ACC 307 MidTerm Exam Part 2
1. In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions?
2. Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, any investigation expenses are:
3. Payments by a cash basis taxpayer of capital expenditures:
4. Which of the following is not deductible?
5. Velma and Bud divorced. Velma’s attorney fee of $5,000 is allocated as follows:
6. Five years ago, Tom loaned his son John $20,000 to start a business. A note was executed with an interest rate of 8%, which is the Federal rate. The note required monthly payments of the interest with the $20,000 due at the end of ten years. John always made the interest payments until last year. During the current year, John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800. Tom is an accrual basis taxpayer whose only income is salary and interest income. The proper treatment for the nonpayment of the note is:
7. Jed is an electrician. Jed and his wife are accrual 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 judgement. Jed was able to collect the judgement but not the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year?
8. Norm’s car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2013. The car’s adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insurance policy. Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is Norm’s deductible loss?
9. Which of the following events would produce a deductible loss?
10. Ivory, Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in 2013. Ivory’s domestic production activities deduction is:
11. Bhaskar purchased a new factory building on September 10, 2013, for $3,700,000. Five hundred thousand of the purchase price was allocated to the land. He elected the alternative depreciation system (ADS). Determine the cost recovery deduction for 2014.
12. Howard’s business is raising and harvesting peaches. On March 10, 2013, Howard purchased 10,000 new peach trees at a cost of $60,000. Howard does not elect to expense assets under § 179. If eligible, Howard takes additional first-year depreciation. Determine the cost recovery deduction for 2013.
13. James purchased a new business asset (three-year property) on July 23, 2013, at a cost of $40,000. James takes additional first-year depreciation. Determine the cost recovery deduction for 2013.
14. Alice purchased office furniture on September 20, 2012, for $100,000. On October 10, 2012, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, 2013. Alice did not elect to expense any of the assets under § 179, nor did she elect straight-line cost recovery. She did not take additional first-year depreciation. Determine the cost recovery deduction for the business assets for 2013.
15. Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2, 2013. Determine the cost recovery deduction for the year of the sale.