1. Section 119 excludes the value of lodging from the employee's gross income:
a. Whenever the employer pays for the lodging and for the convenience of the employee.
b. When the lodging is provided for the employee on the employer's premises for the convenience of the employer.
c. When the lodging is provided for the employee on the employer's premises as a convenience to the employee.
d. All of the above.
e. None of the above.
2. Cole owns 1,000 shares of stock in Pine Corporation, worth $50 per share. The 1,000 shares were purchased in 2001 for $10 per share. In 2010, the corporation issues a 10% stock dividend to all common shareholders with an option of receiving either the stock or $5,000. Cole selects the stock. Cole's gross income from the above is:
a. $0.
b. $1,000.
c. $5,000.
d. Cole can elect to recognize income of $5,000 or reduce his basis in the stock by $5,000.
e. None of the above.
3. During 2010, the first year of operations, Willow, Inc., pays salaries of $195,000. At the end of the year, employees have earned salaries of $20,000 which are not paid by Willow until early in 2011. What is the amount of the deduction for salary expense?
a. If Willow uses the cash method, $195,000 in 2010 and $20,000 in 2011.
b. If Willow uses the cash method, $0 in 2010 and $215,000 in 2011.
c. If Willow uses the accrual method, $195,000 in 2010 and $20,000 in 2011.
d. If Willow uses the accrual method, $0 in 2010 and $215,000 in 2011.
e. None of the above is correct.
4. During the first year of operations, Peter's fast food restaurant had cash sales of $300,000. Other relevant information is as follows:
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Purchases
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$170,000
|
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Salaries
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90,000
|
|
Other expenses
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10,000
|
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Ending inventory
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20,000
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a. If Peter's business uses the accrual method, the net profit is $50,000.
b. If Peter's business uses the accrual method, the net profit is $30,000.
c. Peter's business is not eligible to use the cash method.
d. Only a. and c.
e. Only b. and c.
5. Walnut, Inc. is an accrual basis taxpayer. Walnut uses the aging approach to calculate the reserve for bad debts. During 2010, the following occur associated with bad debts.
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Credit sales
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$500,000
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Collections on credit sales
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460,000
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Amount added to the reserve
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55,000
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Beginning balance in the reserve
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-0-
|
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Identifiable bad debts during 2010
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28,000
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The amount of the deduction for bad debt expense for Walnut for 2010 is:
a. $28,000.
b. $40,000.
c. $55,000.
d. $83,000.
e. None of the above.
6. Mavis, a real estate broker, had the following income and expenses in her business:
Commissions income $150,000
Expenses:
Referral fees paid to non-brokers for referrals
(illegal under state law and subject to criminal penalties) 20,000
Referral fees paid to other brokers for referrals
(not illegal under state law) 11,000
Travel and transportation 6,000
Supplies 5,000
Office and phone 4,000
Parking tickets 1,500
How much net income must Mavis report from this business?
a. $135,000.
b. $133,000.
c. $124,000.
d.$94,000.
e. $92,500.
7.Patty incurred the following expenses for her dependent daughter during the current year:
Payment of principal on daughter's mortgage loan $5,500
Interest on daughter's mortgage loan 3,500
Payment of daughter's medical expenses 4,500
Payment of daughter's property taxes 4,750
How much may Patty consider in computing her itemized deductions?
a.$3,500.
b.$4,500
c. $4,750.
d. $8,000.
e.$12,750.
8. Sissy, a calendar year cash basis taxpayer, owns and operates several tool rental outlets in Pennsylvania, and wants to expand to other states. During 2010, she spends $22,000 to investigate tool rental stores in Tennessee and $8,000 to investigate tool rental stores in Arkansas. She acquires the Tennessee operations, but not the outlets in Arkansas. As to these expenses, Sissy should:
a.Capitalize $22,000 and not deduct $8,000.
b.Expense $30,000 for 2010.
c.Expense $8,000 for 2010 and capitalize $22,000.
d.Capitalize $30,000.
e.None of the above.
9.Laurie is the sole proprietor of Urban Loan Company. On May 1, 2009, Urban loaned Terrence $100,000. In 2010, Terrence filed for bankruptcy. At that time, it was revealed that Terrence's creditors could expect to receive 50 cents on the dollar. In March 2011, final settlement was made, and Urban received $20,000. Urban's policy is to deduct losses as soon as permitted. How much loss can Urban deduct and in which year?
a. 2011 - $80,000.
b. 2010 - zero; 2011 - $100,000.
c. 2010 - $50,000; 2011 - $30,000.
d. 2010 - $40,000; 2011 - $40,000.
e. None of the above.
10.Juaquin loaned Monroe (a friend) $50,000 in 2009 with the agreement that the loan would be repaid in two years. In 2010, Monroe filed for bankruptcy and Juaquin learned that he could expect to receive $0.40 on the dollar. In 2011, final settlement was made and Juaquin received $12,000. Assuming the loan is a nonbusiness bad debt, how should Juaquin account for the bad debt?
a. $38,000 ordinary loss in 2011.
b. $30,000 ordinary loss in 2010 and $8,000 ordinary income in 2011.
c. $38,000 short-term capital loss in 2011.
d. $30,000 short-term capital loss in 2010 and $8,000 short-term capital gain in 2011.
e. None of the above.