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PDF CCH Federal Taxation Comprehensive Topics 2012 Smith Harmelink Edition Test Bank Online Ebook Full Chapter
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CCH Federal Taxation Comprehensive Topics 2012 Smith Harmelink Edition Test Bank
*a. True
b. False
*a. True
b. False
a. True
*b. False
*a. True
b. False
a. True
*b. False
6. Tax deductions for tax planning and tax compliance expenses may only
be claimed for expenses incurred in planning and compliance with
respect to federal and state income taxes.
a. True
*b. False
7. The Cohan case set a requirement for tax purposes that adequate
substantiation is required for every tax deduction claimed on a tax
return.
a. True
*b. False
8. Advertising which is intended to influence public reaction to
proposed legislation normally is not a deductible business expense for
tax purposes.
*a. True
b. False
*a. True
b. False
a. True
*b. False
a. True
*b. False
*a. True
b. False
a. True
*b. False
a. True
*b. False
16. To qualify for the immediate expensing election under Section 179,
eligible property must generally be tangible real property used in a
trade or business and be eligible for MACRS.
a. True
*b. False
*a. True
b. False
18. Transportation expenses are defined for tax purposes as the costs
of transporting an employee from one location to another when the
employee is not in a travel status.
*a. True
b. False
*a. True
b. False
a. True
*b. False
21. Personal expenses are only deductible if the tax laws specifically
state that they are.
*a. True
b. False
*a. True
b. False
23. Amortization is the systematic recovery (expensing) of an
investment in a productive natural resource.
a. True
*b. False
24. The tax laws generally allow taxpayers to deduct expenses incurred
while violating public policy, provided that the expenditure is
ordinary and necessary for the taxpayer's trade or business.
a. True
*b. False
*a. True
b. False
*a. True
b. False
a. True
*b. False
a. True
*b. False
*a. True
b. False
30. Sales tax paid in connection with the purchase of property used in
a business must be treated as part of the cost of the property.
*a. True
b. False
31. The research and experimental costs the taxpayer can elect to
immediately expense include all such costs incident to the development
or improvement of a product.
*a. True
b. False
a. True
*b. False
a. True
*b. False
*a. True
b. False
a. True
*b. False
*a. True
b. False
a. True
*b. False
a. True
*b. False
a. True
*b. False
41. The tax laws regarding depreciation allow taxpayers to write off
the cost of tangible property over set periods regardless of the actual
useful life of the property.
*a. True
b. False
a. True
*b. False
43. For tax purposes, an asset does not necessarily need to decline in
value to be a depreciable asset.
*a. True
b. False
a. True
*b. False
45. Trucks, SUVs, or vans having a gross vehicle weight rating between
6,000 and 14,000 pounds are not subject to the annual depreciation
limitations that apply to lighter vehicles.
a. True
*b. False
*a. True
b. False
47. Cost depletion is computed based on the number of units sold during
the year, regardless of the number of units extracted.
*a. True
b. False
*a. True
b. False
*a. True
b. False
a. True
*b. False
a. Ordinary
b. Necessary
*c. Ordinary and necessary
d. Ordinary or necessary
56. Fines and penalties paid to the government for the violation of a
law are:
a. Investment expenses
b. Tax planning expenses
c. Tax compliance expenses
*d. All of the above
63. For individual taxpayers, deductible losses for tax purposes do not
include:
a. Business losses
b. Investment losses
*c. Personal losses
d. Personal casualty or theft losses
64. Under the cash method of tax accounting, tax deductions are taken
when:
66. For MACRS depreciation purposes, autos and light-duty trucks are
depreciated over what period?
