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University of Maryland Global Campus                     Final Exam – Fall 2022

Student Name __Emani Cooks__       Please answer all questions

33 multiple choice questions.  Each question worth 3 points.

  1. Mock operates a retail business selling illegal narcotic substances. When Mock calculates business income, he may adjust for
  1. Cost of merchandise
  2. Business expenses other than the cost of merchandise
  3. I only
  4. II only
  5. Both I and II
  6. Neither I nor II
  • Phil Armonic is actively engaged in the oil business and owns numerous oil leases in the Southwest. During 2021, he made several trips to inspect oil wells on the leases. As a result of these overnight trips, he paid the following:
Plane fares$4,000
Hotels1,000
Meals (purchased from restaurants)800
Entertaining lessees500

Of the $6,300 in expenses incurred, he can claim as deductible expenses

  1. $6,300
    1. $5,800
    1. $5,400
    1. $4,800

.

  • Alt Partnership, a cash-basis, calendar-year entity, began business on October 1, 2021. Alt incurred and paid the following in 2021:
Legal fees to prepare the partnership agreement$12,000
Accounting fees to prepare the representations
in offering materials15,000

Alt elected to amortize costs. What was the maximum amount (ignoring any immediate expensing allowed) that Alt may deduct on the 2021 partnership return?

  1. Zero
  2. $200
  3. $3,000
  4. $6,750

.

  • All of the following payments made to employees would be currently deductible as business expenses except
  1. Wages paid to employees for constructing a new building to be used in the business.
  2. Vacation pay paid to an employee when the employee chooses not to take a vacation.
  3. Reasonable salary paid to a corporate officer owning a controlling interest for services she rendered.

D   Lump-sum payment made to the beneficiary of a deceased employee that is reasonable in relation to the employee’s past services, i.e., payment equivalent to compensation.

.

  • The self-employment tax is
  • Fully deductible as an itemized deduction.
  • Fully deductible in determining net income from self-employment.
  • Partially deductible from gross income in arriving at adjusted gross income.
  • Not deductible.

.

  • Juan recently started operating a flower shop as a proprietorship. In its first year of operations, the shop had a taxable income of $60,000. Assuming that Juan had no other employment-related earnings,
  • The flower shop must withhold FICA taxes from Juan’s earnings.
  • Juan must pay self-employment tax on the earnings of the business.
  • Juan will be exempt from self-employment taxes for the first 3 years of operations
  •  Juan will be exempt from the Medicare tax because the business earnings are below the threshold amount

.

  • During the examination of the financial statements of Viscount Manufacturing Corporation, the CPAs noted that, although Viscount had 860 full-time and part-time employees, it had completely overlooked its responsibilities under the Federal Insurance Contributions Act (FICA). Under these circumstances, which of the following is true?
  • No liability under the act will attach if the employees voluntarily relinquish their rights under the act in exchange for a cash equivalent paid directly to them.
  •  If the union that represents the employees has a vested pension plan covering the employees that is equal to or exceeds the benefits available under the act, Viscount has no liability.
  • Since employers and employees owe FICA taxes and since the employer must withhold the employees’ tax from their wages as paid, Viscount must remit to the government a tax equal to the amount assessed directly against the employer and the employees.
  • The act does not apply to the part-time employees.

.

  • Which of the following credits can result in a refund even if the individual had no income tax liability?
  • Foreign Tax Credit
  • Elderly and Permanently and Totally Disabled Credit
  • Earned Income Credit
  • Adoption Credit

.

  • Which of the following statements about the Child and Dependent Care Credit is correct?
  • The credit is refundable
  • The child must be under the age of 18 years
  • The child must be a direct descendant of the taxpayer
  • The maximum credit is $600

.

  1. Joe and Mary Day’s daughter, Julie, is a first-year student in college during 2021. Joe and Mary had an adjusted gross income (AGI) of $124,000, and Julie’s eligible expenses were $9,000. What is the amount of the American Opportunity Credit that the Days may use in 2021?
  2. Zero
  3. $2,000
  4. $9,000
  5. $2,500

.

  1. Jerry and Ann Jones are married and keep up a home for their two preschool children, ages 2 and 4. They claim their children as dependents and file a joint return using Form 1040. Their adjusted gross income (AGI) is $229,000. Jerry earned $104,000, and Ann earned $125,000. During the year, they pay work-related expenses of $8,000 for child care for their son, Daniel, at a neighbor’s home and $8,200 for child care for their daughter, Amy, at Pine Street Nursery School. How much of their child-care payments are eligible for the Child and Dependent Care Credit on their return?

