Practice Test 3 UCO College of Business Administration Welcome .rtf by longze569

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									Practice Test III Fall 2009

True/False
Indicate whether the statement is true or false.

____    1. In some cases it may be appropriate for a taxpayer to report work-related expenses by using both Form 2106
           and Schedule C.

____    2. Arnold performs services for Jake. If Jake provides a helper and tools, this is indicative of independent
           contractor (rather than employee) status.

____    3. A taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business
           portion of parking.

____    4. Marvin lives with his family in Alabama. He has two jobs: one in Alabama and one in North Carolina.
           Marvin’s tax home is where he lives (Alabama).

____    5. Gavin, an unemployed computer program designer, moves from Sacramento to Philadelphia to accept a job as
           a chef at a restaurant. Gavin’s moving expenses are not deductible because his new job is in a different trade
           or business.

____    6. Mallard Corporation furnishes meals at cost to its employees by means of a cafeteria it maintains. The cost of
           operating the cafeteria is not subject to the cutback adjustment.

____    7. Madison is an instructor of fine arts at a local community college. If she spends $600 on art supplies for her
           classes, $250 of this amount can be claimed as a deduction for AGI.

____    8. Personal expenditures that are deductible as itemized deductions include medical expenses, Federal income
           taxes, state income taxes, property taxes on a personal residence, mortgage interest, and charitable
           contributions.

____    9. Adrienne sustained serious facial injuries in a motorcycle accident. To restore her physical appearance,
           Adrienne had cosmetic surgery. She cannot deduct the cost of this procedure as a medical expense.

____ 10. Mindy paid an appraiser to determine how much a capital improvement made for medical reasons increased
         the value of her personal residence. The appraisal fee qualifies as a deductible medical expense.

____ 11. In 2010, Rhonda received an insurance reimbursement for medical expenses incurred in 2009. She is not
         required to include the reimbursement in gross income in 2010 if she claimed the standard deduction in 2009.

____ 12. José sells his personal residence to Manuel on July 1, 2009. He had paid $4,000 in real property taxes on
         March 1, 2009, the due date for property taxes for 2009. José may deduct the portion of the taxes he paid for
         the period the property was owned by Manuel.

____ 13. For purposes of computing the deduction for qualified residence interest, a qualified residence includes the
         taxpayer’s principal residence and two other residences of the taxpayer or spouse.

____ 14. John gave $1,000 to a family whose house was destroyed by fire. John may claim a charitable deduction of
         $1,000 on his tax return for the current year.
____ 15. The tax benefit received from a tax credit is never affected by the tax rate of the taxpayer.

____ 16. Refundable credits are those that result in a payment to the taxpayer even when the amount of the credit (or
         credits) exceeds the taxpayer’s tax liability.

____ 17. The earned income credit is available only if the taxpayer has at least one qualifying child in the household.

____ 18. An individual generally may claim a credit for adoption expenses in the year in which the expenses are paid.

____ 19. A taxpayer may qualify for the credit for child and dependent care expenses if the taxpayer’s dependent is
         under age 13.

____ 20. Both education tax credits are available for qualified tuition expenses, and in certain instances, also may be
         available for room and board.

____ 21. In the event that overwithholding of FICA tax occurs because the taxpayer has more than one employer, the
         excess amount should be claimed as a credit on the Federal income tax return of the employee.


Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 22. Ryan performs services for Jordan. Which, if any, of the following factors indicate that Ryan is an
         employee, rather than an independent contractor?
         a. Jordan provides Ryan with support services (e.g., work assistants).
         b. Ryan obtained his own training (i.e., job skills).
         c. Ryan is paid based on tasks performed.
         d. Ryan makes his services available to others.
         e. None of the above.
____ 23. A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the
         following reasons:
         a. To avoid the self-employment tax.
         b. To claim unreimbursed work-related expenses as a deduction for AGI.
         c. To avoid the cutback adjustment on unreimbursed business entertainment expenses.
         d. To avoid the 2%-of-AGI floor on unreimbursed work-related expenses.
         e. None of the above.
____ 24. Michael is the city sales manager for “Chick-Stick,” a national fast food franchise. Every working day,
         Michael drives his car as follows:

