Concepts in Federal Taxation 2015 22nd Edition Murphy Test Bank 1

Concepts in Federal Taxation
2015 22nd Edition Murphy

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To be deductible, meals and entertainment must be both an ordinary and necessary business expense and must be either
directly related to or associated with the active conduct of an activity for which the taxpayer has a business purpose.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: CIFT.MUHI.14.1 - 1
NATIONAL STANDARDS: United States - AACSB Analytic
United States - AICPA Measurement
2. The Big Easy Company leases a luxury box and purchases 20 tickets to the New Orleans Saints home games. The
entire amount is deductible as an entertainment expense as long as all the requirements are met.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Medium
3. A taxpayer may use either the actual cost method or the standard mileage rate for deducting auto expenses.
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a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
4. The actual cost method is a more-flexible way to compute the auto expense deduction and often results in a larger
tax savings.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
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5. To be away overnight requires the taxpayer to be away from their tax home for more than 24 hours.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Medium
6. A taxpayer can deduct multiple gifts to a single customer as long as the total value of all gifts to that customer does
not exceed $25.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
7. To be deductible, employee compensation must be for services actually performed by the employee and the amount
must be reasonable.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Medium
8. Business and nonbusiness bad debts are both deductible as a short-term capital loss.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Medium
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9. Discovery, Inc., a cash-basis consulting firm, can deduct a twelve-month insurance premium in the year the
premium is paid even though the policy remains in effect into the following year.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Medium
10. Legal expenses are generally deductible if they have a business purpose; they are generally not deductible if they
originate from a personal transaction.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Medium
11. If an employer reimbursement plan is an accountable plan, for an expense that is fully reimbursed the employee
does not have to report either the expense or the reimbursement .
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Medium
12. 50% of the self-employment tax is deductible as a miscellaneous itemized deduction from adjusted gross income.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Medium
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13. In 2014, a husband and wife who are less than 50 and qualify may contribute $12,000 to two separate IRA
accounts as long as their total income exceeds $12,000. The total amount contributed to each account cannot
exceed $6,000.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Medium
14. Danielle graduated from State University in 2013. She paid $2,100 of interest during 2014 on her qualified
educational loan. The full amount is deductible.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
15. For moving expenses to be deductible the distance test must be met, which requires that the commuting distance
from the old residence to the new job must be 50 miles further than the commuting distance was to the old job.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Medium
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16. Donald had a party to publicize the opening of his new accounting office. He invited community and business
leaders to his office where food and beverage of $4,000 was served along with $1,000 of entertainment. How much
of the total cost can Donald deduct?
a. $ - 0 -
b. $2,500
c. $3,000
d. $4,500
e. $5,000
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
17. Larry is a self-employed insurance salesperson. He decides to take his best customer to a Pacers basketball game.
Larry is able to buy two floor seat tickets for $500 each. The face amount of the tickets is $200 each. How much
of the total cost can Larry deduct?
a. $ - 0 -
b. $ 200
c. $ 400
d. $ 500
e. $1,000
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
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18. The Wondercress Advertising agency rents a skybox at the Metrodome where the Minnesota Vikings plays its
home games. The cost of the skybox for the season is $60,000 and includes ten tickets to each game. The team
plays 8 games a year at the arena. The most expensive non-luxury box seat is $125. After acquiring a new
advertising client, the president of the agency invites 9 business associates to watch a game in the company skybox.
Food and drinks cost $900. What amount can Wondercress deduct as meal and entertainment expense?
a. $ - 0 -
b. $1,075
c. $2,100
d. $2,150
e. $4,200
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
19. The Crown Howe Accounting firm rents a skybox at Lucas Oil Field where the Indianapolis Colts play their home
games. The cost of the skybox for the season is $80,000 and includes 8 tickets to each game. The team plays 10
games a year at the arena. The most expensive non-luxury box seat is $200. After acquiring a new accounting
client, the Managing partner invites 5 business associates to watch a game in the firm skybox. Food and drinks cost
$800. What amount can Crown Howe deduct as meal and entertainment expense?
a. $1,000
b. $1,200
c. $2,000
d. $2,400
e. $4,400
ANSWER: b
POINTS: 1
DIFFICULTY: Difficult
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20. After negotiating a new supply contract with Jim, Beth takes him to dinner at the Magnolia Cafe. The dinner costs
$94. The amount includes tip ($15) and sales tax ($5). Cab fare to and from the restaurant is $20. How much can
Beth deduct for the evening's expenditures?
a. $ 47
b. $ 52
c. $ 67
d. $ 94
e. $114
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
21. Olga is a technical sales consultant for Interactive Systems Corporation (ISC) based in San Diego. While on
business in Boise, she entertains several clients at a cost of $600. When she returns to San Diego, Olga gives ISC
receipts and other information to account for the entertainment expense. ISC reimburses Olga $600. How much
can Olga and ISC deduct?
