ACCT 4220 5220

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ACCT 4220 5220 Powered By Docstoc
					ACCT 6160
Summer 2011
Dr. Burton



       This is a take home exam. You are allowed to use your notes, book and
handouts from class only. You are not allowed to use other reference material or
people. You have 3 and 1/2 hours to complete this exam. Please log your time in the
space above. For the night class the exam is due back to Dr. Burton by 9:30 pm
Wednesday June 15, 2011 and for the day class the exam is due back to Dr Burton
by 1:30 pm Wednesday June 15, 2011. Earlier submissions are encouraged. By
signing or typing your name in the space above you are stating that you complied
with these requirements. You are also saying that you complied with the
University’s Integrity Policy.

Remember to show all of your work.

   Answer sheet for Multiple Choice – 2 Points Each

  1. ________                                    11. _________

  2. ________                                    12. _________

  3. ________                                    13. _________

  4. ________                                    14. _________

  5. ________                                    15. _________

  6. ________                                    16. _________

  7. ________                                    17. _________

  8. ________                                    18. _________

  9. ________                                    19. _________

  10. ________                                   20. _________
I. Multiple Choice ( 2.0 points a piece).

1. Which of the following filing statuses can never be used by a single individual?

a. Married filing separately                c. Surviving spouse
b. Head of household                        d. Single

2. Sonny had AGI of $60,000 in 2011 and made several charitable contributions as

    Land donated to county for new school: FMV = $30,000; basis = $20,000
    Cash contributions to his church: $4,000
    Cash contributions to the Red Cross: $1,000

   What is the maximum charitable contribution deduction that Sonny could claim in

a. $35,000                                  c. $25,000
b. $30,000                                  d. $23,000

3. John and Mary have two children, Anna, age 16, and Tammy, age 21. Anna works
after school and earned $3,500 in 2011. Tammy works 30 hours per week and is a part-
time student at the local community college. She earned $8,400 in 2011. John’s mother
also lives with them; she receives $7,800 in Social Security and $2,000 in interest income
from some bonds. John and Mary provide over $10,000 towards her support. How many
dependency exemptions may John and Mary claim on their joint tax return?

a. 1                                        d. 4
b. 2                                        e. 5
c. 3

4. Clark filed Form 1040 but did not itemize his deductions in 2010. In 2011 he received
a state income tax refund of $900 plus interest of $10 for the overpayment of his 2009
state income tax. What amount of the state tax refund and interest is taxable on Clark’s
2011 tax return?

a. $0                                       c. $900
b. $10                                      d. $910
5. Davis, a single taxpayer, purchased a new home in December 2001 for $200,000. He
lived in the home continuously from 2009 until he sold it in September 2011 for
$455,000. What is the amount of gain he must recognize on the sale of the house?

a. $455,000                                   c. $5,000
b. $255,000                                   d. $0

6. Jackson owns two residences. The second residence, which has never been used for
rental purposes, is the only one subject to a mortgage. He had the following expenses
related to the second residence in 2011:

                 Mortgage interest     $5,000
                 Utilities              1,200
                 Insurance              3,500
                 Property taxes         2,500

What is the maximum amount he can deduct for his second residence in 2011?

a. $4,700 for AGI                             c. $5,000 itemized deduction
b. $12,200 for AGI                            d. $7,500 itemized deduction

7. Which expense can be claimed as an itemized deduction subject to the two percent of
adjusted gross income floor?

a.   Employee’s unreimbursed business expense
b.   One-half of self-employment tax
c.   Employee’s unreimbursed moving expense
d.   Self-employed health insurance

8. The rule limiting the allowability of passive activity losses does not apply to:

a. Individuals                                c. Personal Service Corporations
b. Estates                                    d. Widely held C Corporations

9. If an individual taxpayer’s passive losses relating to rental real estate activities cannot
be used in the current year, then they may be carried

a.   Back 2 years, but cannot be carried forward
b.   Forward for 20 years but cannot be carried back
c.   Back two years and forward 20 years
d.   Carried forward indefinitely or until the property is disposed of.
10. Adam owns a second residence that is used for both personal and rental purposes.
During 2011, he used the second residence for 50 days and rented it for 200 days. Which
of the following statements is correct?

a. Depreciation may not deducted on the property.
b. A rental loss may be allowed if rental related expenses exceed rental income
c. Utilities and maintenance on the property must be divided between personal and
   rental use
d. All mortgage interest and taxes on the property will be deducted as an itemized