                                                                   Miles
            Home to office                                          20
            Office to Chick-Stick No. 1                             15
            Chick-Stick No. 1 to No. 2                              18
            Chick-Stick No. 2 to No. 3                              14
            Chick-Stick No. 3 to home                               30

            Michael’s deductible mileage is:
            a. 0 miles.
           b.   30 miles.
           c.   47 miles.
           d.   77 miles.
           e.   None of the above.
____ 25. When using the automatic mileage method, which, if any, of the following expenses also can be claimed?
         a. Engine tune-up.
         b. Parking charges.
         c. Gasoline.
         d. MACRS depreciation.
         e. None of the above.
____ 26. Under the actual expense method, which, if any, of the following expenses will not be allowed?
         a. Parking fines incurred during business use.
         b. Interest expense on a car loan (taxpayer is self-employed).
         c. Auto insurance.
         d. Dues to auto clubs.
         e. None of the above.
____ 27. During the year, Henry went from Philadelphia to Hawaii on business. Preceding a five-day business meeting,
         he spent four days vacationing at the beach. Excluding the vacation costs, his expenses for the trip are:

           Air fare                                                $2,100
           Lodging                                                    800
           Meals                                                      600
           Entertainment                                              400

           Presuming no reimbursement, deductible expenses are:
           a. $2,350.
           b. $2,850.
           c. $3,000.
           d. $3,400.
           e. None of the above.
____ 28. In terms of meeting the distance test for purposes of deducting moving expenses, which of the following
         statements is correct?
         a. The taxpayer’s new job location must be at least 50 miles away from the old job.
         b. The taxpayer’s new residence must be at least 50 miles away from the new job.
         c. The taxpayer’s new job location must be at least 50 miles farther from the old residence
              than the old residence was to the old job.
         d. The taxpayer’s new residence must be at least 50 miles away from the old residence.
         e. None of the above.
____ 29. Which, if any, of the following is subject to the cutback adjustment?
         a. An airline pilot for an executive jet rental company who pays his own travel expenses.
         b. Meals provided at cost to employees by a cafeteria funded by the employer.
         c. Fourth of July company picnic for employees.
         d. Business gifts of $25 (or less).
         e. None of the above.
____ 30. Valerie, the regional sales director for a manufacturer of sporting goods, pays $2,000 to rent a skybox for a
         visiting performance of the Harlem Globetrotters. The skybox holds 10 seats, and Valerie invites 8 clients to
         the event. Nonluxury seats range in price from $50 to $100. The refreshments provided during the event cost
         $500. If Valerie meets all of the requirements for deductibility (i.e., business discussion, substantiation), she
         may deduct:
         a. $500.
         b. $750.
         c. $1,250.
         d. $1,500.
         e. None of the above.
____ 31. Which, if any, of the following expenses is subject to the 2%-of-AGI floor?
         a. Gambling losses (to the extent of gambling gains).
         b. Moving expenses (not reimbursed by employer).
         c. Teaching supplies (up to $250) purchased by a fifth grade teacher.
         d. Union dues of an employed machinist.
         e. None of the above.
____ 32. Edna had an accident while competing in a rodeo. She sustained facial injuries that required cosmetic
         surgery. While having the surgery done to restore her appearance, she had additional surgery done to
         reshape her chin, which was not injured in the accident. The surgery to restore her appearance cost $9,000
         and the surgery to reshape her chin cost $6,000. How much of Edna’s surgical fees will qualify as a
         deductible medical expense (before application of the 7.5% limitation)?
         a. $0.
         b. $6,000.
         c. $9,000.
         d. $15,000.
         e. None of the above.
____ 33. Rosita is employed as a systems analyst. For calendar year 2009, she had AGI of $120,000 and paid the
         following medical expenses:

                Medical insurance premiums                                             $3,900
                Doctor and dentist bills for Jose
                and Carmen (Rosita’s parents)                                            8,250
                Doctor and dentist bills for Rosita                                      6,750
                Prescribed medicines for Rosita                                            300
                Nonprescribed insulin for Rosita                                           825