A. Zero

B. $8,000

C. $16,200

D. $16,000

.

  1. Lee qualified as head of a household for 2021 tax purposes. Lee’s 2021 taxable income was $100,000, exclusive of capital gains and losses. Lee had a net long-term capital loss of $8,000 in 2021. What amount of this capital loss can Lee offset against 2021 ordinary income?
  2. Zero
  3. $3,000
  4. $4,000
  5. $8,000

.

  1. Which of the following statements about losses in federally declared disaster areas is false?
  2. The taxpayer has the option of deducting the loss on the return for the year immediately preceding the year in which the disaster actually occurred
  3. Any AGI limitations are based on the AGI of the year the loss is reported.
  4. Disaster area loss deductions are subject to a per-event and AGI floor.
  5. Once made, the election to deduct the loss on the prior-year return cannot be revoked.

.

  1. What is the tax treatment of net operating losses (NOLs) arising in tax year 2021 and later?
  2. They can be carried back 2 years and carried forward 20 years.
  3. They can be carried back 5 years and carried forward indefinitely.
  4. They cannot be carried back, but they can be carried forward indefinitely
  5. They cannot be carried back or carried forward to other tax years.

.

  1. A cash-basis taxpayer should report gross income  
  2. Only for the year in which income is actually received in cash.  
  3. Only for the year in which income is actually received whether in cash or in property.  
  4. For the year in which income is either actually or constructively received in cash only.  
  5. For the year in which income is either actually or constructively received, whether in cash or in property

.

  1. Individuals receive special tax rates for long-term capital gains (ie, held over 1 year). For 2018 – 2025, the applicable rate is determined based on income levels (adjusted for inflation after 2018), rather than tax brackets, as previously discussed. For 2022:  

_____% tax rate if income is below $41,675 for single individuals, $83,350 for MFJ/SS, and $55,800 for HOH  

_____% tax rate if income is between the applicable 0% rate amount and below $458,750 for single individuals, $517,200 for MFJ/SS, and $488,500 for HOH  

_____% tax rate for all other “high-income” individuals above these thresholds  

Short-term capital gains (ie, held 1 year or less) are taxed at ordinary tax rates. 

  1. 0%, 10%, 15%
  2. 5%, 10%, 25%
  3. 10%, 15%, 30%
  4. 1%, 15%, 20%

.

  1. In Year 1, Betty Lane bought 100 shares of a listed corporation’s stock for $8,000. In Year 4, Betty sold this stock for $15,000. Betty had no other capital gains or losses in Year 4. How much of the Year 4 long-term capital gain should be included in Betty’s Year 4 gross income?
  2. $2,800
  3. $3,500
  4. $4,200
  5. $7,000

.

  1. Eve Cool, who worked as a machinist for Precision Corp., lent Precision $1,000 in Year 1. Cool did not own any of Precision’s stock, and the loan was not a condition of employment. In Year 5, Precision declared bankruptcy, and Cool’s note receivable from Precision became worthless. What loss can Cool claim on his Year 5 income tax return?
  2. Zero
  3. $500 long-term capital loss
  4. $1,000 short-term capital loss
  5. $1,000 business bad debt

.

  1. Sec. 1231 assets (noncurrent business assets) – Assets used in the trade or business and held longer than one year, whose eventual sale or disposal is only incidental to the business.  These assets include:
  2. Depreciable and amortizable property only
  3. Real estate only
  4. PP & E only
  5. Depreciable and amortizable property and Land used in business, plus PP&E

.

  • Mr. Jones had the following capital transactions during the current year:
Short-term capital gain$1,000
Short-term capital loss2,700
Long-term capital gain6,500
Long-term capital loss1,800

What is the amount of Mr. Jones’s capital gain net income (or loss) on his Schedule D?

  1. $7,500
  2. $3,000
  3. $4,700
  4. $(3,000)

.

  • _________________ is an additional allowance of depreciation in the first year certain property is placed in service. Like the Section 179 deduction, this is yet another tool the government uses to stimulate business investment, simplify tax compliance, and reduce the burden of recordkeeping.  

As such, it is frequently adjusted by Congress to suit the needs of the current economic environment. Unlike the 179 deduction, this provision is not capped at a certain dollar amount.