a. Three years
*b. Five years
c. Ten years
d. Fifteen years
a. 1978
b. 1980
*c. 1981
d. 1982
a. 30 months
*b. 60 months
c. 90 months
d. 120 months
*a. 50 percent
b. 65 percent
c. 75 percent
d. 85 percent
a. Individual donor
b. Salesman
c. Business establishment
*d. Individual donee
a. Efficiency surveys
*b. Development of a plant process
c. Management studies
d. Advertising
a. Bonus payments
b. Payments for services performed in prior years
c. Advance payments for services to be performed in future years
*d. Both (a) and (b)
75. If rental payments are paid in advance, they are usually deductible
by a taxpayer:
a. When paid
*b. In the period covered by the payments
c. Over a one-year period
d. When paid or incurred as elected by the taxpayer
76. The IRS takes the position that a taxpayer's tax home, for purposes
of determining travel expenses, is at the location of the taxpayer's:
a. For AGI
*b. From AGI
c. For or from AGI depending on the type of travel expense
d. For AGI unless excess reimbursement is received
80. In order to qualify for the moving expense deduction, the taxpayer:
a. a speeding ticket.
b. an expense incurred while operating an illegal gambling
business.
c. a government imposed penalty.
*d. both a and c.
e. all of the above.
a. acquisition costs.
*b. start-up costs.
c. organizational expenditures.
d. none of the above.
85. The tax laws allow taxpayers to use which of the following methods
of accounting for research and experimental costs paid or incurred in
connection with a trade or business?
87. Deductions for business gifts are limited to what amount per
individual each year?
*a. $25
b. $250
c. $2,500
d. None of the above
a. $312.50
*b. $495.00
c. $625.00
d. $247.00
a. 30 months
*b. 60 months
c. 120 months
d. 180 months
*a. $3,417
b. $5,000
c. $2,000
d. $6,333
e. none of the above
a. $4,633
b. $3,544
c. $2,217
*d. $1,733
92. PDQ, Inc., a calendar-year company, paid $15,000 as a prepayment of
two years of its liability insurance on November 1 of the current year.
How much insurance expense can PDQ deduct on its current year income
tax return?
a. $625
*b. $1,250
c. $7,500
d. $15,000
*a. $136,500
b. $142,800
c. $150,000
d. $157,200
96. Expenses that are costs paid or incurred while traveling around
town on business are known as:
a. travel expenses.
*b. transportation expenses.
c. relocation expenses.
d. none of the above.
What amount can the attorney deduct against business income on his personal tax
return?
a. $0
*b. $1,250
c. $1,750
d. $2,250
e. $2,500
Airfare $ 800
Lodging (10 days at $280) 2,800
Meals (10 days at $100) 1,000
Entertainment of friends 250
$4,850
The corporation reimburses the employee under an accountable plan. What amount
of the $4,850 qualifies as deductible travel expenses for the corporation?
a. $3,220
b. $3,460
*c. $3,110
d. $4,100
e. $3,395
99. If a taxpayer drives 10,000 business miles during 2013, and uses
the standard mileage method, the taxpayer's deduction is:
a. $4,900
b. $2,300
*c. $5,650
d. $5,100
e. none of the above
a. 2012
b. 2013
*c. 2014
d. The bonus cannot be deducted by Klaxon, Inc.
101. The process used to recover the cost of intangible assets over
time is known as:
*a. amortization
b. depletion
c. depreciation
d. none of the above
a. $500,000
b. $800,000
c. $25,000
*d. $200,000
106. Two years ago, a corporation purchased residential real estate (an
apartment complex) at a total cost of $250,000. Of this amount, $50,000
was allocated to the underlying land. What is the corporation's
allowable depreciation deduction for the current year under MACRS?
a. $5,000
b. $5,128
c. $6,350
*d. $7,272
a. $2,244
*b. $1,603
c. $2,273
d. $1,973
e. $7,692
a. $625
b. $5,000
*c. $4,375
d. $3,045
e. $2,500
109. During 2013, Klecker, Inc. placed in service $2,100,000 of Code
Sec. 179 property. How much can Klecker elect to immediately expense in
2013?
a. $2,100,000
b. $0
*c. $400,000
d. $500,000
110. This year, Ellen Smith converted her principal residence to rental
property. She originally purchased the home 8 years ago for $425,000.
