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Tax Exam Example Problems (Handout 1)
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A.
(Handout 1, Page 1, Problem 1)
Which taxpayer does not have Gross income?
a. Steve receives a car worth $10,000 as a gift from his father
b. Ann receives a $1,000 dividend from Lawrence Corporation
c. Amy receives a $5,000 royalty because of her recently published book
$60,350
(Handout 1, Page 2, Problem 2)
If Mark is single with GI of $75,000, deductions for AGI of $2,500; itemized deductions of $3,500, and no dependents his 2018 TI is $60,500.
What is Mark's 2018 TI if his itemized deductions amount to $12,150?
$10,000
(Handout 1, Page 2, Problem 3A)
Determine 2018 TI for the taxpayer:
Single, GI of $24,000, Deductions for AGI of $2,000, and itemized deductions of $4,500.
$31,000
(Handout 1, Page 2, Problem 3B)
Determine 2018 TI for the taxpayer:
Married (JR), GI of $60,000, Deductions for AGI of $5,000, and itemized deductions of $5,400.
$11,000
(Handout 1, Page 2, Problem 3C)
Determine 2018 TI for the taxpayer:
Head of Household, GI of $30,000, Deductions for AGI of $1,000, and itemized deductions of $5,350.
Use the standard deduction
$13,600
(Handout 1, Page 3, Problem 4)
Bob is 70 years old and unmarried. If his itemized deductions amount to $13,200 in 2018, should he itemize or use the standard deduction? What is the amount of his standard deduction?
$0
(Handout 1, Page 3, Problem 5)
Kelly is a dependent of her parents and has dividend income of $1,000. Her taxable income is ___?
$20
(Handout 1, Page 3, Problem 6)
Horace who qualifies as his son's dependent receives a $2,000 salary. His TI is zero since his SD is $2,350. Assume that Horace has a $2,000 salary and $370 of interest income. What is Horace's TI?
B.
(Handout 1, Page 3, Problem 6 part 2)
Horace who qualifies as his son's dependent receives a $2,000 salary. His TI is zero since his SD is $2,350. Assume that Horace has a $2,000 salary and $370 of interest income. His TI is $20. In which one of the following cases will Horace's TI be increased to $170?
a. He receives $150 of tips
b. He receives $150 of dividend income
$12,000
(Handout 1, Page 3, Problem 7)
Mary is 15 years old and a dependent of her parents in 2018. She works part time and receives a salary. She has no other income. How much salary may Mary receive without having TI?
$12,000
(Handout 1, Page 3, Problem 8)
Mary is 15 years old, but NOT a dependent of her parents in 2018. She works part time and receives a salary. She has no other income. How much salary may Mary receive without having TI?
$410
(Handout 1, Page 3, Problem 9)
John is 12 years old and a dependent of his parents. If John receives a $1,000 salary and $760 of interest income, his TI is _____?
$130
(Handout 1, Page 3, Problem 10)
John is 12 years old and a dependent of his parents. If John receives a $420 salary and $760 of interest income, his TI is _____?
$1,050
(Handout 1, Page 3, Problem 11)
John is 12 years old and a dependent of his parents. If John does not receive a salary and only receives interest income, what is the maximum amount of interest income John may receive without having any TI?
$720
(Handout 1, Page 3, Problem 12)
If Eliza who is 16 years old and a dependent of her parents receives salary of $3,000 and a capital gain of $1,070 due to the sale of stock, determine her TI.
$430
(Handout 1, Page 4, Problem 13)
Jacque is his uncle's dependent and receives salary of $360, dividends of $400 and interest of $720. What is his TI?
$770
(Handout 1, Page 4, Problem 14)
Jacque is his uncle's dependent and receives salary of $900, dividends of $400 and interest of $720. What is his TI?
$1,080
(Handout 1, Page 4, Problem 1)
If Kathy's 2018 TI is $64,275 determine her tax liability using the tax table.
$36,579
(Handout 1, Page 4, Problem 2)
Assume Jill (married filing jointly) has TI of $200,000. Determine her tax liability for 2018 (use the tax rate schedule)
$0
$0
(Handout 1, Page 5, Problem 1)
In Y4, Web receives 1,000 shares of Bulldog common stock valued at $800,000 as a gift from his dad. In Y12, his uncle dies and Web inherits his entire taxable estate of $15,000,000.
What is Web's GI in Y4? What is his GI in Y12?
Yes
The laptop is recommended, not required
(Handout 1, Page 5, Problem 2)
Carter is a freshman at the University of Okoboji this semester and the university recommends that all students have a laptop. If she uses $400 of her scholarship to purchase a laptop, will she have GI?
Membership at country club
(Handout 1, Page 6, Problem 3)
The Jayhawk Corporation pays medical insurance premiums for Bill, an employee, and also pays for his membership in the local country club where he likes to play tennis and golf.
Which fringe benefit will be GI for Bill?
$40
First 50,000 of insurance coverage is not GI
70,000-50,000 - 20,000
$20 per 10,000
(Handout 1, Page 6, Problem 4)
If the cost of term life insurance is $20 per $10,000 and the Tiger Corporation pays the $140 premium for $70,000 of life insurance coverage on an employee, the employee has GI of ____?
$5
Portion of the discount greater than 20% is GI
(Handout 1, Page 6, Problem 5)
If a professional basketball team allows an employee to purchase a $100 ticket to the game for $75, does the employee have GI of $0, $5, $20, or $25?
$50,000
(Handout 1, Page 7, Problem 6)
As a result of a divorce, Elizabeth's ex-spouse agreed in 2016 to pay $50,000 per year until she remarried and $25,000 per year until their six year old daughter becomes age 18. If Elizabeth received $75,000 during the current year, her GI is ____?