  1. MACRS
  2. ACRS
  3. Double declining balance depreciation
  4. Bonus depreciation

.

  • If a computer (5-year property) is purchased for $100, depreciation expense for the first 2 years would be calculated as follows:  

• Year 1 = $100 × 1/5 yrs × 200% = $40 × 1/2 (half-year convention) = $20 depreciation expense in the 1st year  

• Year 2 = $100 – $20 yr 1 depreciation = $80 x 1/5 yrs x 200% = $_____ depreciation expense in the 2nd year 

  1. $20
  2. $40
  3. $16
  4. $32

.

  • In which of the following scenarios would the head of household filing status be available to the taxpayer?
  • A single taxpayer maintains a separate home for his parent, who qualifies as a dependent.
  • A taxpayer with no dependents is the surviving spouse of an individual who died in the current year.
  • An unmarried taxpayer maintains a household with a 28-year-old son, who earned $10,000 during the tax year.
  • A single taxpayer maintains a household that is the principal home for 5 months of the year for his disabled child.

.

  • During the current year, Hal Leff sustained a serious injury in the course of his employment. As a result of this injury, Hal received the following payments during the year:
Workers’ compensation$2,400
Reimbursement from his employer’s accident
and health plan for medical expenses paid
by Hal and not deducted by him 1,800
Punitive damages for personal physical injuries 8,000

The amount to be included in Hal’s gross income for the current year should be:

  1. $12,200
  2. $8,000
  3. $1,800
  4. Zero

.

  • In Year 4, Faye sold 100 shares of Gym Co. stock to her son, Marty, for $11,000. Faye had paid $15,000 for the stock in Year 1. Subsequently in Year 4, Marty sold the stock to an unrelated third party for $16,000. What amount of gain from the sale of the stock to the third party should Marty report on his Year 4 income tax return?
  • Zero
  • $1,000
  • $4,000
  • $5,000

.

  • A sole proprietor of a nutrition supplement store sold a truck for $15,000. Three years ago, the truck cost $30,000, and $21,360 depreciation was taken. What is the appropriate classification of the $6,360 gain for tax purposes?
  • Ordinary gain
  • Section 1231 (Property used in trade or business and involuntary conversions) gain
  • Long term capital gain
  • Short term capital gain

.

  • Long-term capital gains (LTCG) and losses (LTCL) are combined to determine the net long-term capital gain or loss for the year.  A net capital loss is not deductible against ____________. 
  • Future income
  • Prior income
  • Section 179 income
  • Ordinary income

.

  • In December 2021, Angela sold 20 shares of Neely Co. stock for $8,000. This was qualified small business stock that she had bought in August 2015. Her basis is $2,000. What is her taxable gain?
  • Zero
  • $3,000
  • $6,000
  • $8,000

.

  • A taxpayer does not have to pay estimated taxes if:
  • The taxpayer’s tax liability for the previous year was less than $1,000.
  • The taxpayer’s withholding covers 90% of the tax liability for the previous year.
  • The taxpayer’s earned income credit will exceed his or her tax liability for the current year.
  • All of the answers are correct.

.

  • XYZ Corporation rented construction equipment in 2021 and 2022, which it used to build a storage facility. The total rent paid for the equipment was $40,000 with $10,000 paid in 2021 and $30,000 paid in 2022. The storage facility was completed in 2022. What amount of rent expense may XYZ Corporation deduct on its 2022 income tax return?
  • $40,000
  • $30,000
  • $10,000
  • None of the answers are correct

.

  • Which of the following credits is a combination of several tax credits to provide uniform rules for the current and carryback-carryover years?
  • General Business Credit
  • Foreign Tax Credit.
  • Minimum Tax Credit.
  • Research Credit.

.

  • If an individual taxpayer’s passive losses and credits relating to rental real estate activities cannot be used in the current year, then they may be carried
  • Back 2 years, but they cannot be carried forward
  • Forward up to a maximum period of 20 years, but they cannot be carried back.
  • Back 2 years or forward up to 20 years, at the taxpayer’s election.
  • Forward indefinitely or until the property is disposed of in a taxable transaction

.

  • The adoption credit is available for costs incurred in adopting a child under the age of 18. The  

credit is limited for 2022 to the first ________________ of costs. Credits exceeding the tax liability may be carried forward up to ____________. Phaseout exists. 

  1. $14,890, 15 years
  2. $15,000, 5 years
  3. $14,890, 5 years
  4. $4,890, 12 months