The home was appraised at $356,250 just before she placed it on the
rental market. Assuming that $12,500 of the tax basis of the home is
attributable to the land on which the home is located, if the home was
converted to rental property on June 20, how much depreciation expense
can Ellen claim on her current year return?
a. $8,125
*b. $6,771
c. $4,774
d. $5,729
Total $30,000
Fred received $16,000 for the coins sold during the year.
(a.) If Fred's coin collecting activities are considered to be a hobby
for tax purposes, what related expenditures are deductible on his 2013
tax return? Show computations and explain in detail.
(b.) If Fred's coin collecting activities are considered to be a trade
or business for tax purposes, what related expenditures are deductible
on his 2013 tax return? Show computations and explain in detail.
Correct Answer:
(a.) If Fred Reardon's coin collecting activities are considered to be
a hobby for tax purposes, the following expenditures are deductible:
Hobby income $0
The remaining $3,000 of travel expenses are not deductible for tax purposes. The
$11,000 of coin purchases during the year are not deductible for tax purposes until
the coins are sold. The hobby related travel expenses are deductible as
miscellaneous itemized deductions subject to the two percent of AGI limitation.
(b.) If Fred Reardon's coin collecting activities are considered to be a trade or
business for tax purposes, the following expenditures are deductible for tax
purposes:
Loss $(3,000)
The $11,000 of coin purchases during the year are not deductible for tax purposes
until the coins are sold.
112. During 2013, Chester Pry used his personal car for both business
and personal purposes. During the year, he drove 5,000 miles on
business-related trips and 7,000 miles for personal purposes. He
incurred $6,500 of car expenses during the year. Based on this
information, what amount of the car expenses are deductible as
business-related expenses on Chester's 2013 tax return? Show
computations.
Correct Answer:
Chester may use the following formula for computing car expenses
deductible as business-related expenses.
The deduction using the 2013 mileage rate of 56.5 cents is $2,825,
which exceeds the above figure. Thus, he will deduct $2,825.
Correct Answer:
(a.) Loss on sale of personal car is not deductible. Personal losses
are not deductible for tax purposes.
(b.) Payment of a personal speeding fine is not deductible. Personal
losses are not deductible for tax purposes.
(c.) Uninsured storm damage on personal residence is deductible as a
personal casualty loss subject to applicable limitations. Personal
casualty losses are deductible from AGI.
Correct Answer:
(a.) Hobby expenditures in excess of hobby gross income are not
deductible. Hobby expenditures are only deductible to the extent of
hobby gross income.
(b.) Loss on sale of personal sailboat is not deductible. Personal
losses are not deductible for tax purposes.
(c.) Interest on money borrowed to purchase tax-exempt securities is
not deductible for tax purposes since the related tax-exempt income is
not included in taxable income.
(d.) Unrealized decline in value of stock held in individual's
investment portfolio is not deductible. Unrealized losses are not
normally deductible for tax purposes.
Correct Answer:
(a.) The payment of a speeding fine related to a trade or business is
not deductible since fines and penalties paid to the government for the
violation of a law are not deductible for tax purposes.
(b.) Cost of having a federal income tax return prepared by an
accountant is deductible "from" AGI for tax purposes since it is a
nonbusiness expense incurred in connection with the determination,
collection, or refund of any tax.
(c.) The 50 percent portion of the estate planning legal fee paid for
tax advice is deductible "from" AGI ($445). The remainder of the fee
($445) is a personal expenditure and not deductible for tax purposes.
Correct Answer:
(a.) The MACRS depreciation for the business equipment is $4,998,
computed as follows:
Cost $35,000
7-year life/DDB x 28 4/7%
$9,996
Times 1/2 year x 1/2
(b.) The MACRS depreciation for the business car is $3,160, computed as
follows:
Cost $22,000
5-year life/DDB x 40%
$8,400
Times 1/2 year x 1/2
Depreciation deduction $4,200
117. Compute bonus and regular depreciation for the following new
assets (ignore Section 179).
(a.) Business equipment purchased in February for $150,000 which has a
salvage value of $15,000.