Olga ISC
a. $- 0 - $- 0 -
b. $- 0 - $300
c. $- 0 - $600
d. $300 $- 0 -
e. $600 $300
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
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22. Sandra, who owns a small accounting firm, pays $1,500 to the local country club for food and entertainment for her
annual employee Christmas party. How much of the $1,500 in meals and entertainment cost can Sandra deduct?
a. $ - 0 -
b. $ 500
c. $ 750
d. $1,000
e. $1,500
ANSWER: e
POINTS: 1
DIFFICULTY: Medium
23. Rodrigo works as a salesperson for a auto parts manufacturer. His job requires that he spend most of his time
outside the office calling on customers. In addition, to supplement his income he works 1 night a week and on
weekends as a waiter at an exclusive seafood restaurant in the city. During the year, he keeps the following record
of his travel:
Miles
Home to office 850
Office to home 425
Office to restaurant 300
Restaurant to home 1,200
Home to restaurant 725
Office to customers to office 7,100
Customers to restaurant 400
Total miles 11,000
If he uses the standard mileage rate, what amount can she deduct as a business automobile expense?
a. $3,621
b. $3,774
c. $3,941
d. $4,368
e. $6,105
ANSWER: d
POINTS: 1
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24. Donna is an audit supervisor with the IRS and on January 4, 2014 she uses her car in the following manner.
Personal residence to her office at the IRS. 8 miles
IRS office to X Corp to supervise new audit activities. 10 miles
X Corp to Y Corp to supervise ongoing audit activities 6 miles
From Y Corp. to personal residence 7 miles
What amount of Donna's mileage for this day is qualified business mileage?
a. 10 miles.
b. 16 miles.
c. 17 miles.
d. 23 miles.
e. 31 miles.
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
25. Walker, an employee of Lakeview Corporation, drives his automobile 18,000 business miles during 2014. He pays
tolls of $145 while traveling on business. What amount can Walker deduct as unreimbursed transportation expenses
before considering any limitations on itemized deductions?
a. $ 10,080 for AGI.
b. $ 10,225 for AGI.
c. $ 10,080 from AGI.
d. $ 10,225 from AGI.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
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26. Penny owns her own business and drives her car 12,000 miles a year for business and 3,000 miles a year for
commuting and personal use. She wants to claim the largest tax deduction possible for business use of her car. Her
total expenses related to her auto for 2014 are as follows:
Gas, oil, and maintenance $ 4,050
Insurance 720
Interest on car loan 500
Depreciation 2,960
License 80
Parking fees and tolls (100% business) 130
Penny's total deduction for business use of the auto in 2014 is:
a. $6,378
b. $6,778
c. $6,850
d. $7,190
e. $7,310
ANSWER: c
POINTS: 1
27. Mercedes is an employee of MWH company and drives her car 12,000 miles a year for business and 3,000 miles a
year for commuting and personal use. She is not reimbursed by her employer. She wants to claim the largest tax
deduction possible for business use of her car, before any limitations on itemized deductions. Her total auto
expenses for 2014 are as follows:
Gas, oil, and maintenance $ 4,600
Insurance 720
Depreciation 2,960
License 80
Parking fees and tolls (100% business) 130
Mercedes's total 2014 deduction for automobile use is:
a. $6,420
b. $6,818
c. $6,790
d. $7,218
e. $7,310
ANSWER: c
POINTS: 1
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28. Alfred uses his personal automobile in his business of selling party supplies to local businesses. He bought a new
car in 2014 and drove it a total of 20,000 miles of which 2,000 miles were for commuting and other personal uses.
Actual gas, oil, repairs, licensing, insurance, and depreciation totaled $11,000 for 2014. Actual parking expenses for
business were $200. What is the maximum amount Alfred can deduct for 2014?
a. $ 9,750
b. $10,100
c. $10,170
d. $10.280
e. $11,200
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
29. Lester uses his personal automobile in his business of selling insurances. He bought a new car in 2014 and drove it
a total of 30,000 miles of which 3,000 miles were for commuting and other personal uses. Actual gas, oil, repairs,
licensing, insurance, and depreciation totaled $16.500 for 2014. Actual parking expenses for business were $200.
