Testlet 1 Flashcards
MCQ-10870
In computing the ordinary income of a partnership, a deduction is allowed for:
Guaranteed payments to partners.
MCQ-10853
Under the uniform capitalization rules applicable to property acquired for resale, which of the following costs should be
capitalized with respect to inventory if no exceptions are met?
Marketing Costs: No; Off-Site Storage Costs: Yes
MCQ-10847
Carlos asked Rick and Peter to guarantee Carlos’ debt to Gord Motors. Both Rick and Peter agree to act as sureties. The contract that all parties signed provides that Rick’s maximum liability is $30,000, and Peter’s is $20,000. Carlos owes Gord Motors $20,000 and is in default. Rick pays Gord Motors the entire amount. In the absence of an agreement to the contrary, Rick can recover from Peter:
$8,000
As a general rule each surety is liable to the creditor for the entire amount of the debt. However, with respect to co-sureties, each co-surety can seek contribution from the other co-surety (or co-sureties) to the extent any co-surety pays more than his/her/its pro rata share of the debt. In this case Rick’s pro rata share of the debt is
$30,000/($30,000 + $20,000) = 3/5. 3/5 x $20,000 = $12,000. Peter’s pro rata share is $20,000/($30,000 + $20,000) = 2/5. 2/5 x $20,000 = $8,000. Peter owes Rick $8,000 in contribution.
MCQ-10856
The Jacksons, who file a joint return, actively participate in a solely-owned rental real estate activity that produces a $30,000 loss during the current year. Their adjusted gross income was $120,000 before considering the rental activity. How much of the rental loss, if any, are the Jacksons entitled to deduct?
$15,000
Generally, passive losses are only deductible against other passive income, and there is no passive income in the facts of this question. However, the “mom and pop” exception will apply because the Jacksons actively participate in the activity. This exception allows up to $25,000 of passive losses to be deducted against other
nonpassive income. There is a phase-out over an adjusted gross income (AGI) range of $100,000 to $150,000. The Jacksons’ AGI is $120,000, and that is 40% into the phase-out range. Therefore, 40% of the $25,000 exception amount is phased out, and the deduction is $15,000 [$25,000 – ($25,000 × 40%)].
MCQ-10858
Taylor owns 1,000 shares of Media Corporation common stock with a basis of $22,000 and a fair market value of $33,000. Media paid a nontaxable 10% common stock dividend. What is the basis for each share of Media common stock owned by Taylor after receipt of the dividend?
$20
22,000 / 1,100 (which is 1000 x 1.1) = 20
MCQ-10843
A couple filed a joint return in prior tax years. During the current tax year, one spouse died. The couple has no dependent children. What is the filing status available to the surviving spouse for the first subsequent tax year?
Single
MCQ-10868
For an individual business owner, which of the following would typically be classified as a capital asset for federal income tax purposes?
Marketable securities.
MCQ-10841
Lobster, Inc. purchased the following assets during Year 1:
Computers 35,000
Computer desks 22,000
Office furniture 4,000
Delivery trucks 25,000
Building 425,000
What should be reported as the cost basis for a MACRS seven-year property?
$26,000
This would include the computer desks costing $22,000 and the office furniture costing $4,000, for a total of $26,000.
MCQ-10867
Jans, an individual, owns 80% and 100% of the total value and voting power of A and B Corps., respectively, which in turn own the following (both value and voting power):
C Corp 80% A Corp
D Corp 100% B Corp
All companies are C corporations, except B Corp., which had elected S status since inception. Which of the following statements is correct with respect to the companies’ ability to file a consolidated return?
A and C may file as a group, but B and D may not file as a group.
MCQ-10857
A taxpayer is trading a building used solely for business purposes for another building to be used in his business. The building originally cost $35,000 and he has taken $12,000 in depreciation. The old building is currently worth $20,000 and the new building the taxpayer wants in exchange is worth $20,000. No other cash or property is exchanged in the transaction. What is the taxpayer’s basis in the new building received?
$23,000
20,000 - 23,000 = (3,000) loss
Basis 20,000 + 3,000 = 23,000
MCQ-10871
How is the depreciation deduction of nonresidential real property determined for tax purposes using MACRS?
Straight-line method over 39 years.
MCQ-10834
Bass Corp., a calendar year C corporation, made qualifying Year 2 estimated tax deposits based on its actual Year 1 tax liability. On March 15, Year 3, Bass filed a timely automatic extension request for its Year 2 corporate income tax return. Estimated tax deposits and the extension payment totaled $7,600. This amount was 95% of the total tax shown on Bass’ final Year 2 corporate income tax return. Bass paid $400 additional tax on the final Year 2 corporate income tax return filed before the extended due date. For the Year 2 calendar year, Bass was subject to pay:
I. Interest on the $400 tax payment made in Year 3.
II. A tax delinquency penalty.
I only
MCQ-10865
Nolan designed Timber Partnership’s new building. Nolan received an interest in the partnership for the services. Nolan’s normal billing for these services would be $80,000 and the fair market value of the partnership interest Nolan received is $120,000. What amount of income should Nolan report?
$120,000
MCQ-10860
In preparing a client’s current-year individual income tax return, a tax practitioner discovers an error in the prior year’s return. Under the rules of practice, the tax practitioner:
Must advise the client of the error.
MCQ-10855
Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:
Lind Building 40,000 (adjust basis) 82,000 (FMV) 60%
Post Land 5,000 (adjust basis) 48,000 (FMV) 40%
The building was subject to a $10,000 mortgage that was assumed by Ace. What was Lind’s basis in Ace stock?
$30,000
Lind computes his basis as the basis of property and cash (none here) contributed, less the amount of any debt he is relieved of. Here he contributes property with an adjusted basis of $40,000, but the $10,000 debt he is relieved of must be subtracted, resulting in a net basis of $30,000. This can also be thought of as giving Lind a
basis equivalent to the amount of equity he had in the contributed building.