Corporate
Corporate = 4200 Wisconsin = 4000
(Handout 1, Page 7, Problem 7)
The Max Corporation has a 30% tax rate and $100,000 to invest. Max is considering a purchase of 6% corporate bonds or 4% bonds issued by the state of Wisconsin, and the bonds are considered to be of equal risk. With the corporate bonds, Max, Inc. will receive $6,000 of interest income and $4,000 from Wisconsin. Max's after tax income will be higher if it purchases which bonds?
$16,000
2,000 x 8
(Handout 1, Page 7, Problem 8)
The Riverboat Corporation rented a house to Joseph for $2,000 per month and Joseph signed a 12 month lease starting on May 1, Y1. Joseph also paid a security deposit of $1,500.
If Joseph makes eight rent payments in Y1, determine Riverboat's GI for Y1.
$8,425
(4 x 2,000) + 425
(Handout 1, Page 7, Problem 9)
The Riverboat Corporation rented a house to Joseph for $2,000 per month and Joseph signed a 12 month lease starting on May 1, Y1. Joseph also paid a security deposit of $1,500.Joseph makes eight rent payments in Y1. Assume that Riverboat receives four rental payments of $2,000 reach and also retains $425 of Joseph's deposit because of damage to the house. Riverboat paid the Ross Repair Company $425 to make the repairs.
Determine Riverboat's GI for Y2.
$0
(Handout 1, Page 9, Problem 1)
Jean's father gives her 5 shares of Apple stock with a FMV of $575 for her 18th birthday. Determine Jean's GI.
$50
(Handout 1, Page 9, Problem 2)
Jean's father gives her 5 shares of Apple stock with a FMV of $575 for her 18th birthday. Two years later, Jean receives a dividend of $50 from Apple. Determine Jean's GI.
$0
(Handout 1, Page 9, Problem 3)
Amanda receives an inheritance of $5,000 from her grandmother's estate. Determine Amanda's GI.
$0
(Handout 1, Page 9, Problem 4)
Amanda receives an inheritance of $5,000 from her grandmother's estate. Amanda is also the beneficiary of her grandmother's life insurance policy. Amanda receives $100,000 of life insurance proceeds in the current year. Determine Amanda's GI.
$500
(Handout 1, Page 9, Problem 5)
Frank is attending the University of Kansas and pursuing an engineering degree. This year, he received a $5,000 scholarship from the School of Engineering. His qualified tuition and related expenses are $4,500.
Determine Frank's GI.
$75,000
(Handout 1, Page 9, Problem 6)
Frank created a design for a new machine, and he obtained a patent for his design. In the current year, he receives royalties of $10,000 from allowing a large company to use his patent. Frank also has a salary of $65,000.
Determine Frank's GI.
Yes
(Handout 1, Page 9, Problem 7)
Al Capone is in the business of bootlegging (an illegal activity). He generates income of $100,000. Is Al required to report his illegal income on his tax return?
$50,000
(Handout 1, Page 9, Problem 8)
Bonnie and Clyde divorced 10 years ago. In the current year, Clyde pays Bonnie $50,000 in alimony and $30,000 in child support.
Determine Bonnie's GI.
$700,000
(Handout 1, Page 9, Problem 9a)
Melanie (a single taxpayer) sells her home in the current year for $700,000. Her basis in the property was $300,000 and she has lived there for the last 7 years.
What is her amount realized?
$400,000
700,000 - 300,000
(Handout 1, Page 9, Problem 9b)
Melanie (a single taxpayer) sells her home in the current year for $700,000. Her basis in the property was $300,000 and she has lived there for the last 7 years.
What is her realized gain?
$150,000
700,000 - (300,000 + 250,000)
Melanie (a single taxpayer) sells her home in the current year for $700,000. Her basis in the property was $300,000 and she has lived there for the last 7 years.
How much of her gain is recognized (included in GI)?
$0
(Handout 1, Page 10, Problem 10)
Charlie is employed by We Are Safe, Inc. In the current year, We are Safe pays $12,000 worth of insurance premiums for Charlie's health plan.
Determine Charlie's GI.
$0
(Handout 1, Page 10, Problem 11)
One morning while at work, Charlie was severely injured in the course of employment. Charlie is paid $40,000 in worker's compensation, which is in exchange for the relinquishment of his right to sue the company for negligence.
Determine Charlie's GI.
$5,000
(Handout 1, Page 10, Problem 12)
Charlie decides to go on a walk. He notices something along the side of the road, and finds that it is a briefcase full of money. The original owner cannot be found, so Charlie keeps the money, which amounts to $5,000.
Determine Charlie's GI.
$250
(Handout 1, Page 10, Problem 13)
In the current year, Sarah receives interest of $250 from John Deere bonds, and interest of $300 from state of Illinois bonds.
Determine Sarah's GI.
$4,945
.124(.9235 x 35,000) + .029(.9235 x 35,000)
(Handout 1, Page 11, Problem 1)
Determine the 2018 SET for Mr. Lynch who has net earnings from self employment of $35,000 and no other income.
$20,050
(.0124 x 118,500) + (.029 x .9235 x 200,000)
(Handout 1, Page 12, Problem 3)
Mr. Rothchild has earnings from self-employment income of $200,000 (i.e., revenue exceeds expenses by $200,000) and no other income. What is his 2018 SET?
$6,358
100,000 - 55,000 - 45,000
.153(.9235 x 45,000)
(Handout 1, Page 12, Problem 4)
Carolyn is self-employed and has income of $100,000 and expenses of $55,000. She has no other income or deductions. What is her SET in 2018?
$41,821
45,000 - (.5 x 6,358)
(Handout 1, Page 12, Problem 5)
Carolyn is self-employed and has income of $100,000 and expenses of $55,000. She has no other income or deductions. What is her AGI in 2018?
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