11. All of the following result in nontaxable income except:

a.   Stock dividend
b.   Interest on municipal bonds
c.   Capital gain from a mutual fund
d.   Distribution identified as a return of capital

12. Jon, has adjusted gross income of $35,000 in 2011. During the year he incurred the
following medical expenses
       Prescription Drugs                   $ 300
       Health insurance premiums               750
       Doctors’ Fees                         2,550
       Eyeglasses                               75

He received $900 in 2011 as reimbursement for a portion of the doctors’ fees. If Jon
were to itemize his deductions, what would be his allowable medical expense deduction?

a. $0                                          c. $1,050
b. $150                                        d. $2,475

13. Matthew had the following expenses in 2011
      State and local income tax withheld             $1,500
      State estimated taxes                              400
      Federal income tax withheld                      2,500
      2011 state tax paid on 4/15/11                     300

What is the amount Matthew can deduct in 2011?

a. $4,700                                      c. $1,900
b. $2,200                                      d. $1,500
14. The Browns borrowed $20,000, secured by their home to purchase new car. At the
time of the loan, the FMV of their home was $400,000 and there was no other debt on the
home. The interest on the $20,000 loan qualifies as

a. Deductible personal interest            c. Nondeductible interest
b. Deductible qualified residence interest d. Investment interest expense

15. Stein, an unmarried taxpayer, had AGI of $80,000. He donated stock to a tax-
exempt educational institution this year that had a FMV of $25,000. He had paid $17,000
for the stock 10 years ago. What is the amount of charitable contributions he can deduct
this year?

a. $17,000                                  c. $24,000
b. $21,000                                  d. $25,000

16. Shelly has a small photographic studio in her home where she takes portraits of a
variety of pets for her clients and develops and prints the photos. Last year she earned
only $5,500 and had expenses for supplies and film of $2,500. The studio is 25% of the
 home. Total relevant home expenses are: Taxes = $2,100; Interest = $9,000; Utilities =
$1,500; Depreciation of the home = $3,000. What is the total amount of home office
expense Shelly can deduct for her photo studio this year?

a. $ 0                                      c. $ 3,000
b. 2,500                                    d. $ 3,900

17. Carl is married and has three children. In preparing to go to his accountant, he
determines that he has $62,300 of salary income and $250 in dividends. He contributes
$4,000 to a Roth IRA and has $6,800 of itemized deductions. His wife has no income.
What is the taxable income on their 2011 joint return?

a. $37,500                                  c. $32,900
b. $33,500                                  d. $28,900
18. What is the amount of the casualty loss on a truck that had a fair market value of
  $14,000 before an accident and $4,000 after an accident, if its adjusted basis is $20,000
  and the taxpayer received a $5,000 insurance reimbursement and had adjusted gross
  income of $80,000?

a. $14,000                                   d. 0
b. $10,000                                   e. None of the above
c. $4,000

19. Adam sold stock that is classified as small business stock under Section 1244 this
  year for $50,000. He had originally paid $200,000 for the stock. Adam files a joint
  return. How is this loss reported on his tax return?

a.   $ 150,000 capital loss
b.   $ 150,000 ordinary loss
c.   $ 100,000 capital loss, $50,000 ordinary loss
d.   $ 100,000 ordinary loss, $50,000 capital loss

20. Myra sold 100 shares of Stock A on October 1, 2011 for $2,000. She had originally
purchased the stock for $4,000 in 2007. She had bought another 100 shares of Stock A
on September 20, 2011 for $2,200. How much loss can Myra deduct on the sale of Stock

a.   $ 3,000
b.   $ 2,000
c.   $ 200
d.   $0
       II. (16 Points) Carl and Melissa report adjusted gross income of $325,000 and
itemized deductions that consisted of the following:
        Doctors, Dentists                                       1,750
       Mortgage Interest                                       23,000
       Property Taxes                                           3,800
       Hospital Charges                                         2,500
       Cash Contributions                                      12,900
       States Taxes Withheld                                    3,300
       Over the Counter Medication                                350
       Tax Preparation Fee                                      5,000
       Interest on Car Loan                                     2,300
       Medical Insurance                                        1,500
       Contribution of Stock to the Church
               Basis                                           30,000
               Fair Market Value                               45,000

