acct 3260 - exam 1

questions and answers from review session

which of the following is considered a tax?

a. 1% local surcharge on hotel rooms to pay for city government

b. local surcharge for a homeowner to connected to city sewer service

c. entrance fee for a national museum

a. 1% local surcharge on hotel rooms to pay for city government

True or False: taxes influence many types of business decisions but generally do not influence personal decisions

False

Which of the following is a sin tax?

a. Cigarette taxes

b. Increased sales tax to pay for construction of mass transit system

c. Property taxes

a. Cigarette taxes

Which of the following is an earmarked tax?

a. Cigarette taxes

b. Increased sales tax to pay for construction of mass transit system

c. Property taxes

b. Increased sales tax to pay for construction of mass transit system

The city of South Park, CO, recently enacted a 1.5% surcharge on vacation cabin rentals that will fund the new school system. This is an example of a(n) _________ tax.

earmarked

Jack Screw, a single taxpayer, earns $60,600 taxable income and $5,060 in interest from an investment in city of Wichita bonds. Using the US tax rate schedule for 2024, what is his average tax rate? Use a tax rate schedule.

a. 13.16%

b. 11.29%

c. 10.71%

d. 22.00%

e. None of the above

a. 13.16%

True or false: Horizontal equity means that two taxpayers with different amounts of income should pay different amounts of tax but fiat in relation to their ability to pay

False

Chandler earned 1500 this year, employer withhold 250 of federal income from his salary. Assuming Chandler is single and 30 years old, and will have zero tax liability this year, she is:

a. Required to file

b. Not required to file a return but should file a return anyway

c. Not required to file

d. Not required to file and shouldn’t file

b. Not required to file a return but should file a return anyway

True or False: An extension to file a tax return does not extend the due date for tax payments

True

Which of the following series of inequalities is generally most accurate?

a. Adjusted gross income ≥ taxable income ≥ gross income

b. Adjusted gross income ≥ gross income ≥ taxable income

c. Gross income ≥ taxable income ≥ adjusted gross income

d. Gross income ≥ adjusted gross income ≥ taxable income

d. Gross income ≥ adjusted gross income ≥ taxable income

Which of the following statements regarding AGI tax deductions is true?

Taxpayers subtract for AGI deductions from gross income to determine AGI

True or False: From AGI deductions are generally more valuable than for AGI

False

Which of the following is not a from AGI deduction:

a. deduction for qualified business income

b. standard deduction

c. itemized deduction

d. none of the above

d. none of the above

True or false: Tax credits reduce taxable income dollar for dollar

false

All of the following are tests for determining qualifying relative status except:

a. relationship test

b. support test

c. residence test

d. gross income test

c. residence test

True or false: if taxpayer does not provide more than half of the support, that child cannot qualify as the taxpayer’s qualifying child

false

In year 1, the Doe’s 25 year old daughter Alex is a full time student. In year 1, Alex’s educational and living expenses are paid for by her neighbors. Could Alex’s parents still claim her as a dependent?

No, Alex is too old to be considered a qualifying child and her parents fail the support test of a qualifying relative because they did not provide more than half her support

An individual receiving $7,000 of tax exempt income during the year could qualify as a qualifying child of one taxpayer, but could not qualify as a qualifying relative of another tax payer

False

Brenda and Eddie Joel have one daughter, Rosa, who is 16, in November of year 1, the Joels took in Alexa, a 16 year old friend of Rosa, who lived with them since. The Joels have not legally adopted Rosa but Alexa often refers to her as her sister. The Joels provide all of the support for both girls. Neither receives income during year 2. Both live full time in Joel’s residence. Can the Joels claim either as dependents in year 2?

a. They may claim Alexa as a dependent qualifying child and they may claim Rose as a dependent qualifying child

b. They may claim Alexa as a dependent qualifying child and they may claim Rosa as a dependent qualifying relative

c. Not allowed to claim either girl

d. They may claim Alexa as a dependent qualifying child and they may not claim Rose

b. They may claim Alexa as a dependent qualifying child and they may claim Rosa as a dependent qualifying relative

Lori has one child, Rori, who is 18 and lives with Lori for three months during the year. During the year Rori earns $15,000 and Lori provides more than half the support during the year. Why can’t Lori claim Rori as a qualifying relative?

a. Rori fails the support test as a qualifying relative

b. Rori fails the gross income test for a qualifying relative

c. Rori is a qualifying child

d. Rori fails the residence test for a qualifying relative

b. Rori fails the gross income test for a qualifying relative

All of the following are tests for determining qualifying child status except

a. relationship test

b. age test

c. gross income test

d. support test

c. gross income test

True or False: A taxpayer is not permitted to use the head of household filing status if the taxpayer does not have any dependent children

false

In year 1, Jerry’s spouse died. Since her death, Jerry has maintained a household for their son George, age 3, his qualifying child. Which is the most advantageous filing status available for Jerry in year 4?

