Accounting : Alice bought a small table at a garage sale for $100

Subject: Business    / Accounting
Question

Question 16

Alice bought a small table at a garage sale for $100. While cleaning it she discovered a nameplate on the bottom. It actually belonged to Ronald Reagan and had a FMV of $1,500. She also found a letter from George H.W. Bush to Reagan that was wedged under the drawer in the table. This letter had a FMV of $300.

a.

$1,800 is currently taxable because both the table and the note are considered a “treasure trove”

b.

$1,700 is currently taxable because both the table and the note are considered a “treasure trove”, but due to the capital recovery concept, the $100 paid for the table is not taxable

c.

$0 is currently taxable as there has been no realized income as Alice has not sold the note or the small table.

d.

$300 is currently taxable as only the note is considered a “treasure trove”. The bargain purchase on the table will be taxed when Alice sells the table.

Question 17

Betty is a single taxpayer with AGI of $22,000 in 2016. She donated her shares of XYZ stock (acquired in 2002 for $2,000) on June 15, 2016 to the Metropolitan State University Scholarship Fund. At the time the FMV of the stock was $20,000. If this is her only charitable contribution for 2016, what is the correct, total amount to be reported for Betty’s charitable contributions on Schedule A on her 2016 tax return?

a.

$0

b.

$6,600

c.

$11,000

d.

$18,000

Question 18

Jonathan purchases a block of 10 tickets to next Saturday’s Nugget’s game. The tickets cost $50 each. He keeps two tickets for himself and gives the remaining tickets to his business customers. Each customer receives two tickets, and Jonathan told all of them he would see them Saturday night. How much can Jonathan deduct as a business expense?

a.

$200

b.

$250

c.

$400

d.

$500

Question 19

Mike owns a condominium in the mountains and uses it himself for 25 days. This property and his residence are the only homes that he owns. It is rented out for a total of 50 days through a rental agency. His income and expenses for the year are:

Income $20,000

Property Taxes $6,000

Interest $9,000

Rental Agency fees $9,000

Utilities $3,000

Depreciation $6,000

Which of the following statements is NOT TRUE?

a.

The amount of carry-over to potentially be used to offset next year’s vacation home income is equal to $5,000

b.

The amount of deferred category #2 expenses is $2,000

c.

The rental of the vacation home cannot create a loss that can be utilized against Mike’s wages.

d.

All of the property taxes and interest expenses can be deducted in the current year, but the amounts will be split between personal and rental deductions.

Question 20

Which of the following is NOT TRUE regarding income tax credits?

a.

Tax credits have the ability to protect a larger amount of income from taxation on individuals with lower taxable income than those with higher taxable income

b.

Individual tax credits are generally phased out as adjustable gross income increases

c.

Some tax credits perform the function of being a “negative income tax”

d.

Deductions FOR AGI reduce a taxpayer’s liability more than the same dollar amount claimed as a tax credit

Question 21

Kip is a druggist from 9::00 to 5:00, but enjoys auto racing on weekends. He occasionally wins a race or two from the 4 or 5 he enters out of a 20 race season. He purchased his new car for $200,000 this year. His income and expenses for the year he purchased the car are as follows:

Winnings from the races $10,000

Property taxes on his car (Cat #1) $1,000

Operating expenses (Cat #2) $11,000

Depreciation on his race car (Cat #3) $15,000

What are the tax consequences of this activity?

a.

Since Kip was the driver, he was an active participant in the trade or business and can deduct all losses against his wages as a druggist

b.

The basis in his car remains $200,000 at the end of the year since no depreciation can be claimed

c.

Although the activity will be reported on his tax return, the amount of deductions are limited to gross income such that the activity will not show any net income or loss

d.

Since this is a hobby and he did not make any net income, none of the income or expenses must be reported on his tax return

Question 22

Amy, Kara and Susan own and operate a catering company – Good Eats, Inc. – as a Partnership. Amy owns 40%, Kara owns 30% and Susan owns 30%. Good Eats reports the following for the current year:

Sales Revenue: $1,000,000

Long-term capital gains $10,000

Business expenses $(750,000)

Charitable contributions $(9,000)

Short Term Capital Loss $(15,000)

What is Susan’s share of ordinary income

a.

$70,800

b.

$72,300

c.

$75,000

d.

$94,400

Question 23

Amy, Kara and Susan own and operate a catering company – Good Eats, Inc. – as a Partnership. Amy owns 40%, Kara owns 30% and Susan owns 30%. Good Eats reports the following for the current year:

Sales Revenue: $1,000,000

Long-term capital gains $10,000

Business expenses $(750,000)

Charitable contributions $(9,000)

Short Term Capital Loss $(15,000)

In addition to the income and deductions Amy receives from Good Eats, she has long term capital gains of $1,500 and other itemized deductions of $15,000. What are Amy’s total itemized deductions when she includes her receipts from Good Eats?

a.

$9,400

b.

$18,600

c.

$24,600

d.

$29,000

Question 24

Penelope owes First Bank $100,000. The bank agrees to reduce the debt to $75,000. Prior to the debt reduction, Penelope’s assets total $250,000 and her liabilities are $260,000. How much income must Penelope recognize, if any, due to this discharge of indebtedness?

a.

$0

b.

$10,000

c.

$15,000

d.

$20,000

e.

None of the Above

Question 25

During 2016, Janet keeps the following record of her travel:

Home to office 800 miles

Office to home 800 miles

Home to local clients to home 10,000 miles

Office to second job 450 miles

Second job to home 300 miles

Home to out-of-town clients 2,000 miles

If Janet uses the standard mileage rate for 2016, what amount can she deduct as a business expense?

a.

$6,723

b.

$6,885

c.

$7,158.75

d.

$7331.25

Question 26

Chris is a junior at Metropolitan State University pursuing a degree in accounting. During 2016, he receives the following cash payments:

State allocated tuition waiver scholarship $2,200

A EKS&H scholarship (for fees and books) $800

Check from his grandmother $1,700

Loan proceeds from the college financial aid office $2,500

Prize won from a Colorado lottery scratch ticket $300

Loan from his roommate $100

Interest received from National Bank CD $400

How much must be included in Chris’ gross income?

a.

$0

b.

$700

c.

$1,500

d.

$3,700

e.

$8,000

Question 27

Which of the following constitutes a realization?

Amy prepares a past-due tax return for Will. He pays her by washing her car.

Doyle’s horse gives birth. The foal will become a member of Doyle’s Clydesdale team for Budweiser.

Leadville Mining Company’s coal mine reserves were recently appraised at $4,000,000 more than last year’s appraisal.

Pam’s employer gives her and all other salaried employees a weekend in Orlando in recognition of their efforts to make this a successful year

a.

Only statement I is correct

b.

Only statement II is correct

c.

Only statements I and II are correct

d.

Only statements I and IV are correct

e.

Only statements I, II, and IV are correct.

Question 28

On April 1, Amanda is given $20,000 worth of City of Denver bonds for her 18th birthday. On June 30, Amanda receives the $800 annual interest payment on the bonds. How much income should Amanda recognize due to these two events? (Read this one closely!)

a.

$0

b.

$200

c.

$800

d.

$20,000

e.

$20,800

Question 29

The ability-to-pay concept is fundamental to the income tax structure. Constructs used to implement this concept include

Deductions

Progressive tax rates

Exclusions

Business losses

a.

Only statement II is correct

b.

Statements I, II and III are correct

c.

Statements I, II and IV are correct

d.

Statements I and III are correct

e.

Statements I, II, III and IV are correct