What is the maximum amount Lester can deduct for 2014?
a. $13,050
b. $13,970
c. $14,850
d. $15.050
e. $15,320
ANSWER: e
POINTS: 1
DIFFICULTY: Medium
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30. During 2014, Marsha, an employee of G&H CPA firm, drove her car 24,000 miles. The detail of the mileage is as
follows:
Personal Use 3,000 miles

Transportation between home and office 3,000 miles
Transportation to and from clients' offices 18,000 miles
Marsha's 2014 records show that her car expenses totaled $14,320. The details of the expenses are as follows:
Gas, oil, and repairs 9,260
Insurance and licensing 1,500
Depreciation 2,960
Tolls and parking at clients’ offices 200
What is the amount of her deduction for her use of the car?
a. $ 9,000
b. $ 9,990
c. $ 10,490
d. $ 10,670
e. $ 10,790
ANSWER: c
POINTS: 1
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31. In 2014, Eileen, a self-employed nurse, drives her car 20,000 miles, of which 12,000 miles pertain to business.
Expenses concerning the car include the following:
Gas and oil $5,720
Auto license tag 90
Insurance 900
Repairs 700
Tires 400
Parking during business use 300
Tolls during business use 150
Depreciation 2,960
Assuming Eileen purchases the car in 2014 and she wants to use the most advantageous method to determine her
2014 deduction for automobile expense, what amount can Eileen deduct as auto expenses?
a. $ 5,964
b. $ 6,780
c. $ 6,912
d. $ 7,170
e. $11,220
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
32. Which of the following business expenses is/are subject to a 50% deduction limit for 2014?
I. Meals while traveling
II. Lodging while traveling
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
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33. Which of the following business expenses is/are subject to a 50% deduction limit for 2014?
I. Gifts
II. Incidental expenses while traveling
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
34. Arlene, a criminal defense attorney inherits $500,000 from her grandmother. Unsure of how to invest the money,
Arlene attends a three-day investment seminar in New York. Arlene attends all the sessions and receives a
certificate for successfully completing the seminar. Her expenses to attend the seminar are as follows:
Airfare $450
Hotel daily rate 110
Meals @ $40 per day 40
Incidentals @ $15 per day 15
Entertainment 140
What amount may she deduct as travel expenses for the seminar?
a. $- 0 -
b. $780
c. $825
d. $885
e. $955
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
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35. Julie travels to Mobile to meet with a client. While in Mobile, she spends 4 days meeting with the client and one-day
sightseeing. Her husband Harry goes with her and spends all 5 days sightseeing and playing golf. The cost of the
trip is as follows:
Airfare $ 540 for each person.
Lodging at hotel $ 150/day (Single Occupancy Rate = $125).
Meals $ 75/day for each person.
Incidental expenses $ 20/day for Julie. $15/day for Harry.
If Julie is self-employed, what is the amount of the deduction she may claim for the trip?
a. $ 730
b. $1,270
c. $1,370
d. $1,420
e. $1,520
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
36. Carlotta pays $190 to fly from Santa Fe to Denver. She spends three days finalizing a contract with the
management of El Rancho Restaurant for the delivery of green chili in the upcoming year. Because she finalized
the contract, Carlotta spends two-days attending the National Western Stock Show. Hotel costs are $108 per night
and meals are $22 per day. How much can Carlotta deduct as business expenses from her trip?
a. $190
b. $514
c. $547
d. $580
e. $763
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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37. During 2014, Jason travels to Miami to meet with a client. While in Miami, he spends 2 days meeting with his client
and 3 days sightseeing. Mary, his wife, goes with him and spends all 5 days sightseeing and shopping. The cost of
the trip is as follows:
Airfare $540 for each person.
Lodging at hotel $150 per day (same rate for single and double rooms).
Meals $ 75 per day for each person.
Incidental expenses $ 20 per day for Jason. Mary kept no records.
If Jason is self-employed, what is the amount of the deduction he may claim for the trip?
a. $ - 0 -
b. $ 415
c. $ 490
d. $ 955
e. $1,765
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
38. Ernest went to Boston to negotiate several new contracts with clients. His airfare was $400 and he spent $150 per
day on lodging, $40 per day on meals, and a total of $60 on cab fare.
