Deck 15: Choice of Business Entity-Other Considerations

Question 1

The employee's contribution to a nonqualified pension plan cannot be deferred, and the employer is not allowed a tax deduction for the contribution even though the employee includes the contribution in their income.

Answer 1

False

Question 2

Peter opened his IRA in 2003 and withdrew money to purchase a house in 2018. Since the distribution qualified as a "qualified first-time-homebuyer expenses," it is not subject to the 10% early withdrawal penalty.

Answer 2

True

Question 3

A Keogh plan is administratively more convenient and economical than a simplified employee pension plan (SEP).

Answer 3

False

Question 4

Tim has a 25% interest in Hill and Associates, a partnership. Tim is eligible for coverage as an employee under the firm's qualified pension plan.

Question 5

The Data Company employs John and Jesse. John has worked for Data for 4 years, whereas Jesse has worked for the company for only 18 months. Both are 27 years old.
I)John must be eligible to participate in Data's qualified pension plan.
II)Jesse must be eligible to participate in Data's qualified pension plan.
​

A)Only I is correct.
B)Only II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 6

A taxpayer must begin withdrawals from any type of retirement plan (except a Roth IRA) no later than April 1 of the tax year after the taxpayer reaches age 70¹/₂ or, if later, the year they retire.

Question 7

Savings incentive match plan for employees (SIMPLE) were created to encourage small businesses to establish retirement plans for their employees.

Question 8

Under a qualified pension plan
I)The yearly earnings on the pension plan assets are taxable income to the employee.
II)An employer's contribution is not taxable income to the employee at the time of the contribution.
​

A)Only I is correct.
B)Only II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 9

Thelma can get the 10% penalty on the early withdrawal from her IRA waived if the money is used to pay her son's college tuition.

Question 10

IRS scrutiny of reasonable compensation usually deals with excess compensation paid to the shareholders of closely held corporations and unreasonably low salaries to shareholders of an S corporation.

Question 11

Ester is employed by Montgomery Enterprises and will retire at the end of the current year after 22 years of service. Under the company's defined benefit plan, she can retire at 80% of the average of her three highest consecutive years' salary. Her average salary over these three years is $80,000. What is the maximum amount Ester can receive from Montgomery's pension plan?

A)$35,000
B)$64,000
C)$80,000
D)$100,000
E)$125,000

Question 12

The tax advantage of a Roth IRA is that although the contributions are not deductible, the distributions of contribution and income are tax-free.

Question 13

A Keogh plan must be established as a defined contribution plan, and the rules are similar to those of a qualified pension plan.

Question 14

A nonqualified stock option is a right to buy a share of stock at a fixed price within a specified time period. If the employee recognizes income when the stock option is received then the employer can take a deduction of the same amount.

Question 15

Unmarried taxpayers who are not active participants in a pension plan are allowed to deduct their entire contribution to an IRA regardless of the amount of their adjusted gross income.

Question 16

One of the benefits of an incentive stock option is that the employee can sell the option at any time.

Question 17

Any structure over 100 years old is eligible for the rehabilitation tax credit.

Question 18

Under a nonqualified pension plan
I)The yearly earnings on the pension plan assets are taxable income to the employee.
II)An employer's contribution is taxable income to the employee at the time of the contribution.
​

A)Only I is correct.
B)Only II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 19

The alternative minimum tax applies only to corporations.

Question 20

All of the following are requirements of a qualified pension plan except:

A)The plan must be in writing.
B)The plan cannot discriminate in favor of highly paid employees.
C)The plan must be for the exclusive benefit of the employees or their beneficiaries.
D)The plan must cover all employees who have worked for the company more than 18 months.
E)The plan must limit the amount of contributions that can be made to the plan and/or the benefits received from the plan.

Question 21

Posie is an employee of Geiger Technology and earns $90,000 in 2018. The maximum amount Geiger can contribute to a profit sharing plan on behalf of Posie is

A)$6,000
B)$13,500
C)$22,500
D)$25,000
E)$55,000

Question 22

Under a Roth IRA
I)Any taxpayer may contribute and deduct up to $5,500 deductible contributions per year.
II)The maximum contribution is phased-out for unmarried taxpayers with adjusted gross income between $120,000 and $135,000.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 23

Jose is an employee of O'Hara Industry and earns $100,000 in 2018. The maximum amount O'Hara can contribute to a money purchase plan on behalf of Jose is