(b.) Business car purchased in May for $42,000, which is used 100% for
business and has no salvage value.
Correct Answer:
(a.) Bonus and MACRS depreciation for the business equipment is
$90,000, computed as follows:
Cost $150,000
Bonus depreciation (50%) ( 75,000)
Depreciable basis $ 75,000
MACRS depreciation rate 20%
(1st year)
MACRS depreciation 15,000
deduction
Total deduction ($75,000 + $ 90,000
$15,000)
(b.) Bonus and MACRS depreciation for the business car is $11,160, computed as
follows:
Correct Answer:
MACRS depreciation for the apartment building is $8,189, computed as
follows:
Cost $235,000
Straight-line life (years) ÷ 27.5
$ 8,545
Times 11 1/2 months/12 months x 11.5/12
119. Compute regular MACRS and bonus depreciation for the following
qualified assets purchased during 2013 (Ignore Section 179):
(a.) Office equipment purchased in 2013 for $25,000 which has a salvage
value of $5,000.
(b.) Office building purchased in October 2013 for $90,000 which has a
salvage value of $10,000.
Correct Answer:
(a.) The MACRS depreciation for the office equipment is $14,286,
computed as follows:
Cost $25,000
Bonus depreciation (12,500)
$12,500
MACRS rate (1st yr) .1429
14,286
(b.) The MACRS depreciation for the office building is $481, computed
as follows:
Cost $90,000
Straight-line life (years) ÷ 39
$ 2,308
Times 2.5 months/12 months x 2.5/12
Correct Answer:
(a.) The optional straight-line depreciation for the business is
$3,213, computed as follows:
Cost $45,000
Straight-line depreciation (7-year life, 1/2 year depreciation in year of x7
acquisition) 1/7%
(b.) The optional straight-line depreciation for the office furniture is $7,142, computed
as follows:
Cost $100,000
Straight-line depreciation (7-year life, 1/2 year depreciation in year of
x 7 1/7%
acquisition)
Optional straight-line depreciation $7,142
Correct Answer:
The largest tax deduction possible related to the business equipment is
$590,000, computed as follows:
Cost $650,000
Section 179 deduction(500,000)
*The Section 179 deduction is reduced by the amount that new equipment purchases exceed
$560,000. Thus, the 2012 limitation in this case is equal to $49,000.
123. This year Martha Vance drove her personal car 3,600 miles for
business purposes and incurred $180 in parking fees, $210 in highway
tolls, and $350 for automobile insurance premiums. She received $800
reimbursement from her employer for automobile expenses. Compute
Martha's deduction for automobile expenses on her current year tax
return, assuming all of the above expenses are valid and she elects to
use the standard mileage allowance method to figure her automobile
expenses.
Correct Answer:
Martha's deduction for automobile expenses is $1,588, computed as
follows:
Correct Answer:
Since the trip was primarily for business (three days business versus
one day personal), Harry's airfare of $700 is fully deductible as a
business expense. Other business-related travel expenses of $450 ($150
a day in expenses for qualified meals and lodging times three business
days) are also deductible as business travel expenses. The $150 of
expenses incurred while sightseeing ($150 a day in expenses for meals
and lodging times one personal day) are nondeductible personal
expenses. Business-related expenses of $1,150 less $800 reimbursement
are deductible as travel expenses on Harry's tax return.
Jim does not get a reimbursement from his employer. What is Jim's
moving expense deduction on his federal income tax return?
Correct Answer:
Jim's moving expense deduction is $600, limited to expenditures related
to moving household goods.
126. Which of the following are capital expenditures and which are
ordinary and necessary business expenses?
(a.) Costs incurred to make improvements to a building to make it
accessible to handicapped citizens as mandated by federal law.
(b.) Costs incurred to convert an office building into a night club.
(c.) Costs incurred to train new employees.
(d.) Costs to repair a leak in the roof of an office building.
Correct Answer:
(a.) These costs are capital expenditures.
(b.) These costs are capital expenditures.
