ACCT 429 DeVry Week 4 Midterm Exam
(TCOs 1 and 2) Discuss the differences between federal court and the United States Tax Court for litigating tax issues. (Points : 20)
Question 2.2.(TCOs 1, 2, 3, and 5) Sally and Ed each own property with a fair market value less than the amount of the outstanding mortgage on the property and also less than the original cost basis. They each were able to convince the mortgage holder to reduce the principal amount on the mortgage. Sally’s mortgage is on her personal residence and Ed’s mortgage is on rental property he owns.
- Explain whether each of these individuals has realized income from the reduction in the debt.
- Assume that under the current system of measuring income, each of these taxpayers realized income from the reductions in the mortgages. Should either of these taxpayers be permitted to exclude any of the debt reduction income? (Points : 20)
Question 3.3.(TCOs 4 and 5) Gladys owns a retail hardware store in Tangipahoa. She is considering opening a business in Hammond, a community located 25 miles away. She incurs expenses of $60,000 in 2011 in investigating the feasibility and desirability of doing so. What amount can Gladys deduct in 2011 if the business is
- another retail hardware store which she opens in December 2011?
- another retail hardware store which she decides against opening?
- a video rental store which she opens in December 2011?
- video rental store which she decides against opening? (Points : 20)
Question 4.4.(TCOs 4 and 5) In 2011, Jean earns a salary of $150,000 and invests $20,000 for a 20% interest in a partnership not subject to the passive loss rules. Through the use of $400,000 of nonrecourse financing, the partnership acquires assets worth $500,000. The activity produces a loss of $75,000, of which Jean’s share is $15,000. In 2011, Jean’s share of the loss from the partnership is $7,500. How much of the loss from the partnership can Jean deduct? (Points : 20)
Question 5.5.(TCO 7) Sid bought a new $700,000, seven-year class asset on August 2, 2011. On December 2, 2011, he purchased $160,000 of used five-year class assets. If Congress reenacts additional first-year depreciation for 2011, Sid elects not to take additional first-year depreciation. If Sid elects § 179, what is the maximum write-off for these purchases for 2011? (Points : 20)
Question 6.6.(TCOs 6 and 7) Amanda uses a delivery van in her business. The adjusted basis is $21,000, and the fair market value is $18,000. The delivery van is stolen and Amanda receives insurance proceeds of $18,000. Determine Amanda’s realized and recognized gain or loss.(Points : 20)
Question 7.7.(TCOs 3, 4, and 6) Karen had the following transactions for 2011:
- Salary $ 90,000
- Moving expenses incurred to change jobs $8,000
- Inheritance received from deceased uncle $300,000
- Life insurance proceeds from policy on uncle’s life (Karen was named the beneficiary) $200,000
- Cash prize from church raffle $1,000
- Payment of church pledge $3,000
What is Karen’s AGI for 2011? (Points : 20)
Question 8.8.(TCOs 3, 4, and 6) Rachel lives and works in Chicago. She is the regional sales manager for a national fast food chain. Due to unusual developments, she is compelled to work six straight weeks in the St. Louis area. Instead of spending the weekend there, she flies home every Friday night and returns early Monday morning. The cost of coming home for the weekend approximates $500. Had she stayed in St. Louis, deductible meals and lodging would have been $600. How much, if any, may Rachel deduct as to each weekend?(Points : 20)