A)$15,000
B)$20,000
C)$25,000
D)$35,000
E)$40,000

Question 24

Cisco and Carmen are both in their 30's and are married. Carmen earns $72,000 and Cisco earns $28,000. Their adjusted gross income is $107,000. Carmen is an active participant in her company's pension plan. Cisco's employer does not have a pension plan. What are Carmen and Cisco's maximum combined IRA contribution and deduction amounts?
Contribution Deduction

A)$-0- $-0-
B)$11,000 $5,500
C)$11,000 $9,350
D)$11,000 $11,000

Question 25

A Keogh plan is a type of qualified pension for self-employed individuals. An individual or entity that establishes a Keogh plan can
I)Only establish a defined contribution profit sharing pension plan.
II)Have both employees and self-employed individuals as participants.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 26

The maximum contribution that can be made on behalf of an employee in a Keogh defined contribution money purchase plan is:

A)The lower of 15% of employee's taxable compensation or $55,000
B)The lower of 13.0435% of employee's taxable compensation or $55,000
C)The lower of 20% of employee's taxable compensation or $55,000
D)The lower of 25% of employee's taxable compensation or $55,000

Question 27

Ken is a 15% partner in the Robinson & Sons and has net self-employment income of $98,000, $100,000 and $102,000 in his highest three consecutive years. The maximum amount that Ken can receive under a Keogh defined benefit plan is

A)$13,045
B)$75,000
C)$100,000
D)$160,000
E)$205,000

Question 28

Harriet is an employee of Castiron Inc. and earns $200,000 in 2018. The maximum amount Castiron can contribute to a money purchase plan on behalf of Harriet is

A)$40,000
B)$45,000
C)$46,000
D)$50,000
E)$55,000

Question 29

Ross and Reba are both in their 30's and they are married. Reba earns $64,000 annually, and Ross earns $1,800 annually working part time. Their adjusted gross income is $81,500. Reba participates in an employer-sponsored retirement plan. Ross and Reba contribute the maximum amount allowable annually to their IRAs. What is their allowable deduction for this year's contributions?

A)$- 0 -
B)$1,800
C)$5,000
D)$6,800
E)$11,000

Question 30

Sonya is an employee of Gardner Technology and will retire at the end of the current year after 8 years of service. Under Gardner's pension plan she can retire at 60% of the average of her three highest consecutive years' salary. Her average for the highest consecutive years' salary was $30,000. What is the maximum amount Sonya can receive from Gardner's pension plan?

A)$6,000
B)$14,400
C)$18,000
D)$24,000
E)$30,000

Question 31

Concerning individual retirement accounts (IRAs),
I)A single taxpayer that is an active participant in a qualified plan and has adjusted gross income of $66,000 may contribute and deduct up to $5,500 of the annual contribution.
II)A taxpayer who is not an active participant and whose spouse does not work may contribute $11,000 into two separate IRAs but can only deduct $5,500 for AGI.​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 32

Curtis is 31 years old, single, self-employed, and has no qualified pension plan. His net self-employment income is $33,000 and he contributes the maximum amount to his Keogh account during the current year. How much can Curtis deduct for AGI this year?

A)$- 0 -
B)$1,000
C)$3,100
D)$5,000
E)$6,600

Question 33

Alex is 37 years old, single and employee of Ellis Company.
I)If Alex is an active participant in the company's pension plan, he is allowed to make a contribution to his IRA account only if his adjusted gross income is less than $63,000.
II)If Alex is an active participant in the company's pension plan, and has adjusted gross income of $68,000, he is allowed to contribute $5,500 to his IRA account, but he is only allowed a deduction of $2,750 for the contribution because his adjusted gross income is between $63,000 - $73,000.
​

A)Only statement I is correct
B)Only statement II is correct
C)Both statements are correct.
D)Neither statement is correct.

Question 34

Sergio is a 15% partner in the Hopkins Group and has net self-employment income of $100,000 in 2018. The maximum amount that Sergio can contribute to a Keogh money purchase plan is

A)$3,000
B)$13,045
C)$20,000
D)$25,000
E)$55,000

Question 35

Contributions to a Roth IRA:
I)May be rolled-over from a regular IRA in a nontaxable transaction.
II)May be tax deductible.
III)Are not taxed when withdrawn if they have been in an established account for at least five years and the taxpayer is at least 59¹/₂ before withdrawals are made.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Only statement III is correct.
D)Statements I, II, and III are correct.