(c.) These costs are ordinary and necessary business expenses.
(d.) These costs are ordinary and necessary business expenses.
Correct Answer:
Yes. The expenses were incurred in the ordinary course of Joshua's
business, they do not violate federal law, and local laws against such
payments are not enforced. They are therefore deductible as ordinary
and necessary business expenses.
128. New Era Corporation's books, which are maintained on the cash
basis, show the following income and expense items for the current
year:
Correct Answer:
$91,000, calculated as follows:
$300,000
Less expenses paid:
Salaries and wages ( 105,000)
Selling and marketing expenses ( 50,000)
General and administrative expenses ( 45,000)
129. Sara Tripper is a sole proprietor with two employees, Jake and
Nancy. Sara decides to relocate her business from Kenton to
Westchester, and Jake and Nancy agree to relocate as well. All three
decide to move their families to Westchester. Sara agreed to reimburse
Jake and Nancy for their moving expenses.
(a.) Nancy's old residence was 13 miles from the old job location, and
the new job location is 61 miles from her old residence. After the
move, Nancy worked full-time for the next two years. What are the
federal income tax consequences for Nancy and Sara regarding the
reimbursement of Nancy's moving expenses?
(b.) Jake's old residence was eight miles from the old job location,
and the new job location is 60 miles from his old residence. After the
move, Jake worked full-time for the first 52 weeks, but he worked only
part-time after that. What are the federal income tax consequences for
Jake and Sara regarding the reimbursement of Jake's moving expenses?
(c.) Sara's old residence was 10 miles from the old job location, and
the new job location is 75 miles from her old residence. After the
move, Sara worked full-time for the next 52 weeks; however, she only
worked full-time 20 of the next 52 weeks. What are the federal income
tax consequences to Sara regarding her qualified moving expenses?
Correct Answer:
(a.) While Nancy satisfies the employment test, she does not satisfy
the mileage test. The distance between her old job and the new job
location is 61 miles. The distance between her old residence and the
old job location was 13 miles. The difference between these distances
is only 48 miles, less than the 50 mile standard for moving expenses to
be deductible. Thus, both Nancy and Sara must treat the reimbursement
as taxable wages.
(b.) Jake satisfies both the employment and mileage tests. He worked
full-time for more than 39 weeks out of the first 52 weeks following
the move, and the distance between his old house and the new job
location (60 miles) is at least 50 miles further than the distance
between his old house and the new job location (8 miles). Thus,
reimbursement of his moving expenses is excludable from his income, and
deductible by Sara (his employer) as qualified moving expenses.
(c.) Sara may not deduct her own moving expenses. She satisfies the
mileage test (the distance between her old house and the new job
location is 75 miles, while the distance between her old house and the
old job location was only 10 miles). But she does not satisfy the
employment requirement. As a sole proprietor, she is required to work
full-time at least 78 weeks out of the first 104 weeks after the move;
she worked only 72 weeks (52 weeks plus 20 weeks).
130. Erica Garcia and Lance Trout are regularly employed by a company
in Phoenix. During the current year, both accepted work for the company
in another city located 250 miles from Phoenix. Erica realistically
expected her work to last about 18 months. However, the work was
completed in 10 months and she returned to Phoenix. Lance, on the other
hand, realistically expected his work in the other city to be completed
in nine months when he took the job. However, after eight months, he
was asked to remain for seven more months. His total work assignment
lasted 15 months.
(a.) Are Erica's travel expenses deductible? Explain.
(b.) Are Lance's travel expenses deductible? Explain.
Correct Answer:
(a.) Erica's employment outside of Phoenix is treated as indefinite
because she realistically expected that the assignment would last
longer than one year. The fact that the work lasted less than one year
is of no consequence. Therefore, travel expenses incurred during her
stay in the other city are not deductible.
(b.) Lance's employment for the first eight months would be classified
as temporary because up until that time, he expected the work to last
for one year or less. The remaining seven months of employment would be
classified as indefinite because he could no longer realistically
expect the work to last for one year or less. Travel expenses incurred
during the first 8 months would therefore be deductible, but those
incurred for the last 7 months would not be.