If Ernest spends 2 days on business and 3 days on personal activities, he can deduct $160 of
I. his airfare.
If Ernest spends 3 days on business and 2 days on personal activities, he can deduct $120 of
II. the meal costs.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
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39. Caroline is a doctor in Little Rock. She travels to Atlanta to attend a two-day seminar for health professionals about
investing in real estate. Transportation expenses are $400, the hotel cost $104/day, and meals cost $50/day. How
much can Caroline deduct for travel to the seminar?
a. $- 0 -
b. $258
c. $308
d. $658
e. $708
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
40. Carter is a podiatrist in Minneapolis. He travels to Milwaukee to attend a two-day seminar for health professionals
about investing in commodities. Transportation expenses are $140, the hotel cost $125/day, and meals cost $60/day.
How much can Carter deduct for travel to the seminar?
a. $- 0 -
b. $140
c. $390
d. $450
e. $510
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
41. Francine operates an advertising agency. To show her appreciation to her 10 best customers, she sends a box of
fancy chocolate, costing $75 a box, to each of them. How much of the cost of the chocolates can Francine deduct
as a business gift?
a. $- 0 -
b. $125
c. $250
d. $375
e. $750
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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42. Kadian purchases a block of 10 tickets to next Saturday's basketball game. The tickets cost $45 each. He keeps
two tickets for himself and gives the remaining tickets to his business customers. Each customer receives two
tickets, and Kadian told all of them he would see them Saturday night. How much can Kadian deduct?
a. $ - 0 -
b. $180
c. $200
d. $360
e. $450
ANSWER: c
POINTS: 1
43. Which of the following information is not required for substantiation of business entertainment expenditures?
a. Time and place of event.
b. Specific business purpose of the event.
c. Receipt to provide evidence of amount of expenditure.
d. Identity of, and business relationship to, those persons attending the event.
e. All of the above information is required to substantiate business entertainment.
ANSWER: e
POINTS: 1
DIFFICULTY: Medium
44. Entertainment, auto, travel, and gift expenses are subject to strict documentation requirements. Taxpayers are
required to keep records that show
I. The business purpose of the event.
II. The time and place of the event.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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45. George is a full-time student at Indiana State University majoring in accounting. He works 12 to 20 hours per week
at a local CPA firm inputting data for spreadsheets to prepare monthly financial statements for the firm's clients.
George's tuition, fees, books, and supplies related to his education are $3,000 for the current year.
The educational costs are deductible from AGI because they prepare him for a new trade
I. or business.
The education costs are deductible because it is part of a program that will qualify George
II. to become a CPA.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
46. Safina, a single taxpayer with adjusted gross income of $100,000, works as an engineer for the Wabash
Corporation. The corporation reimburses all its employees 80% of tuition, fees and books for courses taken at the
local university. Safina incurs $8,000 of expenses and can deduct the remaining 20% of the education expense
I. Only if the course improves her skills as an engineer.
II. Is not a deduction from adjusted gross income.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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47. Matthew, a single taxpayer with adjusted gross income of $90,000, works as a computer programmer for the
Novak Corporation. The corporation reimburses all its employees 50% of tuition, fees and books for courses taken
at the local university. Matthew incurs $6,000, is reimbursed $3,000, and can deduct the remaining $3,000 of the
education expense
I As a deduction from adjusted gross income.
II. Only if the course is required by state law to continue in his current job.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
48. Nora is the CEO of the publicly traded Micro Tech Corporation. The company paid her a salary of $1,030,000 and
made mortgage payments of $30,000 on her behalf. How much is deductible as compensation expense?
a. $ - 0 -
b. $ 510,000
c. $1,000,000
d. $1,060,000
e. $1,030,000
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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49. Which of the following taxpayers can claim a business bad debt deduction for the current year?
Johnson is a dentist using the cash basis of accounting. He has accounts receivable from
I. patients totaling $7,800 that are more than 90 days past due.
George owns and operates a sporting goods store and uses the accrual method of
II. accounting. He has several customers who have owed him money for more than 10 months.
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
50. Which of the following taxpayers can claim a business bad debt deduction for the current year?
Sylvia lent her neighbor $4,000 to put a new roof on his home. Because they have been
friends for over 15 years, Sylvia trusted her neighbor to pay her back and didn't make him
I.
sign a note with interest. The neighbor has left town and Sylvia will not get any of her money
back. Her loss is properly related to this year using the cash basis of accounting.
