1. A characteristic of FICA is that: It is imposed only on the employer. It applies when one spouse works for the other spouse. It provides a modest source of income in the event of loss of employment. It is administered by both state and Federal governments. None of the above. 2. Social considerations can be used to justify: Allowing a Federal income tax deduction for state and local sales taxes. Allowing excess capital losses to be carried over to other years. Allowing accelerated amortization for the cost of installing pollution control facilities. Allowance of a credit for child care expenses. None of the above. 3. The annual increase in the cash surrender value of a life insurance policy: Is taxed according to the original issue discount rules. Is not included in gross income because the policy must be surrendered to receive the cash surrender value. Reduces the deduction for life insurance expense. Is exempt because it is life insurance proceeds. None of the above. 4. Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2010. Copper Company is a publicly held company that has declared a $1.00 per share dividend on September 30th every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $1.00 per share dividend on September 30th, payable on October 15th, to stockholders of record as of October 10th. The daughter received the $1,000 dividend on October 18, 2010. Darryl must recognize the $1,000 dividend as his income because he knew the dividend would be paid. Darryl must recognize $750 of the dividend because he owned the stock for three-fourths of the year. Darryl must recognize the income of $1,000 because he constructively received the $1,000. The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $1,000. None of the above. 5. George, an unmarried cash basis taxpayer, received the following amounts during 2010: Interest on savings accounts $2,400 Original issue discount on a certificate of deposit purchased on July 1, 2009, and matured on June 30, 2010 $1,200 Dividends on USG common stock $200 Interest on United States government bonds $300 Interest on City of Radford school bonds $600 What amount should George report as gross income from dividends and interest for 2010? $4,700. $4,100. $3,800. $3,600. None of the above. 6. Benita incurred a business expense on December 10, 2010, which she charged on her bank credit card. She paid the credit card statement which included the charge on January 5, 2011. Which of the following is correct? If Benita is a cash method taxpayer, she cannot deduct the expense until 2011. If Benita is an accrual method taxpayer, she can deduct the expense in 2010. If Benita uses the accrual method, she can choose to deduct the expense in either 2010 or 2011. Only b and c are correct. a, b, and c are correct. 7. Which of the following statements is correct in connection with the investigation of a business? If the taxpayer is not already engaged in the trade or business, the expenses incurred are deductible if the project is abandoned. If the business is acquired, the expenses may be deducted immediately by a taxpayer engaged in a similar trade or business. That business must be related to the taxpayer’s present business for any expense ever to be deductible. Regardless of whether the taxpayer is already engaged in the trade or business, the expenses must be capitalized and amortized. None of the above. 8. Nikeya sells land (adjusted basis of $60,000) to her adult son, Shamed, for its appraised value of $50,000. Which of the following statements is correct? Nikeya’s recognized loss is $10,000 ($50,000 amount realized – $60,000 adjusted basis). Shamed’s adjusted basis for the land is $60,000 ($50,000 cost + $10,000 disallowed loss for Nikeya). If Shamed subsequently sells the land for $58,000, he has no recognized gain or loss. Only a and b are correct. a, b, and c are correct. 9. Jed is an electrician. Jed and his wife are cash basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgment. Jed was never able to collect the judgment nor the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year? $0. $2,000. $3,000. $5,000. None of the above. 10. Dena owns interests in five businesses and has full-time employees in each business. She participates for 100 hours in Activity A, 120 hours in Activity B, 130 hours in Activity C, 140 hours in Activity D, and 125 hours in Activity E. All five of Dena’s activities are significant participation activities. Dena is a material participant with respect to all five activities. Dena is not a material participant in any of the activities. Dena is a material participant with respect to Activities B, C, D, and E. None of the above.