            José and Carmen would qualify as Rosita’s dependents except that they file a joint return. Rosita’s medical
            insurance policy does not cover them. Rosita filed a claim for $3,150 of her own expenses with her
            insurance company in December 2009 and received the reimbursement in January 2010. What is Rosita’s
            maximum allowable medical expense deduction for 2009?
            a. $2,775.
            b. $11,025.
            c. $17,325.
            d. $17,775.
            e. None of the above.
____ 34. Sandra is single and does a lot of business entertaining at home. Because Arthur, Sandra’s 80-year old
         dependent grandfather who lived with Sandra, needs medical and nursing care, he moved to Twilight Nursing
         Home. During the year, Sandra made the following payments on behalf of Arthur:
                Room at Twilight                                                       $4,500
                Meals for Arthur at Twilight                                              850
                Doctor and nurse fees                                                     700
                Cable TV service for Arthur’s room                                        107
                Total                                                                  $6,157

            Twilight has medical staff in residence. Disregarding the 7.5% floor, how much, if any, of these expenses
            qualify for a medical deduction by Sandra?
            a. $6,157.
            b. $6,050.
            c. $5,200.
            d. $1,550.
            e. None of the above.
____ 35. Brad, who uses the cash method of accounting, lives in a state that imposes an income tax (including
         withholding from wages). On April 14, 2009, he files his state return for 2008, paying an additional $600 in
         state income taxes. During 2009, his withholdings for state income tax purposes amount to $3,550. On April
         13, 2010, he files his state return for 2009 claiming a refund of $800. Brad receives the refund on August 3,
         2010. If he itemizes deductions, how much may Brad claim as a deduction for state income taxes on his
         Federal income tax return for calendar year 2009 (filed in April 2010)?
         a. $3,350.
         b. $3,550.
         c. $4,150.
         d. $5,150.
         e. None of the above.
____ 36. Ron and Tom are equal owners in Robin Corporation. On July 1, 2009, each loans the corporation $20,000
         at annual interest of 10%. Ron and Tom are brothers. Both shareholders are on the cash method of
         accounting, while Robin Corporation is on the accrual method. All parties use the calendar year for tax
         purposes. On June 30, 2010, Robin repays the loans of $40,000 together with the specified interest of
         $4,000. How much of the interest can Robin Corporation deduct in 2009?
         a. $0.
         b. $1,000.
         c. $2,000.
         d. $4,000.
         e. None of the above.
____ 37. Pedro’s child attends a school operated by the church the family attends. Pedro made a donation of $1,000 to
         the church in lieu of the normal registration fee of $200. In addition, Pedro paid the regular tuition of $6,000
         to the school. Based on this information, what is Pedro’s charitable contribution?
         a. $0.
         b. $800.
         c. $1,000.
         d. $6,800.
         e. $7,000.
____ 38. Terry pays $8,000 this year to become a charter member of Mammoth University’s Athletic Council. The
         membership ensures that Terry will receive choice seating at all of Mammoth’s home basketball games. In
         addition, Terry pays $2,200 (the regular retail price) for season tickets for himself and his wife. For these
         items, how much qualifies as a charitable contribution?
         a. $6,200.
            b.     $6,400.
            c.     $8,000.
            d.     $10,200.
            e.     None of the above.
____ 39. Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization)
         on June 8 this year. What is the amount of Byron’s deduction assuming that he had purchased the stock for
         $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation?
         a. $3,300.
         b. $10,500.
         c. $12,150.
         d. $13,800.
         e. None of the above.
____ 40. Mel made the following donations to charity during the year:

                                                                              Basis     Fair Market Value
                 Used clothing of taxpayer and his family                 $      900        $    300
                 Stock in GMC held as an investment for
                    thirteen months                                           8,000              7,000
                 Stock in United Corp. held as an
                    investment for nine months                              9,000              10,000
                 Real estate held as an investment for six years           10,000              25,000