Saul is an attorney using the cash basis of accounting. One of his clients is short of money to
pay the utilities in the office building Saul rents from him. Saul advances the client $5,000.
II.
Saul has just learned that the client has filed bankruptcy and that Saul will not be repaid for
any part of the loan.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
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51. Peter, proprietor of Peter's Easy Loan Company, loaned Jessie $4,000 on December 1, 2012. The loan is to be
repaid on December 1, 2013, along with $600 interest. On July 10, 2013, Peter learns that Jessie has filed for
personal bankruptcy and that non-secured creditors will receive only $0.60 on the dollar. Peter actually receives
nothing until February 24, 2014. On that date, Peter receives a check for $1,000 from Jessie's bankruptcy
proceedings in final settlement of the loan. How should Peter account for the loan to Jessie?
a. $1,600 short-term capital loss in 2013; and $1,400 short-term capital loss in 2014.
b. $3,000 ordinary loss in 2014.
c. $2,400 ordinary loss in 2013.
d. $1,600 ordinary loss in 2013; and $1,400 ordinary loss in 2014.
e. $3,000 short-term capital loss in 2014.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
52. Garcia is a self-employed chiropractor and a cash basis taxpayer. During the most recent tax year, he provides
patient services totaling $400,000. Of that total amount, he estimates $20,000 will never be collected. How much
can Garcia deduct as a bad debt expense in the current tax year?
a. $ - 0 -
b. $ 6,000
c. $10,000
d. $14,000
e. $20,000
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
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53. In July of this year, Sam performs financial consulting services for William. On August 1, Sam sends William a bill
for $1,200. As of September 30, Sam had not heard from William. After repeated efforts to collect the fee, Sam
discovers in November that William has left the state and cannot be found. If Sam is an accrual basis taxpayer, for
the current year he can deduct
a. $ - 0 -
b. A $800 ordinary loss
c. A $1,200 ordinary loss
d. A $1,200 short-term capital loss
e. A $1,200 long-term capital loss
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
54. During 2013, Wendy, a biologist, made a bona fide $10,000 loan to her friend Ben when he was in a time of need.
Ben dies in 2014. Wendy has been informed by Ben's estate that creditors can expect to receive 40% of amounts
owed to them. No payments to creditors are made from Ben's estate in 2014. Wendy's maximum deduction in 2014
is
a. $ - 0 -
b. $3,000
c. $4,000
d. $6,000
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
55. Which of the following best describes the tax treatment of losses from uncollectible business debts?
a. Such losses are not deductible.
b. Such losses are limited to $3,000 per year.
c. Such losses are treated as short-term capital losses.
d. Such losses are deductible without limitation as an ordinary loss.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
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56. Byron loaned $5,000 to his friend Alan in 2011. They drew up a formal loan agreement that called for a reasonable
rate of interest. Alan used the loan proceeds to pay expenses during his last year in college. Byron was recently
informed that his friend Alan was struck by lightning and died. Byron will never be able to collect the proceeds of
this loan because Alan died with no assets. What tax benefit, if any, will Byron will be able to claim in 2014, the
year that the loan became worthless.
a. $5,000 tax credit.
b. $5,000 ordinary loss.
c. $5,000 short-term capital loss.
d. This is a personal non-deductible loss.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
57. During 2013, Virginia, an architect, made a bona fide $7,500 loan to her friend Joe when he was in a time of need.
Joe died in 2014. Virginia has been informed by Joe's estate that he was insolvent. Virginia should record the
nonpayment of the loan as
a. An ordinary loss.
b. An itemized deduction.
c. A short-term capital loss.
d. A long-term capital loss.
e. Nothing. It cannot be deducted.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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58. During 2013, Wan-Ying, a lawyer, made a bona fide $5,750 loan to her friend Bill when he was in a time of need.