Question 36

A qualified distribution from a Roth IRA must meet which of the following requirements:
I)The distribution must be made on or after the taxpayer reaches age 59¹/₂.
II)The distribution is for qualified education expenses.
III)The taxpayer must begin distributions after reaching age 70¹/₂.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Only Statements I and II are correct.
D)Only statement III is correct.
E)Only statements II and III are correct.

Question 37

Lynne is a 15% partner with Webb Brothers and has net self-employment income of $100,000 in 2018. The maximum amount that Lynne can contribute to a Keogh profit sharing plan is

A)$5,000
B)$13,045
C)$15,000
D)$20,000
E)$25,000

Question 38

Arturo is a 15% partner in the Franklin Group and has net self-employment income of $250,000 in 2018. The maximum amount that Arturo can contribute to a Keogh money purchase plan is

A)$40,000
B)$46,000
C)$49,000
D)$50,000
E)$55,000

Question 39

The maximum contribution that can be made on behalf of an owner-partner in a Keogh defined contribution money purchase plan is:

A)The lower of 15% of net-self employment income or $55,000
B)The lower of 13.0435% of net-self employment income or $55,000
C)The lower of 20% of net-self employment income or $55,000
D)The lower of 25% of net-self employment income or $55,000

Question 40

Kyle is 31 years old, single, self-employed, and has no qualified pension plan. His net self-employment income is $35,000 and he contributes the maximum amount to his IRA account during the current year. How much can Kyle deduct for AGI this year?

A)$- 0 -
B)$1,500
C)$3,000
D)$4,000
E)$5,500

Question 41

On September 15, 2018, Spiral Corporation grants Jay an option to acquire 250 shares of the company's stock for $10 per share. The fair market price of the stock on the date of grant is $14. The option does not have a readily ascertainable fair market value. How much must Jay report as income at the date of grant?

A)$-0-
B)$1,000
C)$2,500
D)$3,500

Question 42

The Rector Corporation maintains a SIMPLE-IRA retirement plan for its employees. The company has notified its employees that in 2018 it will fund the SIMPLE-IRA by matching an employee's contribution up to a maximum of 2% of the employee's salary. Avis' salary in 2018 is $240,000 and she contributes $2,800 to the plan. What amount must Avis contribute on Andorra's behalf?

A)$2,800
B)$3,000
C)$3,400
D)$4,800
E)$4,900

Question 43

Wan-Ying, age 64, retired from the Meadowbrook Corporation during the current year. Wan-Ying's defined contribution profit sharing plan is valued at $300,000 at her retirement date. Which of the following are correct statements?
I)Beginning on April 1 of the following tax year, Wan-Ying must receive either a lump sum distribution from her pension plan or begin to receive an annuity distribution.
II)By electing to receive a lump-sum distribution at the date of her retirement, Wan-Ying can wait 5 years before receiving the lump sum distribution.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 44

Ann is the sole owner of a computer store and established a simplified employee pension plan (SEP) for herself and her two full-time employees. Her net self-employment income for the year is $70,000. The maximum amount she can contribute to her SEP is

A)$9,130
B)$10,500
C)$14,000
D)$17,500
E)$49,000

Question 45

In 2013, Merlin received the right to acquire 1,200 shares of Noble Corporation stock through the company's incentive stock option plan at an exercise price of $17 per share. On January 4, 2018, Merlin exercises the option when the fair market value of the stock is $22 per share. Which of the following is(are) correct statements?
I)Noble can deduct $6,000 as compensation expense in 2018.
II)Merlin does not recognize any income but must include $6,000 as a tax preference item in computing his alternative minimum taxable income.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 46

On February 19, 2016, Woodbridge Corporation granted Harvey an option to acquire 200 shares of the company's stock for $10 per share. The fair market price of the stock on the date of grant was $16. The stock requires that Harvey remain with the company for one year after the date of exercise. The option did not have a readily ascertainable fair market value. Harvey exercises the option on September 23, 2017, when the fair market value of the stock is $19. He makes a Section 83(b) election at the exercise date. On September 23, 2018, the fair market value of the stock is $25 per share. How much must he report as income in 2018?

A)$-0-
B)$1,200
C)$1,800
D)$2,000
E)$3,000

Question 47

On March 11, 2016, Carlson Corporation granted Lana an option to acquire 200 shares of the company's stock for $6 per share. The fair market price of the stock on the date of grant was $10. The stock requires that Lana remain with the company for one year after the date of exercise. The option did not have a readily ascertainable fair market value. Lana exercises the option on June 12, 2017, when the fair market value of the stock is $15. On June 12, 2018, the fair market value of the stock is $20 per share. How much must she report as income in 2018?