            The used clothing was donated to the Salvation Army; the other items of property were donated to a
            Methodist Church seminary. Disregarding percentage limitations, Mel’s charitable contribution deduction
            for the year is:
            a. $43,300.
            b. $42,900.
            c. $41,300.
            d. $26,300.
            e. None of the above.
____ 41. Which of the following items would be an itemized deduction on Schedule A of Form 1040 not subject to the
         2%-of-AGI floor?
         a. Professional dues paid by an accountant (employed by Ford Motor Co.) to the National
            Association of Accountants.
         b. Gambling losses to the extent of gambling winnings.
         c. Job hunting costs.
         d. Appraisal fee paid to a valuation expert to determine the fair market value of art work
            donated to a qualified museum.
         e. None of the above.
____ 42. Refundable tax credits include the:
         a. Foreign tax credit.
         b. Tax credit for rehabilitation expenses.
         c. Credit for certain retirement plan contributions.
         d. Earned income credit.
         e. None of the above.
____ 43. Which of the following correctly describes the tax credit for rehabilitation expenditures?
         a. The cost of enlarging any existing business building is a qualifying expenditure.
            b.   The cost of facilities related to the building (e.g., a parking lot) is a qualifying expenditure.
            c.   No recapture provisions apply.
            d.   No credit is allowed for the rehabilitation of personal use property.
            e.   None of the above.
____ 44. During the year, Rose, Inc. incurs the following research expenditures:

                 In-house wages, supplies, computer time                                                $80,000
                 Paid to Blue Ridge Foundation for research                                              40,000

            Rose’s qualifying research expenditures for the year are:
            a. $26,000.
            b. $80,000.
            c. $92,000.
            d. $106,000.
            e. None of the above.
____ 45. Which, if any, of the following correctly describes the earned income credit?
         a. Would be available regardless of the amount of the taxpayer’s adjusted gross income.
         b. Not available to a surviving spouse.
         c. A taxpayer must have a qualifying child to take advantage of the credit.
         d. Is a refundable credit.
         e. None of the above.
____ 46. George and Jill are husband and wife, ages 67 and 65 respectively. During the year, they receive Social
         Security benefits of $4,000 and have adjusted gross income of $11,000. Assuming they file a joint return,
         their tax credit for the elderly, before considering any possible limitation due to their tax liability, is:
         a. $1,125.
         b. $750.
         c. $450.
         d. $375.
         e. None of the above.
____ 47. Caleb and Zoe are married and file a joint tax return claiming their two children, ages 10 and 8 as dependents.
         Assuming their AGI is $114,300, Caleb and Zoe’s child tax credit is:
         a. $0.
         b. $250.
         c. $1,750.
         d. $2,000.
         e. None of the above.
____ 48. Kevin and Sue have two children, ages 8 and 14. They spend $6,200 per year on eligible employment related
         expenses for the care of their children after school. Kevin and Sue each earns a salary of $18,000. What is the
         amount of the credit for child and dependent care expenses?
         a. $720.
         b. $1,035.
         c. $1,380.
         d. $1,488.
         e. None of the above.
____ 49. Which of the following statements is true regarding the education tax credits?
         a. The lifetime learning credit is available for qualifying tuition and related expenses
               incurred by students pursuing only graduate degrees.
            b. The American Opportunity credit permits a maximum credit of 20% of qualified expenses
               up to $10,000 per year.
            c. The American Opportunity credit is calculated per taxpayer, while the lifetime learning
               credit is available per eligible student.
            d. Continuing education expenses do not qualify for either education credit.
            e. None of the above statements is true.
____ 50. Realizing that providing for a comfortable retirement is up to them, Jim and Julie commit to making regular
         contributions to their IRAs, beginning this year. Consequently, they each make a $2,000 contribution to their
         traditional IRA. If their AGI is $37,000 on their joint return, what is the amount of their credit for certain
         retirement plan contributions?
         a. $2,000.
         b. $800.
         c. $400.
         d. $200.
         e. None of the above.
Practice Test III Fall 2009
Answer Section

TRUE/FALSE

      1. ANS: T
         A taxpayer with two jobs may be both an employee (Form 2106) and self-employed (Schedule C).

         PTS: 1                DIF: 1                REF: p. 9-3 | Example 3
         OBJ: 1                NAT: AICPA FN-Reporting | AACSB Analytic
         MSC: 2 min
      2. ANS: F
         Since Jake provides the helper and tools, Arnold probably is an employee.

         PTS: 1                DIF: 1                REF: p. 9-3            OBJ: 1
         NAT: AICPA FN-Reporting | AACSB Analytic                           MSC: 2 min
      3. ANS: T
         Such cost is deductible under both methods.

         PTS: 1               DIF: 1                 REF: p. 9-6           OBJ: 2
         NAT: AICPA FN-Measurement | AACSB Analytic                        MSC: 2 min
      4. ANS: F
         Marvin’s tax home is where his principal job is located. This is determined by considering numerous factors,
         among which are the level of income earned and the amount of time spent. Thus, it is incorrect to resolve the
         tax home issue without more facts.