Bill died in 2014. Wan-Ying has been informed by Bill's estate that he was insolvent. What is her deduction ton her
2014 tax return (she has no other capital transactions)?
a. $ - 0 -
b. $1,500
c. $3,000
d. $3,500
e. $5,750
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
59. Three years ago Edna loaned Carol $80,000 to help her get started in the TV repair business. Carol gave Edna a 5-
year, 9% note with semiannual repayment terms. Edna and Carol have been friends for over 35 years. Edna is a
recently retired college professor with a significant portfolio of investments. During the current year, Carol became
ill and couldn't continue operating the business. She has repaid $10,000 of the debt owed Edna. Because Carol has
no remaining assets, no additional payments will be made to any of her creditors. For the current year, Edna
realizes a
a. $ - 0 -
b. $70,000 ordinary loss
c. $70,000 long-term capital loss
d. $70,000 short-term capital loss
e. $80,000 ordinary loss
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
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60. Marsh Harbor Company manufactures fishing gear. Its taxable income in 2014 before the Qualifying Production
Activities Deduction (QPAD) is $4,000,000 and its qualified production activities income is $3,500,000. Its qualifying
W-2 wages paid are $300,000. How much may Marsh Harbour claim as its QPAD deduction in 2014?
a. $150,000
b. $175,000
c. $210,000
d. $300,000
e. $315,000
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
61. Milroy Company manufactures steering wheels. It’s taxable income in 2014 before the Qualifying Production
Activities Deduction (QPAD) is $2,000,000 and its qualified production activities income is $2,500,000. Milroy’s
qualifying W-2 wages paid are $400,000. How much may Milroy take as it QPAD deduction in 2014?
a. $100,000
b. $180,000
c. $200,000
d. $225,000
e. $280,000
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
62. Which of the following is true regarding the Qualified Production Activities Deduction (QPAD)?
The QPAD deduction is limited to 9% of the lessor of taxable income before the
I. QPAD deduction or qualified production activities income
The QPAD deduction cannot exceed 50% of W-2 wages allocated to QPAD activities.
II.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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63. Raisor Corporation pays an annual premium of $12,000 on the whole life insurance policy on the life of Wilson, the
founder and CEO of the corporation. The corporation is the beneficiary of the multi-million dollar policy.
I. The corporation can deduct the premiums.
II. If Wilson dies, the corporation will receive the policy proceeds tax-free.
III. If Wilson's wife is the beneficiary instead of the corporation, the amount of the premiums
paid is a tax-free fringe benefit for Wilson.
IV. If Wilson's wife is the beneficiary instead of the corporation, the corporation can deduct the
amount of premiums paid as compensation.
a. Statements I, II, and III are correct.
b. Statements I and II are correct.
c. Only statement II is correct.
d. Statements II and IV are correct.
e. Statements I, II, and IV are correct.
ANSWER: d
POINTS: 1
64. During the current year, Hope Corporation paid a $3,250 premium for a life insurance policy on the life of the chief
executive officer, Joel. Determine the deductibility of the $3,250.
Hope could deduct the premium as compensation if Joel's daughter is the stated beneficiary
I. of the policy.
The premium is not deductible if Hope Corporation is the beneficiary.
II.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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65. Which of the following taxes paid by the Sill Engineering Company can be deducted during 2014?
I. Federal taxes withheld from employees.
II. Sill Engineering's share of employee's Social Security taxes.
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
66. Which of the following taxes paid by the Fowlers Company can be deducted during 2014?
I. State sales tax on utilities.
II. Federal income tax paid in 2014 when filing Fowlers' 2013 corporate tax return.
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
67. Which of the following taxes paid by Woodhaven Inc. can be deducted during 2014?
I. Special real estate tax assessment for upgrading the sewer.
II. State income taxes paid in 2014 when filing Woodhaven's 2013 corporate return tax return.
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
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68. Which of the following taxes paid by Trevor Products, Inc. can be deducted during 2014?
I. Real estate taxes.
II. Sales tax on purchase of new equipment.
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
69. Drew incurs the following expenses in his grocery store business. Drew can deduct the following as business
expenses in the current year
I. $3,750 for advertising on the web.
II. $2,000 of interest expense related to the purchase of a new delivery truck.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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70. Winslow owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year.
The county treasurer sends Winslow a tax bill payable by December 31. The bill is for real estate property taxes of
$1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line. On November 1,
Winslow sells the property to Edwin for $225,000. As part of the sale contract, Winslow will pay the special
assessment at closing and Edwin agrees to pay the realty taxes on the due date. What is Winslow's gain on the
sale?
a. $ 19,000
b. $ 20,000
c. $ 21,000
d. $ 25,000
e. $ 26,000
ANSWER: b
POINTS: 1
71. Sidney owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year.
The county treasurer sends Sidney a tax bill payable by December 31. The bill is for real estate property taxes of
$1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line. On November 1,
Sidney sells the property to Donald for $225,000. As part of the sale contract, Sidney will pay the real estate taxes
of $1,200 at closing and Donald agrees to pay the special assessment of $6,000 on the due date. What is Sidney's
gain on the sale?
a. $ 19,800
b. $ 20,000
c. $ 21,000
d. $ 24,800
e. $ 29,800
ANSWER: e
POINTS: 1
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72. On May 1, 2014, Linda sells her rental property for $125,000. Her basis in the property at the beginning of the year
is $75,000. As part of the sales contract, the buyer agrees to pay the real property taxes of $1,500 for the current
year when they come due on December 31, 2014.
