ACCT 6160 Mid-Term Summer 2011 Dr. Burton Name_________________________________ Time__________________________________ 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 follows: 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 2011: 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 deduction 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? 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 $800. a. Compute the amount Carl and Melissa may claim as itemized deductions on their 2011 tax return. b. Compute the amount Carl and Melissa may claim as exemptions on their 2011 tax return. c. Compute Carl and Melissa’s taxable income and regular tax liability for 2011. III. (10 Points) Cassie owned a limited partnership interest in three different partnerships. Over the years she had not been able to deduct all of the losses because of the passive activity rules. At 1/1/11 her passive activity loss carryforward for the three investments was: Partnership #1 ($ 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 = $12,000. 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. 6 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 house? 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.