         PTS: 1              DIF: 1                 REF: Example 13 OBJ: 3
         NAT: AICPA FN-Reporting | AACSB Analytic                         MSC: 2 min
      5. ANS: F
         For moving expenses to be deductible, a taxpayer need not remain in the same trade or business.

         PTS: 1                DIF: 1                REF: p. 9-13           OBJ: 4
         NAT: AICPA FN-Reporting | AACSB Analytic                           MSC: 2 min
      6. ANS: T                PTS: 1                DIF: 1                 REF: Example 32
         OBJ: 6                NAT: AICPA FN-Measurement | AACSB Analytic
         MSC: 2 min
      7. ANS: F
         The $250 special rule for school supplies applies only to elementary and secondary school teachers.

         PTS: 1                 DIF: 1                REF: p. 9-25          OBJ: 7
         NAT: AICPA FN-Measurement | AACSB Analytic                         MSC: 2 min
      8. ANS: F
         All of the listed personal expenditures except Federal income taxes are deductible as itemized deductions.

         PTS: 1               DIF: 1                 REF: Exhibit 10.2 OBJ: 1
         NAT: AICPA FN-Reporting | AACSB Analytic                      MSC: 2 min
      9. ANS: F
         Unnecessary cosmetic surgery is not deductible. However, Adrienne’s surgery restored her appearance and
         corrected a problem caused by the accident.
    PTS: 1                 DIF: 1                  REF: Example 3       OBJ: 2
    NAT: AICPA FN-Reporting | AACSB Analytic                            MSC: 2 min
10. ANS: F
    The appraisal fee does not qualify as a medical expense, but it qualifies as a deduction under § 212 (related to
    the determination of tax liability) as a miscellaneous itemized deduction.

    PTS: 1               DIF: 1                 REF: p. 10-5          OBJ: 2
    NAT: AICPA FN-Reporting | AACSB Analytic                          MSC: 2 min
11. ANS: T
    The reimbursement is included in gross income only to the extent the taxpayer derived a tax benefit from
    deducting the expense in the previous year. Because Rhonda did not itemize in 2009, she received no tax
    benefit.

    PTS: 1                 DIF: 1                 REF: Example 12 OBJ: 2
    NAT: AICPA FN-Measurement | AACSB Analytic                           MSC: 5 min
12. ANS: F
    The real property taxes paid by the seller (José) but apportioned to the buyer (Manuel) reduce the amount José
    realized from the sale of the residence. José may not deduct the portion of the taxes related to the period
    Manual owned the property.

    PTS: 1                DIF: 1                 REF: p. 10-14 | Example 19
    OBJ: 3                NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
13. ANS: F
    A qualified residence includes a principal residence and one other residence.

    PTS: 1                DIF: 1                 REF: p. 10-16         OBJ: 5
    NAT: AICPA FN-Measurement | AACSB Analytic                         MSC: 2 min
14. ANS: F
    Gifts made to needy individuals are not tax deductible. Deductible gifts need to be made to a qualifying
    charity.

    PTS: 1                DIF: 1                   REF: p. 10-21           OBJ: 6
    NAT: AICPA FN-Measurement | AACSB Analytic                             MSC: 2 min
15. ANS: T
    The tax benefit from a tax credit is not affected by the tax rate of the taxpayer.

    PTS: 1                 DIF: 1     REF: p. 13-4                      OBJ: 1
    NAT: AICPA FN-Measurement | AACSB Analytic                          MSC: 2 min
16. ANS: T
    Most credits are not refundable.

    PTS: 1                DIF: 1                 REF: p. 13-5 | Example 6
    OBJ: 2                NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 2 min
17. ANS: F
    The earned income credit also is available to workers without children who are ages 25 through 64 who
    cannot be claimed as a dependent on another taxpayer’s return.
        PTS: 1                 DIF: 1                REF: p. 13-16 | Table 13.2
        OBJ: 4                 NAT: AICPA FN-Measurement | AACSB Analytic
        MSC: 2 min
    18. ANS: F
        A taxpayer may claim the adoption expenses credit in the year qualifying expenses are paid or incurred if the
        expenses are paid or incurred during or after the year in which the adoption is finalized. For qualifying
        expenses paid or incurred in a tax year prior to the year in which the adoption is finalized, the credit must be
        claimed in the year following the year in which paid.