A)$-0-
B)$1,200
C)$1,800
D)$2,800
E)$4,000

Question 48

In 2018, Billie decides to purchase a house by withdrawing $15,000 from her IRA. Billie qualifies as a first-time home- buyer. The $15,000 consists of $12,600 in nondeductible contributions and $2,400 in income earned on the plan's assets. Billie will have to pay an early withdrawal penalty of

A)$-0-
B)$240
C)$500
D)$1,260
E)$1,500

Question 49

On May 5, 2016, Elton Corporation granted Germaine an option to acquire 100 shares of the company's stock for $8 per share. The fair market price of the stock on the date of grant was $14. The stock requires that Germaine remain with the company for one year after the date of exercise. The option did not have a readily ascertainable fair market value. Germaine exercises the option on June 12, 2017, when the fair market value of the stock is $18. On June 12, 2018, the fair market value of the stock is $21 per share. How much must he report as income in 2017 and 2018?
​
2017 2018

A)$1,000 $300
B)$1,000 $-0-
C)$ 400 $-0-
D)$-0- $1,300

Question 50

A company that maintains a SIMPLE-401(k) has the option of funding the plan by
I)Contributing 2% of an employee's salary up to a maximum of $5,500.
II)Match the employee's contribution up to a maximum of 3 percent of the employee's compensation with a maximum contribution of $12,500.
​

A)Only I is correct.
B)Only II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 51

Carmelo, an employee of the Rondo Corporation, is granted an option to acquire 400 shares of the company's stock under its nonqualified stock option plan. Which of the following are correct statements?
I)If the option has a readily ascertainable fair market value, Carmelo must report income equal to the fair market value of the option times the number of shares granted (i.e., 400 shares).
II)If the option does not have a readily ascertainable fair market value Carmelo will not report any income at the date of grant.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 52

Thomas maintains an IRA account. During the year he wins $10,000 in the state lottery and contributes it to his IRA account. Because he is an active participant in a qualified pension plan, he does not take a deduction for any part of his contribution. At the end of 2018 the total assets in the account are $30,000. Thomas is subject to a penalty on his contribution of

A)$-0-
B)$180
C)$270
D)$1,000
E)$1,800

Question 53

Amanda is an employee of the Kiwi Corporation with a yearly salary of $80,000. The company maintains a noncontributory profit-sharing plan. During the year the company contributes $24,000 to the plan on her behalf in recognition of her outstanding work. The Kiwi Corporation is subject to an excess contribution penalty of

A)$-0-
B)$400
C)$1,000
D)$2,000
E)$3,750

Question 54

Pension plans are subject to excess contribution penalties. Which of the following are correct:
I)There is an excess contribution penalty for IRAs or Roth IRAs that equal 6% of the amount in excess of $5,500 or the value of the individual's IRA whichever is less.
II)A 10% excess contribution penalty applies to IRAs and Roth IRAs.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 55

Karl is scheduled to receive an annuity distribution of $10,000 from his pension plan in 2018. Due to his recent success in the stock market, he has requested that he receive only $5,000 in 2018. Because Karl will fail to receive the required annuity distribution in 2018, he is subject to a penalty of

A)$-0-
B)$500
C)$1,000
D)$2,500
E)$5,000

Question 56

The Holden Corporation maintains a SIMPLE-IRA retirement plan for its employees. The company has notified its employees that for 2018 it will fund the SIMPLE-IRA by matching an employee's contribution up to a maximum of 3% of the employee's salary. Harrison's salary in 2018 is $50,000 and he contributed $2,000 to the plan. What amount must Holden contribute on Harrison's behalf?

A)$-0-
B)$600
C)$1,500
D)$2,000
E)$4,600

Question 57

On May 10, 2016, Rafter Corporation granted Peter an option to acquire 500 shares of the company's stock for $10 per share. The fair market price of the stock on the date of grant was $12. The fair market value of the option at the date of grant was $3. Peter exercises the option on July 1, 2018, when the fair market value of the stock is $20. How much income must Peter report at the date of exercise?

