ACCT 553 Federal Taxes and Management Decisions Final Exam;Already Graded A
ACCT/553 Federal Taxes and Management Decisions Final Exam
(TCO E) Zelda Zayer has been a widow for over 3 years and files a return as a single taxpayer. Items of income received by Zelda in 2011 were as follows.
Interest on savings account with Bank of America: $50
Interest on state income tax refund: $25
Gambling winnings: $2,400
Dividends from mutual life insurance company on life insurance policy: $500
Dividends from Better Auto Co. received on January 2, 2011: $875
The total dividends received on the life insurance policy do not exceed the aggregate of the premiums paid to the company.
(a) How much should Zelda include in her 2011 taxable income as interest?
(b) How much should Zelda report as dividend income for 2011?
(c) How much should Zelda include in taxable “Other Income” for her state lottery winnings?
(TCO E) Distinguish between realized gains and losses and recognized gains and losses.(Points : 17)
(TCO F) Describe the current tax law for sale of residence.(Points : 17)
(TCO G) Briefly describe what “material participation” is. Why is the determination of whether a taxpayer materially participates important?(Points : 17)
(TCO I) Amos, a single individual with a salary of $50,000, incurred and paid the following expenses during the year.
Medical expenses: $5,000
Casualty loss (after $100 floor): $1,000
State income taxes: $4,000
Moving expenses: $1,500
Contribution to a traditional IRA: $2,000
Student loan interest: $1,200
Analyze the above expenses and determine which ones are deductible for AGI. Please support your position.(Points : 17)
(TCO I) A review of Bearing’s Year 2 records disclosed the following tax information:
Wages $ 20,000
Taxable interest and qualifying dividends 4,000
Schedule C trucking business net income 32,000
Rental (loss) from residential property (35,000)
Limited partnership (loss) (5,000)
Bearing actively participated in the rental property and was a limited partner in the partnership. Bearing had sufficient amounts at risk for the rental property and the partnership. What is Bearing’s Year 2 adjusted gross income?
(TCO F) (Becker CPA Review Course, Reg. 1) Smith has an adjusted gross income (AGI) of $140,000 without taking into consideration $40,000 of losses from rental real estate activities. Smith actively participates in the rental real estate activities. What amount of the rental losses may Smith deduct in determining taxable income?(Points : 17)
(TCO B) (Becker CPA Review Course Reg. 3) For the year ended December 31, Year 6, Taylor Corp. had a net operating loss of $200,000. Taxable income for the earlier years of corporate existence, computed without reference to the net operating loss, was as follows:
Year 1 $ 5,000
Year 2 10,000
Year 3 20,000
Year 4 50,000
Year 5 50,000
What amount of net operating loss will be available to Taylor for the year ended December 31, Year 7?(Points : 17)
(TCO F) (Becker CPA Review Exam Reg. 1) Randolph is a single individual who always claims the standard deduction. Randolph received the following in the current year:
Wages $ 22,000
Unemployment compensation 6,000
Pension distribution (100% taxable) 4,000
A state tax refund from the previous year 425
What is Randolph’s gross income?(Points : 17)
(TCO H) Alex Smith purchased 30 shares of XYZ stock on April 30, 2010 for $210, and on September 1, 2010, he purchased 90 additional shares for $900. On November 8, 2010, he sold 48 shares, which could not be specifically identified, for $528, and on December 15, 2010, he sold another 25 shares for $50. What is his recognized gain or loss?(Points : 17)
ACCT 553 Federal Taxes and Management Decisions Midterm Exam;DeVry University, Chicago
ACCT 553 Federal Taxes and Management Decisions Midterm Exam
(TCO C) Under current accounting practice, intangible assets are classified as (Points: 5)
amortizable or unamortizable.
limited-life or indefinite-life.
specifically identifiable or goodwill-type.
legally restricted or goodwill-type.
(TCO C) Which of the following intangible assets should not be amortized? (Points: 5)
All of these intangible assets should be amortized.
(TCO C) The intangible asset goodwill may be (Points: 5)
capitalized only when purchased.
capitalized either when purchased or created internally.
capitalized only when created internally.
written off directly to retained earnings.
(TCO C) ELO Corporation purchased a patent for $90,000 on September 1, 2008. It had a useful life of ten years. On January 1, 2010, ELO spent $22,000 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is five years. What amount should be reported for patent amortization expense for 2010? (Points: 5)
(TCO C) During 2011, Bond Company purchased the net assets of May Corporation for $1,000,000. On the date of the transaction, May had $300,000 of liabilities. The fair value of May’s assets when acquired were as follows:
How should the $500,000 difference between the fair value of the net assets acquired ($1,500,000) and the cost ($1,000,000) be accounted for by Bond? (Points: 5)
The $500,000 difference should be credited to retained earnings.
The $500,000 difference should be recognized as a gain.
The current assets should be recorded at $540,000 and the noncurrent assets should be recorded at $760,000.