        PTS: 1                 DIF: 1                REF: p. 13-20          OBJ: 4
        NAT: AICPA FN-Measurement | AACSB Analytic                          MSC: 5 min
    19. ANS: T                 PTS: 1                DIF: 1                 REF: p. 13-22
        OBJ: 4                 NAT: AICPA FN-Measurement | AACSB Analytic
        MSC: 2 min
    20. ANS: F
        Room and board are ineligible for either of the education tax credits (i.e., American Opportunity credit and
        lifetime learning credit).

        PTS:    1               DIF: 1                REF: p. 13-24          OBJ: 4
        NAT:    AICPA FN-Measurement | AACSB Analytic                        MSC: 2 min
    21. ANS:    T               PTS: 1                DIF: 1
        REF:    p. 13-33 | p. 13-34 | Example 40 | Example 41                OBJ: 5
        NAT:    AICPA FN-Measurement | AACSB Analytic                        MSC: 2 min


MULTIPLE CHOICE

    22. ANS: A
        Choices b., c., and d. reflect independent contractor status.

        PTS: 1                DIF: 1                REF: p. 9-3 | p. 9-4
        OBJ: 1                NAT: AICPA FN-Reporting | AACSB Analytic
        MSC: 2 min
    23. ANS: A
        The self-employment tax is twice the Social Security equivalent imposed on employees (choice a.). Most
        unreimbursed employee expenses are deductions from AGI (choice b.) and will be subject to the 2%-of-AGI
        adjustment (choice d.). Unreimbursed entertainment expenses will be subject to the cutback adjustment
        (choice c.).

        PTS: 1                 DIF: 1                REF: p. 9-3 | p. 9-19 | p. 9-31
        OBJ: 1 | 11            NAT: AICPA FN-Reporting | AACSB Analytic
        MSC: 2 min
    24. ANS: C
        15 miles + 18 miles + 14 miles = 47 miles. The mileage for driving from his home to the office (20 miles) and
        from the last worksite to home (30 miles) is not deducible.

        PTS: 1                 DIF: 1               REF: Example 6        OBJ: 2
        NAT: AICPA FN-Measurement | AACSB Analytic                        MSC: 5 min
    25. ANS: B
        Choices a., c., and d. would be allowed under the actual expense method.
    PTS: 1                DIF: 1                 REF: p. 9-6 | p. 9-7
    OBJ: 2                NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 2 min
26. ANS: A
    Fines and penalties are not deductible (choice a.).

    PTS: 1                    DIF: 1          REF: p. 9-8 | p. 9-32
    OBJ: 2                    NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 2 min
27. ANS: D
    $2,100 + $800 + $500 [50%($600 + $400)] = $3,400. No allocation is required for domestic transportation
    costs (i.e., the airfare).

    PTS: 1                  DIF: 2                REF: Example 20 OBJ: 3
    NAT: AICPA FN-Measurement | AACSB Analytic                           MSC: 10 min
28. ANS: C
    The distance comparison is between the old residence to the old job and old residence to new job (choice c.).
    In this regard, the location of the new residence is immaterial (choices b. and d.), as is the distance between
    the old and new jobs (choice a.).

    PTS: 1               DIF: 1                   REF: Example 24 OBJ: 4
    NAT: AICPA FN-Reporting | AACSB Analytic                             MSC: 2 min
29. ANS: A
    Although a reduced rate is in effect, the cutback adjustment still applies to persons subject to regulation by the
    U.S. Department of Transportation.

    PTS: 1               DIF: 1          REF: p. 9-19 | p. 9-20
    OBJ: 6               NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
30. ANS: B
    50%  [(10  $100) + $500] = $750.

    PTS: 1               DIF: 1                REF: Example 37 OBJ: 6
    NAT: AICPA FN-Measurement | AACSB Analytic                        MSC: 5 min
31. ANS: D
    Moving expenses and teaching supplies are deductions for AGI (choices b. and c.). Gambling losses are
    miscellaneous itemized deductions but are not subject to the 2% adjustment (choice a.).

