B)If the cash flow is not taxable income,the NPV of the transaction is $30,000.
C)Mr.Quest's discount rate for computing the NPV of the transaction depends on his marginal tax rate.
D)None of the above is true.
Answer: A
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Chapter 4: Maxims of Income Tax Planning
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Sample Questions
Q1) The rate at which an item of income is taxed depends on the tax character of the income.
A)True
B)False
Q2) The tax character of an item of income can change when Congress amends the tax law.
A)True B)False
Q3) Both the individual and the corporate federal income tax rates are progressive.
A)True
B)False
Q4) Which of the following entities is not a taxable entity for federal income tax purposes?
A)Mr.Bob Clark,a U.S.citizen and resident of West Virginia
B)PTS Limited,an Arizona partnership
C)Confad Inc.,an Oklahoma corporation listed on Nasdaq
D)All of the above are taxable entities.
Q5) Corporations,LLCs,and partnerships are all taxable entities.
A)True
B)False
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Chapter 5: Tax Research
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Sample Questions
Q1) A research memorandum is typically less detailed than a client letter in terms of discussing supporting legal authorities.
A)True
B)False
Q2) Which of the following is not primary authority on which to base research conclusions?
A)Journal of Taxation article written by a professor.
B)Revenue ruling.
C)U)S.Tax Court decision.
D)U)S.Supreme Court decision.
Q3) Which of the following statements regarding strategies to locate relevant authority is true?
A)Novice researchers tend to examine fewer materials during the research process than experienced researchers.
B)In an electronic tax service,keyword searching allows the researcher to combine words and phrases to target the search.
C)Keyword searches should be defined as narrowly as possible to maximize efficiencies in the search process.
D)All of the above are true statements.
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Page 7
Chapter 6: Taxable Income From Business Operations
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Sample Questions
Q1) BugLess Inc,a calendar year,accrual basis corporation,provides pest extermination services to its customers.In October 2017,BugLess contracted with Mr.Cass to provide monthly service calls for 24 months.Each service call costs $60,and Mr.Cass prepaid $1,440 when he signed the contract.BugLess made three service calls to Mr.Cass' home in 2017.As a result of the contract,BugLess should report:
A)$1,440 taxable income in 2017.
B)$180 taxable income in 2017,$720 taxable income in 2018,and $540 taxable income in 2019.
C)$180 taxable income in 2017,and $1,260 taxable income in 2018.
D)None of the above
Q2) Which of the following statements regarding book/tax differences is false?
A)A permanent book/tax difference affects only the year in which it occurs.
B)A temporary book/tax difference affects two or more tax years.
C)Temporary book/tax differences arising in the current tax year will reverse in the future in one or more tax years.
D)The tax cost or benefit of a permanent book/tax difference is recouped over time.
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Chapter 7: Property Acquisitions and Cost Recovery
Deductions
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Sample Questions
Q1) D&R Company,a calendar year corporation,purchased $1,116,000 of equipment on August 3.This was D&R's only purchase of depreciable property for the year.If the equipment has a 7-year recovery period,refer to Table 7.2 and compute D&R's first and second-year MACRS depreciation.(Disregard the Section 179 deduction and bonus depreciation in making your calculation.)
A)First year $79,738; second year $273,308
B)First year $159,476; second year $273,308
C)First year $159,476; second year $234,253
D)None of the above
Q2) Moses Inc.purchased office furniture for $8,200 plus $492 sales tax and a $150 delivery charge.Which of the following is true?
A)Moses' tax basis in the furniture is $8,842.
B)Moses' tax basis in the furniture is $8,692,and it can deduct the delivery charge.
C)Moses' tax basis in the furniture is $8,350,and it can deduct the sales tax.
D)Moses' tax basis in the furniture is $8,200,and it can deduct the sales tax and delivery charge.
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Chapter 8: Property Dispositions
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Sample Questions
Q1) A taxpayer that is using the installment sale method to recognize gain must recompute the gross profit percentage every year during the term of the installment note.
A)True
B)False
Q2) The installment sale method of accounting applies to which of the following?
A)$89,300 gain realized on sale of business inventory.
B)$798,600 gain realized on sale of common stock in a publicly held corporation.
C)($41,500)loss realized on sale of land used in a trade or business.
D)None of the above
Q3) Lettuca Inc.generated a $77,050 ordinary loss from operations this year.It also recognized $5,920 recaptured ordinary income,$55,000 net Section 1231 loss,and $7,840 net capital loss on the sale of assets.Compute Lettuca's net operating loss.
A)($77,050)
B)($126,130)
C)($132,050)
D)($133,970)
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Chapter 9: Nontaxable Exchanges
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Sample Questions
Q1) A taxpayer who exchanges property for an interest in a partnership never recognizes gain or loss on the exchange.
A)True
B)False
Q2) Which of the following statements about the inclusion of boot in a nontaxable exchange is false?
A)The purpose of including boot in a nontaxable exchange is to equalize the adjusted tax bases of the properties exchanged.
B)The receipt of boot can trigger gain recognition but not loss recognition.
C)The party paying the boot includes the FMV of the boot in the tax basis of the property received.
D)None of the above is false.
Q3) Which of the following statements about nontaxable exchanges is true?
A)The parties to the exchange agree that the properties exchanged are of equal value.
B)The parties to the exchange both realize gain on the exchange.
C)No cash can change hands in a nontaxable exchange.
D)Any gain realized on the exchange is not included in financial statement income.
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11
Chapter
Corporations
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Sample Questions
Q1) At the beginning of year 1,Paulina purchased a 25% general partner interest in Gamma Partnership for $25,000.Paulina's partnership Schedule K-1 for year 1 reported that her share of Gamma's debt at year-end was $10,000 and her share of ordinary loss was $5,000.On January 1,year 2,Paulina sold her interest to another partner for $22,000 cash (including relief of liabilities).Compute Paulina's gain or loss on the sale of her partnership interest.
A)$3,000 loss
B)$8,000 loss
C)$2,000 gain
D)$0 gain or loss
Q2) Max is a 10% limited partner in LMN partnership.His adjusted basis in his partnership interest was $50,000 at the beginning of the current year.During the year,the partnership earned $100,000 of ordinary income,incurred a $5,000 capital loss,and paid $1,000 of nondeductible expenses.Max received a distribution of $2,000 from the partnership.Calculate Max's ending adjusted basis in his partnership interest.
A)$142,000
B)$57,400
C)$57,500
D)$59,200
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Chapter 11: The Corporate Taxpayer
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Sample Questions
Q1) The burden of corporate taxation is often borne by corporate shareholders,customers,employees,and suppliers.
A)True
B)False
Q2) A nonprofit corporation may incur a federal income tax if it has unrelated business income.
A)True
B)False
Q3) Which of the following statements about the calculation of alternative minimum taxable income is true?
A)Excess percentage depletion is a positive adjustment to AMTI.
B)The AMT net operating loss can reduce AMTI to zero.
C)The AMTI exemption for all corporations is $40,000.
D)The minimum tax credit can be carried back two years.
Q4) AMT adjustments can only increase a corporation's alternative minimum taxable income.
A)True B)False
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Chapter 12: The Choice of Business Entity
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Sample Questions
Q1) Mr.Allen,whose marginal tax rate is 39.6%,owns an office building that generates $100,000 annual taxable income.He plans to create a family partnership by giving each of his three children a 15% interest in the building.Mr.Allen will retain a 55% interest.Mr.Allen will manage the building,and receive a guaranteed payment of $20,000.If Mr.Allen's children are in the 15% tax bracket,compute the annual tax savings from this income-shifting arrangement.
A)$11,070
B)$8,856
C)$4,920
D)$0
Q2) One disadvantage of the creation of a family-owned entity is that there is dilution of control with respect to the original business owners.
A)True
B)False
Q3) The IRS may conclude that a CEO/shareholder of a closely held corporation has been paid a nondeductible constructive dividend rather than a deductible salary.
A)True
B)False
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Chapter 13: Jurisdictional Issues in Business Taxation
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Sample Questions
Q1) A bilateral agreement between the governments of England and France defining and limiting each party's respective tax jurisdiction is an example of a tax treaty.
A)True
B)False
Q2) The payroll factor in the UDITPA state income tax apportionment formula always includes executive compensation.
A)True
B)False
Q3) Chester,Inc.,a U.S.multinational,earns income in three foreign countries.Country A has a 25% income tax,Country B has a 35% income tax,and Country C has a 45% income tax.In which of these countries could Chester lower its world-wide tax liability by operating through a foreign subsidiary rather than a domestic subsidiary? Assume the foreign subsidiary will reinvest all after-tax earnings rather than paying dividends.
A)Country A
B)Country B
C)Country C
D)All three countries
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Chapter 14: The Individual Tax Formula
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Sample Questions
Q1) Hunter,age 17,is claimed as a dependent on his parents' tax return.This year,Hunter earned $8,500 for appearing in a television commercial.Compute Hunter's standard deduction.
A)$1,050
B)$8,500
C)$6,350
D)$0
Q2) Jay Blount,26-years old and a full time student,lives in his parents' home.Although Jay earned $8,400 from a part-time job,his parents provide at least 75% of his financial support.Jay's parents may claim him as a dependent this year.
A)True
B)False
Q3) The unextended due date for the individual tax return (Form 1040)is the 15<sup>th</sup> day of the third month following the close of the taxable year.
A)True
B)False
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Chapter 15: Compensation and Retirement Planning
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Sample Questions
Q1) Employers typically use nonqualified deferred compensation plans to provide additional retirement savings for rank-and-file employees.
A)True
B)False
Q2) Eight years ago,Acnex Inc.granted Ms.Cardena a nonqualified option to purchase 1,000 shares of Acnex stock at $44 per share.On date of grant,the market price was $42 per share.This year,Ms.Cardena exercised the option when the market price was $75 per share.Which of the following statements is true?
A)Ms.Cardena recognizes $31,000 ordinary income,and Acnex is allowed a $31,000 deduction this year.
B)Ms.Cardena recognizes $31,000 ordinary income,and Acnex is allowed a $44,000 deduction this year.
C)Ms.Cardena recognizes $33,000 ordinary income,and Acnex is allowed a $33,000 deduction this year.
D)Ms.Cardena recognizes $33,000 ordinary income,and Acnex is allowed a $44,000 deduction this year.
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Chapter 16: Investment and Personal Financial Planning
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Sample Questions
Q1) Mr.and Mrs.Sturm actively manage an office building that they purchased in January 1997.This year,the office building generated a $68,000 net loss.The couple's income items consisted of $72,300 salary and $14,000 interest and dividend income.How much of the rental loss is deductible this year?
A)$25,000
B)$14,000
C)$0
D)$68,000
Q2) Which of the following statements about annuity contracts is true?
A)Annuity contracts provide a fixed income stream.
B)Payments received from an annuity contract are tax-exempt.
C)Payments received from an annuity contract are fully taxable as ordinary income.
D)Payments received from an annuity contract are fully taxable as capital gain.
Q3) Mr.Carp,a single taxpayer,recognized a $44,000 long-term capital gain,a $12,000 short-term capital gain,and a $10,000 long-term capital loss.Compute Mr.Carp's 2017 income and Medicare contribution tax if his taxable income before consideration of his capital transactions is $465,000,none of which is investment income
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Chapter 17: Tax Consequences of Personal Activities
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Q1) Which of the following deductions is disallowed in the computation of alternative minimum taxable income (AMTI)?
A)Alimony.
B)Charitable contributions.
C)Interest paid on a home equity debt.
D)None of the above deductions is disallowed.
Q2) Taxpayers include a maximum of 85% of Social Security benefits in gross income.
A)True
B)False
Q3) Recipients of the Nobel Peace Prize must include the prize in gross income.
A)True
B)False
Q4) Lori owns a vacation home that she rents out for about three months each year.Her deduction for expenses allocable to the rental periods is limited to her gross rental income.
A)True B)False
Q5) Unemployment benefits are excluded from gross income. A)True
B)False
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Chapter 18: The Tax Compliance Process
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Sample Questions
Q1) Who of the following can't represent a taxpayer during an interview with the IRS?
A)Enrolled agent
B)Certified public accountant
C)Attorney
D)All of the above can represent the taxpayer.
Q2) Only one spouse must sign a jointly filed Form 1040.
A)True
B)False
Q3) Which of the following statements about the outcome of an IRS audit is false?
A)The most probable outcome of an audit is that the taxpayer will be assessed a deficiency.
B)An audit can't result in a refund of tax due to the taxpayer.
C)If a revenue agent finds no mistakes on a return during an audit,the agent files a report concluding "no change."
D)None of the above is false.
Q4) The harshest administrative penalty that the IRS can impose is the civil fraud penalty.
A)True
B)False
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