A deferred credit of $500,000 should be set up and then amortized to income over a period not to exceed forty years.
(TCO D) Which of the following is a condition for accruing a liability for the cost of compensation for future absences? (Points: 5)
The obligation relates to the rights that vest or accumulate.
Payment of the compensation is probable.
The obligation is attributable to employee services already performed.
All of these are conditions for the accrual.
(TCO D) Which of the following taxes does not represent a payroll deduction a company may incur? (Points: 5)
Federal income taxes.
State unemployment taxes.
State income taxes.
(TCO D) Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty (Points: 5)
should be reported as long-term.
should be reported as current.
should be reported as part current and part long-term.
need not be disclosed.
(TCO D) Jenkins Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 75,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? (Points: 5)
(TCO D) Tender Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $500,000. What is the required journal entry as a result of this litigation? (Points: 5)
Debit Litigation Expense for $500,000 and credit Litigation liability for $500,000.
No journal entry is required.
Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000.
Debit Litigation Expense for $300,000 and credit Litigation Liability for $300,000.
(TCO D) If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will (Points: 5)
exceed what it would have been had the effective-interest method of amortization been used.
be less than what it would have been had the effective-interest method of amortization been used.
be the same as it would have been had the effective-interest method of amortiza-tion been used.
be less than the stated (nominal) rate of interest.
(TCO D)When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be (Points: 5)
decreased by accrued interest from June 1 to November 1.
decreased by accrued interest from May 1 to June 1.
increased by accrued interest from June 1 to November 1.
increased by accrued interest from May 1 to June 1.
(TCO D) Feller Company issues $20,000,000 of ten-year, 9% bonds on March 1, 2010 at 97 plus accrued interest. The bonds are dated January 1, 2010, and pay interest on June 30 and December 31. What is the total cash received on the issue date? (Points: 5)
(TCO D) A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. What is interest expense for 2011, using straight-line amortization? (Points: 5)
(TCO D) On January 1, Patterson Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of (Points: 5)
(TCO C) Sisco Co. purchased a patent from Thornton Co. for $180,000 on July 1, 2008. Expenditures of $68,000 for successful litigation in defense of the patent were paid on July 1, 2011. Sisco estimates that the useful life of the patent will be 20 years from the date of acquisition.
Prepare a computation of the carrying value of the patent at December 31, 2011.
Amortization (2008) = $180,000 / 20 years x 6/12 = $4,500
Amortization (2009 – 2010) = $180,000 / 20 years x 2 = $18,000
Amortization (2011) = ($180,000 / 20 years) ($68,000 / 17 years x 6/12) = $11,000
Carrying Value = $180,000 $68,000 – $4,500 – $18,000 – $11,000 = $214,500
(TCO C) Fred’s Company is considering the write-off of a limited life intangible asset because of its lack of profitability. Explain to the management of Fred’s how to determine whether a writeoff is permitted.
(TCO D) Edwards Co. includes one coupon in each bag of dog food it sells. In return for four coupons, customers receive a dog toy that the company purchases for $1.20 each. Edwards’s experience indicates that 60 percent of the coupons will be redeemed. During 2010, 100,000 bags of dog food were sold, 12,000 toys were purchased, and 40,000 coupons were redeemed. During 2011, 120,000 bags of dog food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed.
Determine the premium expense to be reported in the income statement and the estimated liability for premiums on the balance sheet for 2010 and 2011.
Premium Expense = 100,000 bags / 4 coupons x 60% x $1.20 = $18,000
Estimated Liability = $18,000 – (40,000 coupons / 4 coupons x $1.20) = $6,000
Premium Expense = 120,000 bags / 4 coupons x 60% x $1.20 = $21,600
Estimated Liability = $6,000 $21,600 – (60,000 coupons / 4 coupons x $1.20) = $9,600
(TCO D) Grider Industries, Inc. issued $6,000,000 of 8% debentures on May 1, 2010 and received cash totaling $5,323,577. The bonds pay interest semiannually on May 1 and November 1. The maturity date on these bonds is November 1, 2018. The firm uses the effective-interest method of amortizing discounts and premiums. The bonds were sold to yield an effective-interest rate of 10%.
Calculate the total dollar amount of discount or premium amortization during the first year (5/1/10 through 4/30/11) these bonds were outstanding. (Show computations and round to the nearest dollar.)
Discount Amortization (1st Interest Payment) = ($5,323,577 x 10% x 6/12) – ($6,000,000 x 8% x 6/12) = $26,179
Discount Amortization (2nd Interest Payment) = [($5,323,577 $26,179) x 10% x 6/12] – ($6,000,000 x 8% x 6/12) = $27,488
Total Discount Amortized (5/1/10 – 4/30/11) = $26,179 $27,488 = $53,667
(TCO D) Hurst, Incorporated sold its 8% bonds with a maturity value of $3,000,000 on August 1, 2009 for $2,946,000. At the time of the sale, the bonds had five years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2011. By October 1, 2011, the market rate of interest has declined and the market price of Hurst’s bonds has risen to a price of 101. The firm decides to refund the bonds by selling a new 6% bond issue to mature in five years. Hurst begins to reacquire its 8% bonds in the market and is able to purchase $500,000 worth at 101. The remainder of the outstanding bonds is reacquired by exercising the bonds’ call feature. In the final analysis, how much was the gain or loss experienced by Hurst in reacquiring its 8% bonds? (Assume the firm used straight-line amortization.) Show calculations.