    PTS: 1                DIF: 1                 REF: p. 9-30            OBJ: 10
    NAT: AICPA FN-Reporting | AACSB Analytic                             MSC: 2 min
32. ANS: C
    Cosmetic surgery is necessary (and therefore deductible) when it ameliorates (1) a deformity arising from a
    congenital abnormality, (2) a personal injury, or (3) a disfiguring disease. The $9,000 cost incurred in
    connection with the restorative surgery (required as a result of the accident) is deductible because the surgery
    was necessary. Amounts paid for the unnecessary cosmetic surgery ($6,000 for reshaping the chin) are not
    deductible as a medical expense.

     PTS: 1                 DIF: 1          REF: Example 2 | Example 3
     OBJ: 2                 NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
33. ANS: B
    Rosita’s medical expense deduction is $11,025, determined as follows:

          Medical insurance premiums                                         $ 3,900
          Doctor and dentist bills for José and Carmen                           8,250
          Doctor and dentist bills for Rosita                                    6,750
          Prescribed medicines for Rosita                                          300
          Nonprescribed insulin for Rosita                                         825
          Total medical expenses                                              $20,025
          Less: 7.5% of $120,000 (AGI)                                         (9,000)
          Deductible portion of medical expenses                              $11,025

     Although José and Carmen cannot be claimed as Rosita’s dependents, they could have been had they not filed
     a joint return. Therefore, they qualify for the medical expense deduction. Insulin is an exception to the rule
     that nonprescribed drugs do not qualify as medical expenses. The insurance recovery was not received until
     2010. Therefore, it has no effect on the medical expense deduction for 2009.

    PTS: 1               DIF: 2                 REF: p. 10-3 to 10-9 | Exhibit 10.1
    OBJ: 2               NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 10 min
34. ANS: B
    The amount that qualifies is $6,050 ($4,500 + $850 + $700). The room and board for Twilight qualifies
    because the move was motivated by Arthur’s need for medical care. The cable fee is a personal expense and
    cannot be deducted.

    PTS: 1                 DIF: 1                REF: p. 10-4 | Example 4 | Example 37
    OBJ: 2                 NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
35. ANS: C
    Brad is a cash basis taxpayer. His deduction is limited to the amounts paid in 2009. The $800 refund is
    reported as income in 2010 under the tax benefit rule. Brad’s state income tax deduction for 2009 is
    determined as follows:

     Paid April 14, 2009, for 2008                                                         $   600
     Withholdings for 2009                                                                   3,550
     Total deduction                                                                        $4,150

    PTS: 1               DIF: 1                  REF: p. 10-14       OBJ: 4
    NAT: AICPA FN-Measurement | AACSB Analytic                       MSC: 5 min
36. ANS: A
    Robin Corporation can deduct interest expense of $4,000 in 2010 and $0 in 2009. Under § 267, Ron and
    Tom are regarded as related to the corporation. Consequently, the deductibility must await actual payment
    (in 2010).

    PTS: 1          DIF: 1            REF: p. 10-18                    OBJ: 5
    NAT: AICPA FN-Measurement | AACSB Analytic                         MSC: 5 min
37. ANS: B
     The taxpayer’s donation of $1,000 in lieu of the normal $200 registration fee would be deductible to the
     extent of $800 [$1,000 – $200 benefit received (the registration fee)]. The tuition of $6,000 is a personal
     expense that cannot be deducted as a charitable contribution.

    PTS: 1                 DIF: 1                  REF: p. 10-20 | p. 10-21
    OBJ: 6                 NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
38. ANS: B
    Under the exception to the tangible-benefit-received rule, Terry can deduct $6,400 (80% of $8,000) of the
    charter membership fee to Mammoth University’s Athletic Council. The amount Terry pays ($2,200) to
    purchase tickets at the regular price is not deductible as a charitable contribution.

    PTS: 1                 DIF: 1                REF: Example 27 OBJ: 6
    NAT: AICPA FN-Measurement | AACSB Analytic                           MSC: 5 min
39. ANS: B
    If ordinary income property is contributed to a qualified charitable organization, the deduction is equal to the
    fair market value of the property less the amount of ordinary income that would have been reported if the
    property were sold. In most instances, the deduction is limited to the adjusted basis of the property to the
    donor. Since he had not held the property long enough to meet the long-term capital gain requirement (i.e.,
    not more than one year), Byron would have recognized a short-term capital gain of $3,300 if he had sold the
    property. Since short-term capital gain property is treated as ordinary income property for charitable
    contribution purposes, Byron’s charitable contribution deduction is limited to the property’s adjusted basis of
    $10,500 ($13,800 – $3,300).