a. Qualifying surviving spouse

b. Single

c. Head of Household

c. Head of Household

True or false: Taxpayers need not include an income item in gross income unless there is a specific tax provision requiring the taxpayer to include the income item in gross income

False

True or False: A taxpayer who borrows money will include the amount borrowed in their gross income under the all inclusive definition of income

False

Bart provided services to several clients this year who paid with different types of property. Which of the following payments is not included in gross income?

a. cash

b. shares of stock

c. used car

d. gold coins

e. all of these are included in gross income

e. all of these are included in gross income

Andre received $67,800 of salary from his employer and received $660 of interest from municipal bonds. What is the amount of Andre’s gross income from these items?

a. $68,400

b. $67,800

c. $660

d. $0

b. $67,800

True or False: The assignment of income doctrine requires that to shift taxable income from property to another person, the taxpayer must transfer only the income to the other person

False

Maude purchased an annuity that provides 13200 quarterly payments for the next 10 years. The annuity was purchased at a cost of 324,000. How much of the first quarterly payment will Maude include in her gross income?

a. $8,100

b. $5,100

c. $13,200

d. $35,040

e. All of these choices are correct

b. $5,100

Nate bought 225 shares of intel stock on Jan 1, 2025 for $60 with a brokerage fee of $125. Then Nate sells all 225 for $80 per share on Dec 12, 2025. The brokerage fee on the sale was $175. What is the amount of the gain or loss Nate must report on his 2025 tax return?

a. $3,900

b. $4,200

c. $4,500

d. $4,800

e. none of the above

b. $4,200

True or False: A motorcycle used for personal purposes is a capital asset

True

In the current year, Priscilla had the following capital gains (losses) from the sale of her investments: $1,200 LTCG, $25,800 STCG, ($8,200) LTCL and ($14,200) STCL. What is the amount and nature of her capital gains and losses?

a. $4,600 net short-term capital gain

b. $4,600 net long term capital loss

c. $4,800 net short term capital gain

d. $2,800 net long term capital loss

e. None of the choices are correct

a. $4,600 net short-term capital gain

Generally long term capital gains are taxed at:

a. 10%

b. 0%

c. 20%

d. Depending on the taxpayer’s income, 0%, 15%, or 20%

e. 15%

d. Depending on the taxpayer’s income, 0%, 15%, or 20%

In the current year, Ralph, an individual, has $5,800 of ordinary income, a net short-term capital loss of $9,200 and a net long term capital gain of $3,600. From his capital gains and losses, Ralph reports

a. An offset against ordinary income for $3,000 and an NSTCL carryforward of $2,600

b. An offset against ordinary income for $3,000 and an NSTCL carryforward of $5,600

c. An offset against ordinary income for $3,000 and an NSTCL carryforward of $6,200

d. An offset against ordinary income for $9,200

e. An offset against ordinary income for $3,600 and an NSTCL carryforward of $5,600

a. An offset against ordinary income for $3,000 and an NSTCL carryforward of $2,600

Ms Willy bought 1,000 shares of Acme Corp stock for $6,800 on January 15, 2022. On December 31, 2025, she sold all 1,000 shares of her stock for $5,400. Based on a hot tip from her friend, she bought 1,000 shares of Acme stock on January 23, 2026 for $3,450. What is Ms Willy”s recognized loss on her 2025 sale, and what is her basis in her 1,000 shares purchased in 2026?

a. $0 LTCL and $4,850 basis

b. $560 LTCL and $4,290 basis

c. $1,120 LTCH and $3,730 basis

d. $1,400 LTCL and $3,450 basis

e. $840 LTCL and $4,010 basis

a. $0 LTCL and $4,850 basis

This year Levi celebrated his 25th year as an employee of Jeans Co. In recognition of his long and loyal service, the company awarded him a goal watch worth $250 and $2,000 in cash bonus. What amount must Levi include in his gross income?

a. $250

b. $0

c. $2,000

d. $2,500

c. $2,000

Micky works at Minnie’s grocery. This year Micky was paid $43,000 in salary, but he was allowed to purchase groceries at 10% below Minnie’s cost. This year Mickey spent $3,600 to purchase groceries costing Minnie $4,000 and worth $6,000. What amount must Micky include in his gross income?

a. $46,600

b. $43,400

c. $49,000

d. $45,500

e.$47,000

b. $43,400

Nancy's employer loaned her $50,000 interest free to buy a new car. If the federal interest rate was 3%, which of the following is correct?