A)$-0-
B)$1,200
C)$1,800
D)$3,600
E)$5,400

Question 58

On May 21, 2016, Becker Corporation granted Howard an option to acquire 200 shares of the company's stock for $8 per share. The fair market price of the stock on the date of grant was $14. The option did not have a readily ascertainable fair market value. Howard exercises the option on July 7, 2018, when the fair market value of the stock is $20. How much must she report as income at the date of exercise?

A)$-0-
B)$1,200
C)$2,400
D)$7,200
E)$10,800

Question 59

Nestor receives the right to acquire 1,000 shares of Knolls Corporation stock through the company's incentive stock option plan. The fair market value of the stock at the date of the grant is $20 and the exercise price of the option is $24 per share. For the option to qualify as an incentive stock option
I)Nestor must exercise the option within 10 years of the date of grant.
II)Nestor must hold the stock for at least 2 years after the date of exercise before selling it.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 60

On June 1, 2018, Sutton Corporation grants Anne an option under its nonqualified stock option plan to acquire 300 shares of the company's stock for $12 per share. The fair market price of the stock on the date of grant is $18. The fair market value of the option is $4. How much must Anne report as income at the date of grant?

A)$-0-
B)$1,200
C)$1,800
D)$3,600
E)$5,400

Question 61

To obtain the rehabilitation expenditures tax credit certain criteria must be satisfied. Which of the following are correct statements about the credit?
I)The amount spend on the rehabilitation must exceed $5,000.
II)The rehabilitation work cannot remove more than 25% of the internal walls and framework.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 62

To obtain the rehabilitation expenditures tax credit certain criteria must be satisfied. Which of the following are correct statements about the credit?
I)If the rehabilitated structure is sold before the end of the ten-year period following the year of the tax credit, recapture occurs.
II)The amount of the credit can be either 10% or 20% of qualified expenditures, depending on the classification of the building.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 63

When calculating AMTI, individual taxpayers must add back the following:
I)The standard deduction amount.
II)Gambling losses.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 64

When calculating AMTI, individual taxpayers must add back the following:
I)Charitable contributions.
II)Qualified home mortgage interest.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 65

Which of the following statements are correct concerning the general business credit?
I)The general business tax credit only applies to an individual or corporation with a tax liability in excess of $100,000.
II)The general business credit only applies to an individual or corporation that has a tax credit carryover or can claim more than one general business credit during the year.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 66

Which of the following itemized deductions is not allowed for AMT purposes?

A)State income taxes.
B)Qualified housing interest.
C)Investment interest.
D)Interest on home equity loan where loan proceeds are used to improve the residence.
E)Charitable contributions.

Question 67

On October 23, 2018, McIntyre sells 700 shares of stock at $26 per share. McIntyre acquired the stock on June 1, 2017, when he exercised his option to purchase the shares through his company's incentive stock option plan. The exercise price was $12 per share and the fair market value of the stock at the date of exercise was $16 per share. For 2018, McIntyre must report
?
$\begin{array}{ll}\text { Ordinary } & \text { Capital } \\\text { Income } & \text { Gain }\end{array}$

A) $\$-0-\quad \$ 7,000$
B) $\$-0-\quad \$ 9,800$
C) $\$ 9,800 \quad \$-0 -$
D) $\$ 2,800 \quad \$ 7,000$

Income Gain

Question 68

Patricia and her daughter Sheila each own 50% of Draper, Inc. Patricia is the president and CFO of the corporation and receives a salary of $125,000. Other individuals with similar responsibilities as Patricia are paid approximately the same salary. Sheila, who is vice president, is paid a salary of $50,000. However, Sheila is not involved in the business decisions and rarely visits the office. Which of the following are correct statements?
I)Draper can deduct $175,000 as salary expense.
II)Sheila must report $50,000 as income.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 69

Hillside Group, a partnership, purchased a certified historic building for $60,000 that was originally placed in service in 1929. The partnership incurs $180,000 rehabilitating the building. The building serves as the partnership's headquarters. The rehabilitation is completed in November 2018. What amount can the Hillside Group claim on their partnership return as a rehabilitation tax credit?

A)$ 0
B)$6,000
C)$12,000
D)$36,000
E)$48,000

Question 70

An exemption amount is allowed for the AMT calculation
I)as a deduction from tentative AMTI.II.to provide the average individual taxpayer with the opportunity to not be effected by the AMT provisions.
III)through legislative grace for taxpayers with moderate amounts of taxable income and without significant preferences and/or adjustments.
IV)In the amount of $109,400 for married taxpayers filing jointly.
​

A)Only statement I is correct.
B)Only statement IV is correct.
C)Statements II and III are correct.
D)Statements I, II, and III are correct.
E)Statements I, II, III, and IV are correct.