Correct Answer:
The vehicles described in (a), (b) and (d) are subject to the luxury
vehicle depreciation limits. The SUV described in (d) is still subject
to the limits even though its GVW rating is greater than 6,000 pounds.
However, because its GVW rating is less than 14,000 pounds, the maximum
amount that can be expensed under Sec. 179 is $25,000.
$550,000$550,000
Correct Answer:
The issue is whether the company must use the mid-year convention or
the mid-quarter convention. Under Plan A, only 33 percent of the
company's asset acquisitions are made in the last quarter of the year.
Accordingly, the mid-year convention is used and depreciation would be
calculated as follows:
Total $286,000
Under Plan B, the company must use the mid-quarter convention, in which assets
are deemed placed in service in the middle of the quarter in which they were actually
purchased. Under the mid-quarter convention, depreciation in the two years would
be calculated as follows:
Year 1
CCH Federal Taxation Comprehensive Topics 2012 Smith Harmelink Edition Test Bank
Correct Answer:
Year 1 depletion would be $1,000,000/500,000 tons = $2 per ton times
40,000 tons, or $80,000.
At the beginning of Year 2, estimated capacity is increased to 670,000
tons. The remaining undepleted cost of the mine was $920,000
($1,000,000 - $80,000 cost depletion claimed in year 1). The revised
cost per ton is now $1.373 ($920,000/670,000 tons). Sales totaled
50,000 tons in year 2, so cost depletion would be $68,650.
Niilo kumartui alas ja otti tuon esineen, jonka hän huomasi kiven
ympärille käärityksi paperiksi. Hän levitti sen auki ja näki että siihen
oli jotakin kirjoitettu. Käsi-ala oli melkein mahdoton lukea, mutta
hänen onnistui saada siitä selkoa. Paperissa oli ainoastaan pari
sanaa: olkaa tarkasti varoillanne.
— Hirttäkää vangit!
Götrik Fincke vanhus oli suruun vaipunut. Hän tosin oli tottunut
sodan vaaroihin eikä suureksi arvostellut sotilaan henkeä, ei
omaansa eikä muiden; mutta kovasti häntä kuitenkin pahoitti, että
hänen nuori sukulaisensa ja vastainen vävynsä oli joutunut omien,
kapinoitsevain talonpoikien raivon uhriksi, hän, joka niin monessa
jalossa tappelussa kuninkaan ja isänmaan puolesta oli iloisena
pannut henkensä alttiiksi, kuoleman häntä saavuttamatta. Tuo
harmaantunut soturi vuodatti vuolaat kyyneleet, istuessaan tuossa
linnasalin leimuavan lieden edessä, ainoalla kädellään hellästi
hyväillen tyttärensä päätä, joka posket kalpeina ja itkeentyneet
silmät suljettuina lepäsi hänen polveansa vasten.
Vanha vaimo, jonka Olavi oli tuonut muassaan vankina, oli pantu
erääsen luolaan linnan alle. Paljaat kiviseinät heruivat kosteutta,
luolan loukossa oli olkiläjä, pantuna siihen häntä varten, ja
hevosloimi oli hänellä peitteenä. Kapeasta aukosta seinässä kuului
ulkopuolelta rajun virran pauhu.
Huolimatta muusta kuin siitä asiasta, jota varten hän oli tullut,
jatkoi Olavi:!
— Ell’et sitä tee, niin et koskaan pääse tästä luolasta ulos, sanoi
Olavi.
— Tahdotko!
— Tee se, sanoi vaimo, ja ellet täysin siihen tyydy, niin teen sen
väkevämmäksi, niin et voi enää valittaa.
— Pane sitten pari halkoa takkaan, että saamme valoa. Mieli käy
raskaaksi istuessa tällä lailla pimeässä juoden. Tiedäthän mielelläni
katsovani mustia silmiäsi ja pulskia poskiasi.
— En koskaan!
— Mutta lupasithan?