a. Nancy recognizes $1,500 of taxable interest income

b. Nancy's employer recognizes $1,500 of deductible interest expenses

c. Nancy recognizes $1,500 of imputed compensation income

d. Nancy recognizes $1,500 of imputed dividend income

e. None of these choices are correct

c. Nancy recognizes $1,500 of imputed compensation income

Marty invests $700,000 in a City of Hill Valley bond that pays 9.25 percent interest. Alternatively, Marty could have invested the $700,000 in a bond recently issued by Delouren Inc., that pays 11% with similar risk as the City of Hill Valley bond. Assume that Marty’s marginal tax rate is 24%. What is Marty’s after tax rate of return for the city of hill valley bond?

a. 9.25%

b. 11%

c. 24%

a. 9.25%

This year Doug and Carrie married filing jointly, sold their home (sales price 750,000 and cost 200,000) Doug and Carrie owned and lived in their home for the last 20 years. How much of the gain is included in the gross income?

a. $550,000

b. $250,000

c. None of these answers

d. $300,000

e. $50,000

e. $50,000

Bluto is a student who received an academic scholarship to faber uni. The scholarship paid $14,060 for tuition, $2,530 for fees, $1,075 for books. In addition, Bluto dorm fees of $8,575 were paid for when he agreed to counsel freshmen. What is included in Bluto’s gross income?

$8,575

Elaine received $72,000 of salary form employer. The value of her stock from Vandely Industries appreciated by $7,500 during the year (she did not sell) and received $35,800 of life insurance proceeds from the death of her spouse. What is the amount of Elaine’s gross income from these items?

a. $107,800

b. $72,000

c. $115,300

d. $79,500

b. $72,000

Maverick and goose get into a fist fight, which Maverick wins. Goose sued for compensatory damages for physical injury as well as emotional distress and punitive damages to punish Maverick. Assume Goose won $5,000 for his physical injuries, $100,000 for emotional distress not related to his physical injuries and $150,000 for punitive damages. What must be included in gross income?

a. $255,000

b. $150,000

c. $250,000

d. $100,000

c. $250,000

Elliot received the following interest payments this year. What amount must Elliott include in his gross income?

General motors $1,450

City of New York $900

State of New Jersey $1,200

US Treasury $850

a. $2,300

b. $3,500

c. $2,050

d. $2,350

e. $2,650

a. $2,300

Phil received the following benefits from his employer this year. What amount must Phil include in his gross income?

Salary $54,450

Health insurance $2,900

Group term life insurance (face $50,000) $1,800

a. $54,450

b. $59,150

c. $0

a. $54,450

This year Zach was injured in an auto accident. As a result, Zach received $18,000 of disability pay. Zach has disability insurance by employer as a nontaxable fringe benefit. Zach's employer paid $4,300 in disability premium for Zach this year. Hospital bills totaled $4,500 and were paid by his health insurance. Zach has health insurance provided by his employer as a nontaxable fringe benefit. Zach’s employer paid $6,250 in health insurance premiums for Zach this year. What amount must Zach include in his gross income?

a. $22,500

b. $18,000

c. $4,500

d. $10,550

e. $0

b. $18,000

True or False: For employees under age 50, the maximum employee 401(k) contribution for 2025 is $176,100.

False (Max is $23,500)

Lee received a $100,000 distribution from her traditional 401(k) account in 2025. Assuming Lee’s marginal tax rate is 25%, what is the total amount of tax and penalty Lee will be required to pay if she receives the distribution on her 59th birthday and has not retired?

a. $0

b. $10,000

c. $25,000

d. $35,000

e. None

d. $35,000

True or False: A taxpayer currently in a low bracket (compared to the tax bracket in retirement) is better off in a Roth 401(k) compared to a traditional 401(k)

True

Carmela has the choice to invest in the city of Newark bon or Sundial, Inc. corporate bonds that pay 5.8 percent interest. Carmela is a single taxpayer who earns $50,000 annually. Assume both have similar risk. What interest rate would the city of Newark have to pay in order to make Carmela indifferent between investing in the city of Newark and Sundial, inc. bonds for 2025?

a. 4.52%

b. 5.80%

c. 4.72%

d. 3.92%

e. None of these answers are correct

a. 4.52%

George is married but files separately, earning $80,800 of taxable income. He also has $15,800 in the city of Willimantic bonds. His wife Judy earns 50800 of taxable income.

If George earned an additional $30,800 of taxable income this year, what would be the marginal tax rate on the extra income for 2025.

a. 22%

b. 14.01%

c. 24%

d. 22.54%

e. None of these choices are correct.

b. 22.54%