    PTS: 1                DIF: 1                  REF: Example 29 OBJ: 6
    NAT: AICPA FN-Measurement | AACSB Analytic                          MSC: 5 min
40. ANS: C
    For the used clothing and the GMC stock, fair market value controls in determining the amount of the
    deduction. The GMC stock was held long-term, but it was not appreciated property. The United stock
    would not yield a long-term capital gain if sold because of the holding period. Consequently, it is ordinary
    income property and the appreciation cannot be claimed. The real estate meets the definition of capital gain
    property. Thus, $300 + $7,000 + $9,000 + $25,000 = $41,300.

    PTS: 1                  DIF: 2                REF: p. 10-23 to 10-25
    OBJ: 6                  NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 10 min
41. ANS: B
    Items a., c., and d. are miscellaneous deductions that are subject to the 2%-of-AGI limitation.

    PTS: 1              DIF: 1            REF: p. 10-28   OBJ: 7
    NAT: AICPA FN-Measurement | AACSB Analytic            MSC: 5 min
42. ANS: D              PTS: 1            DIF: 1          REF: Exhibit 13.1
    OBJ: 2              NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
43. ANS: D              PTS: 1            DIF: 1          REF: p. 13-8 | p. 13-9
    OBJ: 3              NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
44. ANS: D
    $106,000 = $80,000 + ($40,000  65%).
    PTS: 1               DIF: 1               REF: p. 13-11 | Example 14
    OBJ: 3               NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
45. ANS: D               PTS: 1               DIF: 1                  REF: p. 13-15 to 13-17
    OBJ: 4               NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
46. ANS: C
    $7,500 (base amount) – $4,000 (Social Security benefits) – $500 (one-half of adjusted gross income in excess
    of $10,000) = $3,000  15% = $450.

    PTS: 1                DIF: 1               REF: p. 13-18 | p. 13-19 | Example 24
    OBJ: 4                NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
47. ANS: C
    The maximum child tax credit is $1,000 per dependent child under age 17. The maximum credit must be
    reduced for higher-income taxpayers. For married taxpayers, the credit reduction is $50 for every $1,000 (or
    part thereof) of AGI above the threshold amount $110,000, resulting in a reduction of $250 [($114,300 –
    $110,000)/$1,000 (rounded to 5)  $50] for Caleb and Zoe. Therefore, the child tax credit is $1,750 ($2,000
    maximum credit – $250 reduction).

    PTS: 1                DIF: 1                REF: p. 13-21 | Example 28
    OBJ: 4                NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
48. ANS: A
    $720 = 24%  $3,000. Kevin and Sue have only one qualifying dependent (i.e., the 8 year-old); therefore,
    only up to $3,000 of expenditures qualify for the credit. The $3,000 statutory ceiling is less than the earned
    income ceiling of $18,000.

    PTS: 1                  DIF: 1                 REF: p. 13-22 | p. 13-23
    OBJ: 4                  NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
49. ANS: E
    None of the statements is true. Choice a. is incorrect since the lifetime learning credit is available for
    individuals who are beyond the first two years of post-secondary education. Choice b. reflects the
    computation of the lifetime learning credit, not the American Opportunity scholarship credit. The exact
    opposite of choice c. is correct. Choice d. is incorrect since some continuing education expenses can qualify
    for the lifetime learning credit.

    PTS: 1                 DIF: 1                REF: p. 13-24 | p. 13-25
    OBJ: 4                 NAT: AICPA FN-Measurement | AACSB Analytic
    MSC: 5 min
50. ANS: C
    The available credit for taxpayers reporting AGI of $37,000 on a joint return is limited to 10% times up to
    $2,000 for each eligible individual who makes a contribution. Therefore, the credit is equal to $400 [10% 
    ($2,000  2)].

     PTS: 1          DIF: 1            REF: Example 36                   OBJ: 4
     NAT: AICPA FN-Measurement | AACSB Analytic                          MSC: 5 min

								
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