Question 71

Which of the following is (are) AMT tax preference item(s)?
I)Tax-exempt interest from state and municipal bonds.
II)Percentage depletion in excess of basis.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 72

Dunn Company bought a certified historic building in downtown Lafayette for $75,000. The land was not purchased; it is being leased. The building was originally placed into service in 1918. Dunn spends $100,000 to rehabilitate the building with the intent to develop a microbrewery on the site. The company retained 80% of the external and internal walls and framework. Assume the amount of the historic building rehabilitation credit Dunn can claim is $20,000. What is the basis in the building for depreciation purposes?

A)$100,000
B)$145,000
C)$105,000
D)$155,000
E)$175,000

Question 73

Which of the following is (are) AMT tax preference item(s)?
I)Net operating loss deduction.
II)Exclusion of gain on qualified small business stock.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 74

On October 2, 2018, Miriam sells 1,000 shares of stock at $20 per share. Miriam acquired the stock on November 12, 2017, when she exercised her option to purchase the shares through her company's incentive stock option plan. The exercise price was $11 per share and the fair market value of the stock at the date of exercise was $14 per share. For 2018, Miriam must report
?
$\begin{array}{ll}\text { Ordinary } & \text { Capital } \\\text { Income } & \text { Gain }\end{array}$

A) $\begin{array}{ll}\$ 3,000 & \$ 6,000 \\\end{array}$
B) $\begin{array}{ll}\$ 6,000 & \$ 3,000 \\\end{array}$
C) $\begin{array}{ll}\$ 9,000 & \$-0- \\\end{array}$
D) $\begin{array}{ll}\$-0- & \$ 9,000\end{array}$

Income Gain

Question 75

With regard to the alternative minimum tax (AMT),
I)the AMT rate equals the highest individual income tax rate.
II)the AMT is separate and distinct from, yet parallel to, the regular income tax system.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 76

Helen receives the right to acquire 700 shares of Smith Corporation stock through the company's incentive stock option plan. The fair market value of the stock at the date of the grant is $8 and the exercise price of the option is $15 per share. The fair market value of the stock at the date of exercise is $19. Helen will recognize income at the date of grant and the exercise date of
?
$\begin{array}{llcc} \text { Date of grant } & \text { Exercise date } \\\end{array}$
a. $\$-0- \quad\quad\quad\quad\quad\$-0-$
b. $\$ - 0 - \quad\quad\quad\quad\quad \$ 2,800$
c. $\$ - 0 - \quad\quad\quad\quad\quad \$ 4,900$
d. $\$ 5,600 \quad\quad\quad\quad\quad \$ - 0-$

Question 77

Which of the following credits can not be used to reduce the alternative minimum tax?

A)Adoption credit
B)Foreign tax credit
C)Child-and dependent-Care credit
D)Lifetime Learning credit
E)Research and experimental credit

Question 78

Karen receives the right to acquire 400 shares of Fremont Corporation stock through the company's incentive stock option plan. The fair market value of the stock at the date of the grant is $15 and the exercise price of the option is $19 per share. The fair market value of the stock at the date of exercise is $22. At the date of exercise, the tax consequences to Karen and the Fremont Corporation are
?
$\begin{array} { c l } \text { Karen } &{ \text { Fremont } } \\\end{array}$

A) $\begin{array} { c l } \$ 1,600 & \$ 1,600 \\\end{array}$
B) $\begin{array} { c l } \$ 1,600 & \$ - 0 - \\\end{array}$
C) $\begin{array} { c l } \$ - 0 - & \$ - 0 - \\\end{array}$
D) $\begin{array} { c l } \$ - 0 - & \$ 1,600\end{array}$

Question 79

Kelly purchased a warehouse for her sole proprietorship on January 5, 2017 for $1,000,000. She claims MACRS depreciation of $25,641 for the year. The depreciation under the Alternative Depreciation System (ADS) is $25,000. What is the amount of Kelly's AMT adjustment for depreciation on the warehouse?

A)no adjustment is necessary
B)a positive $ 641
C)a negative $ 641
D)a positive $25,641
E)a negative $25,641

Question 80

The AMT applies to
I)Individual taxpayers
II)Corporate taxpayers
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.