They file a joint income tax return. Carl and Melissa have three children. Adam is 21
and a full time student at Harvard. He does not live at home except during the summer.
He has a $20,000 scholarship which covers ½ his tuition and provided $2,000 for his
support. His parents provided the rest of his tuition and support that was worth $28,000.
Melanie is 20 and works part-time. She made $8,000 last year and used all of it for her
support. Her parent provided her home and living expenses valued at $12,000. Casey is
16 and a high school student. Melissa’s mother also lives with the couple. This year she
received income from a taxable pension of $7,500 and interest of $800.
    a. Compute the amount Carl and Melissa may claim as itemized deductions on their
       2011 tax return.
    b. Compute the amount Carl and Melissa may claim as exemptions on their 2011 tax
    c. Compute Carl and Melissa’s taxable income and regular tax liability for 2011.
III.   (10 Points)    Cassie owned a limited partnership interest in three different
  partnerships. Over the years she had not been able to deduct all of the losses because of
  the passive activity rules. At 1/1/11 her passive activity loss carryforward for the three
  investments was:
            Partnership #1            ($ 25,000)
            Partnership #2            ($ 40,000)
            Partnership #3            ($ 15,000)

a. During 2011 she was allocated a $5,000 loss from Partnership 1 and $5,000 of income
  from Partnership 2. She was not allocated any income or loss from Partnership 3
  because she sold the partnership interest on 1/1/10. The gain on the sale of the
  partnership interest was $25,000. How much of the passive loss carryover can she
  deduct in 2011?

b. Assuming the gain on the sale of Partnership 3 was only $10,000 how much of the
  passive loss carryover could she deduct?
 IV ( 17 Points) Sam owns a vacation villa in Hawaii. This year he used the villa for 25
days and rented out the villa for 125 days earning $14,000 from the rentals. His total
expenses for the year on the vacation home were: Mortgage interest = $9,000; Taxes =
$4,000; Utilities = $2,000; Repairs and maintenance = $1,500; and Depreciation =

   a. How much of each expense can Sam deduct for the expenses related to the villa
      using the IRS method?
   b. How much of each expense can Sam deduct for the expenses related to the villa
      using the Courts method?
   c. Which method should Sam use in this case?
   d. How much of each expense can Sam deduct for the expenses related to the villa if
      he used the villa for 10 days and rented it for 125 using both the IRS and Courts
      methods? Which method is better in this case?
V. (5 Points) George, a single taxpayer had the following capital gains and losses in 2011:

                   Short-term loss on stock                      $ 3,000
                   Long-term gain on stock                        10,000
                   Long-term gain on a collectible                 7,000
                   Long-term unrecaptured 1250 gain                9,000
                   Long-term loss on land                          2,000
                   Long-term loss carryover                        8,000

 Compute George’s net capital gain or loss for 2011.

VI. ( 12 Points) Scott purchased a home when he was single for $400,000. He moved into the
home on March 1, 2005. He lived in the home as his primary residence until August 1, 2011
when he sold the house for $700,000. Scott’s ordinary tax rate is 32%.

    a.  How much gain and how much tax will Scott have to pay on the sale of the
    b. How much gain and how much tax will Scott have to pay if the house was a
       vacation home that he used each year for three to four months? Scott never rented
       the house or used the house for any business purpose while he owned it.
    c. How much gain and how much tax will Scott have to pay on the sale if the he sold
       the house on February 1, 2006? The reason that Scott the house is because his
       employer transferred out of the area.
Integrity Policy

Students have the responsibility to know and observe the requirements of the
University of North Carolina at Charlotte Code of Student Academic Integrity
(Catalog p. 24). This code forbids cheating, fabrication or falsification of
information, multiple submissions of academic work, plagiarism, abuse of academic
materials, and complicity in academic dishonesty. Any special requirements or
permission regarding academic integrity in this course will be stated by the
instructor, and are binding on the students. Academic evaluations in this course
include a judgment that the student's work is free from academic dishonesty of any
type; and grades in this course therefore, should be and will be adversely affected by
academic dishonesty. Students who violate the code can be expelled from University
of North Carolina at Charlotte. The normal penalty for a first offense is zero credit
on the work involving dishonesty and further substantial reduction of the course
grade. In almost all cases the course grade is reduced to F. Copies of the code can
be obtained from the Dean of Students Office. Standards of academic integrity will
be enforced in this course. Students are expected to report cases of academic
dishonesty to the course instructor.