Question 1

Which of the following is never included in computing gross income?

Accepted Answer

A) Loss on stock sale 
B) Social security benefits 
C) Unemployment benefits 
D) Gifts

Question 2

Jason purchased a 20 percent interest in JKL Partnership for $20,000 at the beginning of the year.At year-end, the partnership reported net income of $15,000 and distributed $2,000 cash to Jason.What is included in Jason's gross income as a result of his interest in JLK Partnership?

Accepted Answer

A) $15,000 
B) $7,000 
C) $5,000 
D) $3,000

Question 3

What is Matt's income tax savings (rounded to the nearest dollar) for the first year if they organize the business as a partnership?

Accepted Answer

A) $0 
B) $2,184 
C) $5,772 
D) $6,916 
E) $24,050

Question 4

Which type of tax is a real property tax?

Accepted Answer

A) Income tax 
B) Consumption tax 
C) Wealth tax 
D) Use tax

Question 5

Emma is a 40% General Partner of JohnsonPartners that reported a net loss of $50,000 for the year.Emma joined the partnership on January 1 of the current year with a beginning basis of $4,000.During the year, JohnsonPartners took out a bank loan for $25,000.How much of the loss can Emma deduct on her tax return for the year?

Accepted Answer

A) $0 
B) $4,000 
C) $14,000 
D) $20,000

Question 6

Which of the following is not a characteristic of an S corporation?

Accepted Answer

A) Owners have limited liability 
B) The corporation is taxed directly on operating income 
C) The corporation can have no more than 100 shareholders 
D) Shareholders must consent to the original S election by the corporation

Question 7

What is Jorge's gross income if he has the following: $78,000 salary, a $2,000 capital loss from the sale of stock, and $3,000 of municipal bond interest income.

Accepted Answer

A) $79,000 
B) $78,000 
C) $77,000 
D) $76,000

Question 8

Ethan and Mia are married and file a joint tax return.Their taxable income is $200,000 in 2019.What is their marginal tax rate?

Accepted Answer

A) 10% 
B) 12% 
C) 22% 
D) 24%

Question 9

Both sales and use taxes are collected in the state in which the sale takes place.

Accepted Answer

A) True 
 B)False

Question 10

Jason operates his business as a C Corporation.For the year, the business income is $120,000, business expenses are $20,000, and there is a $2,000 capital loss as a result of a stock sale.What is the C Corporation's taxable income for the year?

Accepted Answer

A) $120,000 
B) $118,000 
C) $100,000 
D) $98,000

Question 11

Which of these persons never pays taxes directly?

Accepted Answer

A) Individual 
B) Partnership 
C) C corporation 
D) Fiduciary

Question 12

What is the marginal tax rate for a single individual with $110,000 of taxable income in 2019?

Accepted Answer

A) 10% 
B) 12% 
C) 22% 
D) 24%

Question 13

Emma owns 40% of Johnson, Inc., a corporation that elected to be treated as an S corporation that reported a net loss of $50,000 for the year.Emma acquired her stock on January 1 of the current year by investing $4,000 cash.In July, the corporation took out a bank loan for $25,000.How much of the loss can Emma deduct on her tax return for the year?

Accepted Answer

A) $0 
B) $4,000 
C) $9,000 
D) $10,000

Question 14

Emma owns 40% of Johnson, Inc., a regular C corporation, that reported a net loss of $50,000 for the year.Emma acquired her stock on January 1 of the current year by investing $4,000 cash.In July, the corporation took out a bank loan for $25,000.How much of the loss can Emma deduct on her tax return for the year?

Accepted Answer

A) $0 
B) $4,000 
C) $9,000 
D) $10,000

Question 15

Harold has a 50% interest in a general partnership that has a $14,000 loss for the year.He materially participates in the partnership, his basis in the partnership is $10,000 at the beginning of the year.He also has salary from other employment of $46,000.What is Harold's basis in the partnership at the end of the year?

Accepted Answer

A) $14,000 
B) $10,000 
C) $7,000 
D) $3,000

Question 16

Ian contributes $9,000 in exchange for a 30 percent interest in a C corporation.For 2018, the corporation reported a total loss of $35,000 and made no cash distributions.For 2019, the corporation reported net income of $45,000 and made a cash distribution to the shareholders.Ian received $5,000 of this cash distribution in 2019.Ian is in the 24% marginal tax bracket and 15% dividend rate in both 2018 and 2019.How much income tax did Ian save for 2018 as a result of his share of loss from this corporation and how much income tax does Ian pay as a result of his ownership in the corporation for 2019?

Accepted Answer

A) zero tax savings in 2018 and $750 tax in 2019 
B) zero tax savings in 2018 and $3,360 tax in 2019 
C) $2,520 tax savings in 2018 and $3,360 tax in 2019 
D) $2,520 tax savings in 2018 and $2,550 tax in 2019 
E) $2,940 tax savings in 2018 and $3,780 tax in 2019

Question 17

Vertical equity asserts that persons in similar circumstances should face similar tax burdens.

Accepted Answer

A) True 
 B)False

Question 18

What is Jerry's basis at the end of the first year if they organize the business as a partnership?

Accepted Answer

A) $0 
B) $350 
C) $4,200 
D) $12,950 
E) ($350)

Question 19

What is a corporation's annual deduction for capital losses?

Accepted Answer

A) $3,000 
B) An amount equal to capital gains only 
C) An amount equal to capital gains plus $3,000 
D) Corporations cannot deduct capital losses

Question 20

What is Jerry's income tax savings (rounded to the nearest dollar) for the first year if they organize the business as an S corporation?

Accepted Answer

A) $0 
B) $1,344 
C) $4,274 
D) $4,389 
E) $4,655

Exam 1: Introduction to Taxation