ACCT 553 WEEK 5 QUIZ WITH LATEST SOLUTIONS2019/2020 (ALL GRADED A)
TCO E) For federal tax purposes, royalty income not derived in the ordinary course of a business is classified as:
(TCO F) When comparing corporate and individual taxation, the following statements are true, except:
(TCO H) Al and Amy file a joint return for the 2012 tax year. Their adjusted gross income is $80,000. They had a net investment income of $8,000. In 2012, they had the following interest expenses:
(TCO B) Charitable contribution deductions for capital gains property made by individuals without a reduction for long-term capital gains to public charities are limited to:
(TCO A) The following taxes were paid by Tim: Real estate taxes on his home: $2,000, State income taxes: $900, State gasoline tax (personal use of automobile): $150. In itemizing his deductions, what is the amount that Tim may claim as a deduction for taxes?
(TCO F) Hoover, Inc. had gross receipts from operations of $230,000, operating and other expenses of $310,000, and dividends received from a 45 percent-owned domestic corporation of $120,000. Hoover’s tax position for the year is:
(TCO G) All of the outstanding stock of a closely held C corporation is owned equally by David Smith and Steve Bufusno. In 2012, the corporation generates taxable income of $30,000 from its active business activities. In addition, it earns $20,000 of interest from investments and incurs a $40,000 loss from a passive activity. How much income does the C corporation report for 2012?
(TCO G) Mike, who is single, has $100,000 of salary, $15,000 of income from a limited partnership, and a $30,000 passive loss from a real estate rental activity in which he actively participates. His modified adjusted gross income is $100,000. Of the $30,000 loss, how much is deductible?
(TCO F) Pam owns a sole proprietorship, and Kevin is the sole shareholder of a C (regular) corporation. Each business sustained a $16,000 operating loss and a $2,500 capital loss for the year. Evaluate how these losses will affect the taxable income of the two owners?
(TCO G) Briefly (1) define and (2) discuss the purpose and impact of each of the following:
ACCT 553 FINAL EXAM (LATEST) WITH COMPLETE SOLUTION 2020 GRADE A
CO E) For federal tax purposes, income attributable to the direct efforts of the tax payer, such as salary, is classified as:
(TCO D) Which of the following is an example of a nontaxable like-kind exchange?
(TCO H) Alex and Amy file a joint return for the 2012 tax year. Their adjusted gross income is $90,000. They had net investment income of $8,000. In 2012, they had the following interest expenses:
• Personal credit card interest: $5,000
• Home mortgage interest: $10,000
• Interest paid on qualified education loans: $2,000
• Investment interest (on loans used to buy stocks): $10,000
What is the interest deduction for Alex and Amy for the 2012 tax year?
(TCO B) Unreimbursed expenses of employees are considered to be deductions:
(TCO A) Which of the following expenditures is always an itemized deduction for individual taxpayers?
(TCO E) Adam sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Adam received $80,000 cash and a painting with a fair market value of $20,000 from the buyer. The buyer also assumed Adam’s $25,000 loan on the equipment. Adam paid $5,000 in selling expenses. What is the amount of Adam’s gain on the sale?
(TCO I) Gary and Gerdy Gray purchased a home for $125,000 on September 15, 2010. On October 7, 2011 they were divorced, and as part of the divorce agreement, the home was transferred to Gerda, who sold the home on October 18, 2012 for $350,000. How much can Gerda exclude?
(TCO I) Under the accrual method of accounting, expenses are generally accrued when:
(TCO D) Sean, a calendar year taxpayer, purchased stock on June 18, 2011 for $8,000. The stock became worthless on June 4, 2012. What is Sean’s loss in 2012?
(TCO A) Which of the following is a primary source of tax authority?
(TCO F) A nonbusiness bad debt is deductible for tax purposes as a(n):
(TCO A) The art of using existing tax laws to pay the least amount of tax legally possible is known as:
(TCO C) Which of the following items is not taxable?
(TCO B) Under the terms of their divorce agreement executed in October 2011, Keith transferred Corporation M stock to his former wife, Karen, as a property settlement. At the time of the transfer, the stock had a basis to Keith of $20,000 and a fair market value of $50,000. What is the tax consequence of this transaction to Keith, and what is Karen’s basis in the Corporation M stock?
(TCO G) During 2012, Edward East had wages of $10,000 and received unemployment compensation of $6,200 from the state. Edward is single and 45 years old. What is the amount of unemployment compensation to be included in his gross income?
(TCO F) Hobby expenditures are deductible to the extent of: