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First & Last Name:
First Two Letters of Last Name:
Home work-Chapter 5. (Print 2 copies. On the right side of the page, enter letter [use capital letter-written clearly] of the best answer for each question. You may enter “e” if you believe no alternative given is correct. Turn in one copy at the start of class and keep one copy for class discussion. Please staple your pages. Write name at top of all pages.) 1. (Pg. 176) Barb is a CPA. She operates a tax practice. During the year, she spent the following: Annual CPA license renewal fee: $500 Fees for CPE courses to meet State CPA Board Requirement: $3,000 Tuition for first semester in law school - attending night school: $8,000 How much of these expenses should Barb deduct on her federal income tax return? a. $500 b. $3,000 c. $3,500 d. $8,000 e. 2. (Pg. 178) A single taxpayer had the following income and expenditures in 2008. Wages earned Deductible contribution to IRA NC Income Tax Charity Union Dues $60,000 (5,000) (4,000) (3,000) (400) d. $50,600 e. other
Other
What is the taxpayer’s adjusted gross income? a. $60,000 b. $55,000 c. $54,600
3. [Pg. 177] Which one of these types of deductions is not deductible in arriving at adjusted gross income? a. Alimony b. Exemption c. Expenses of rental property d. IRA Contributions 4. [Pg. 178] Mr. and Mrs. Smith have combined salaries of $60,000. Their only expenditures affecting the tax return are state income taxes of $6,000 and real estate taxes amounting to $2,000. They have two small children whom they support, and file a joint return. They have taxable income for the current year (2008) of: a. Not more than 36,000 b. More than $36,000, but not more than $37,000 c. More than $37,000, but not more than $38,000 d. More than $38,000 5. (51, 52, 179) Jan started two corporations on January 1, 2008: (1) Computer Repair Corporation and (2) a Web Consulting Corporation. She elected S status for the web consulting corporation. The income statements for these two corporations are shown below for 2008. Computer Repair [C Corp] Revenue Salary to Jan (owner) Rent expenses Other expenses Net income before taxes Dividends paid to Jan $100,000 (30,000) (20,000) (10,000) $40,000 $10,000 Web Consulting [S Corp] $200,000 (80,000) (70,000) (10,000) $40,000 $10,000 $210,000 e. Other
How much total income does Jan report from these two entities? a. $110,000 b. $160,000 c. $170,000 d.
6. [Pg. 183, 194] A taxpayer has the following amounts of income and expenses from these investments: Investments Revenue Publications Bought Expense $1,000 U.S. Bond Newsletter $40 1. Treasury bonds $2,000 Corporate Bond Newsletter $50 2. General Motors bonds $3,000 Municipal Bond Newsletter $45 3. City of Charlotte Bonds What is the amount of the miscellaneous itemized deduction, before considering the 2% threshold? a. $90 b. $40 c. $85 d. $50 e. $95
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7. [Pg. 194] When Kelley couldn’t make payments on a business loan, her brother Mike made three of the monthly payments of $700 each, a total of $2,100 ($1,950 for interest expense and $150 for principal) for Kelley’s loan. Kelley makes the other nine monthly payments herself ($5,850 for interest expense and $450 for principal). What is Kelly’s interest deduction? a. $5,850 b. $7,800 8. [Pg. 191+] Steve, owner of an ice cream shop in New York, is considering opening an ice cream store in Phoenix. After spending $15,000 investigating such possibilities in Phoenix, Steve decides against opening such a store. As a consequence, the $15,000 is: Not capitalized or deductible. a. Capitalized and amortized over 180 months. c. Capitalized and deductible over the life of the business. b. d. Currently deductible in full. 9. [Pg. 191+] Joe, a retired building contractor, went to New Orleans last week to investigate the possibility of starting a repair business there. The cost of the trip was $1,000. He will spend October renting space, hiring employees and training them. The salary and training costs to be incurred in October will be $5,000. He will start business operations in November. Of the six thousand dollars described above, how much is included in start-up costs subject to write-off and/or amortization? $1,000 a. b. $5,000 c. $6,000 10. (Pg. 178) On 1-1-07, Bell Corp. was organized. On that date, Bell paid $23,000 for startup costs for the corporation. What amount is deducted for 2007? a. $6,000 b. $5,120 c. $6,200 d. $23,000 e. Other 11. [Pg. 194] For the year, Maple Corp.'s book income, before federal income tax, was $100,000. Included in this $100,000 were the following: Provision for state income tax $1,000 Interest earned on City of Charlotte Bonds 6,000 Interest expense on bank loan to purchase City of Charlotte Bonds 2,000 Maple's taxable income for the year was: (CPA-May-1990) a. $ 96,000 b. $ 97,000 c. $ 100,000 d. $ 101,000 12. [Pg. 194] Starke Corp., an accrual-basis calendar year corporation, net income (GAAP) of $380,000. Included in that amount was $50,000 municipal bond interest income, $170,000 for federal income tax expense, and $2,000 interest expense on the debt incurred to carry the municipal bonds. What is Starke's taxable income? CPANov1995 a. $330,000 b. $500,000 c. $502,000 d. $550,000 13. [Pg. 195] Sue flies to Colorado several times a year to take pictures of individuals skiing down the mountain, which is her hobby. She spent $10,000 on travel costs, lodging and photo supplies. She was able to sell some of her pictures for $6,000. What is the amount she may deduct from the sales revenue before considering the 2% limit? a. $0 b. $4,000 c. $6,000 d. $10,000 e. $1,800 14. [Pg. 196] Joe and Sue (married) spent 20 days in their mountain vacation home this year, and rented it for 10 days at $300 per day. How much gross income will they report from this vacation home? a. $ 0 b. $2,000 c. $3,000 d. $9,000 e. Other 15. [Pg. 201] Brenda runs a calendar year, cash basis proprietorship. She had a computer disk crash at her business in December 2007. Her cash account was totally depleted, so she charged the bill for the December 12 repair on her personal credit card and paid the credit card bill in January 2008. In which year will the repair cost be deductible? a. 2007 b. 2008 c. Neither because she used her personal credit card 16. Sue rents her vacation home for 60 days and lives there 30 days. She had these income and expenses for the year. Total Income and Expenses Total Sue's gross rental income (60 days) $6,000 Real estate taxes $3,650 Mortgage interest expense $7,300 Utilities & maintenance expense $2,400 Depreciation $9,000 How much depreciation can be deducted on her tax return, using any approved methods most favorable for the taxpayer? a. $2,600 b. $2,900 c. $1,871 d. $1,600 e. $1,400
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17. [Pg. 202] Corporation X, a calendar year cash basis taxpayer, projected its taxable income to be $70,000 for 2007, and $40,000 for 2008. After making these projections for 2007 and 2008, the company decided to have a local advertising campaign for the 2007 winter holidays costing 10,000. This cost was not included in the income projections above. The company has a choice of paying the advertising bill in late December or in early January. Ignoring time value of money, how much is the company’s net savings by paying the bill in December 2007? a. $7,500 b. $1,500 c. $2,500 d. $1,000 e. Other 18. [Pg. 201, 202] On October 1, 2007, Malazia, a cash basis taxpayer, signed a 48 month lease for office space. Malazia moved in on October 1, 2007 and paid $9,600 rent for the entire lease term. For 2007, Malazia can deduct: $9,600. $400. a. b. $4,800. c. $1,600. d. $600. e. 19. [Pg. 203] Brenda runs a calendar year, accrual basis corporation. The corporation had a computer disk crash at in December 2007. The corporate cash account was totally depleted, so the corporation waited and paid the bill in January 2008. In which year will the repair cost be deductible by the corporation? a. 2007 b. 2008 c. Neither 20. [Pg. 206] Big Corp. pays Sue a salary of $100,000 in 2007. On 12-31-07, Big Corp. notifies Sue that her bonus is $20,000 for 2007, to be paid on January 31, 2008. The employer’s 2007 compensation deduction related to Sue is: a. $120,000 if Sue owns no stock of Big Corp. b. $120,000 if Sue is a 100% stockholder of Big. 21. [Pg. 206] Corporation X, a calendar year accrual basis taxpayer, was short on cash in December, 2007, so it accrued [but did not pay] year-end bonuses of $20,000 to the President and 100% stockholder, and $10,000 to the Vice-president who owns no stock. The Bonuses were paid in February, 2008. How much does X corp. deduct? For 2007? For 2008? For 2007? For 2008? $0 $10,000 a. $30,000 b. $20,000 $20,000 $20,000 c. $10,000 d. $0 22. A company reported net income before taxes of $40,000 on its GAAP income statement for 2008. For financial accounting purposes, each year the company adds to its estimated warranty liability account 5% of gross sales. The company was started in 2007. The balance in the estimated warranty liability account was $4,000 at 12/31/07 and $3,000 at 12/31/08. What is the amount of taxable income for 2008? $40,000 Other a. b. $41,000 c. $38,000 d. $39,000 e. 23. A company provided the following income statement for 2008, which includes all revenue and expense other than federal income tax, computed in accordance with GAAP. Sales $200,000 Cost of sales 100,000 Total expenses other than taxes 60,000 For financial accounting purposes, the company charges 4% of gross sales to bad debts expense each year. The company was started in 2007. Additional information is as follows: Allowance for bad debts, 12/31/2007 $3,000 Allowance for bad debts, 12/31/2008 4,000 What is taxable income for 2008? $40,000 Other a. b. $41,000 c. $38,000 d. $39,000 e. 24. Repeat preceding question. Assume the only difference the company has had between GAAP and Tax accounting is in accounting for bad debts and the income tax rate is 40%. What is the balance in the deferred tax account at the end of 2008? $0 Other a. b. $400 c. $1,400 d. $1,600 e. 25. Repeat preceding question. Assume the only difference the company has had between GAAP and Tax accounting is in accounting for bad debts. Is the deferred tax account at the end of 2008 an asset or liability? Asset a. b. Liability c. Cannot determine