I. Linda has a gain on the sale of the rental property of $50,000.
II. Linda can deduct $500 in real estate taxes.
ANSWER: b
POINTS: 1
73. Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year?
I. Legal fees to resolve a tax dispute with the Internal Revenue Service.
II. Legal fees to purchase land that will be used to expand its warehouse.
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
74. Which of the following legal expenses paid by the Sutton Corporation can be deducted in the current year?
I. Legal fees to initiate a lawsuit against a competitor who is using its patent.
II. Legal fees to settle a lawsuit filed by a delivery person who slipped on the ice delivering a
package to Sutton's office.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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75. Gary, a sole proprietor, incurs the following expenses in his record store business. Gary can deduct the following as
business expenses in the current year
I. $3,000 in legal fees to acquire a competing record store.
II. $500 to the local police chief to not write parking tickets to his customers whose time ran-
out on parking meters in front of his store.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
76. Walter recently received a notice of an income tax deficiency of $21,000 from the IRS. He hires an attorney to
handle his IRS problems. Walter's legal expenses are $4,000. Can Walter deduct the legal expenses?
I. He can deduct the full amount if the tax deficiency relates to his business.
II. He can deduct the full amount if the tax deficiency relates to income other than business
income.
III. He can deduct the legal fees if the income tax deficiency is personal in nature.
c. Only statement III is correct.
d. Statements I and II are correct.
e. Statements I and III are correct.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
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77. Which of the following expenses is not deductible for AGI?
a. Alimony paid.
b. Contributions to an IRA.
c. Moving expenses.
d. Interest on qualified student loans.
e. Interest expense related to an investment.
ANSWER: e
POINTS: 1
DIFFICULTY: Medium
78. Deductions for adjusted gross income include

I. Contribution to a Roth IRA.
II. Contribution to conventional IRA
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
79. Deductions for adjusted gross income include

I. Transportation of household goods for a qualified move.
II. Unreimbursed employee business expenses for a nonaccountable plan.
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
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80. Melissa is a corporate sales representative for Computer City. Melissa receives a monthly travel allowance from
Computer City to cover her travel costs (transportation, food, lodging, entertainment, etc.). If Melissa is required to
account to Computer City for the use of the travel advance and to return any excess travel advance
Melissa will not have to show any aspect of the travel reimbursement or expenses incurred
I. if she spends all of the reimbursement on valid travel expenses.
Melissa will have gross income to the extent her travel allowance used for travel expenses
II. reimbursed.
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
81. Sally is a corporate sales representative for Computer City. Sally receives a monthly travel allowance from
Computer City to cover her travel costs (transportation, food, lodging, entertainment, etc.). If Sally is not required to
account to Computer City for the use of the travel advance
Sally will not have to show any aspect of the travel reimbursement or expenses incurred if
I. she spends all of the reimbursement on valid travel expenses.
Sally will only have gross income to the extent her travel allowance exceeds her actual
II. costs.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
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82. Victor is a sales representative for Valley Winery. Victor receives a monthly travel allowance from Valley to cover
his travel costs (transportation, food, lodging, entertainment, etc.). If Victor is required to account to Valley for the
use of the travel advance and to return any excess travel advance
To the extent Victor is reimbursed for less than his costs, part of his expenses are deducted
I. for AGI and part are deducted from AGI.
Victor must include the travel allowance in his gross income. His actual costs are deductible
II. from AGI, subject to all applicable limits on such deductions.
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
83. Richard is a sales person for Publix Company. Every month Richard fills out an expense account report,
documenting all his expenses and submits it for reimbursement. During the current year, Richard submitted
documentation and receives $12,500 of reimbursements. All his claims are reimbursed. How will these expenses
and reimbursements affect Richard's income tax calculation?
I. Expense amounts are deductible from AGI.
II. Reimbursed amounts are excluded from gross income.
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
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84. Lynn is a sales representative for Textbook Publishing Company. He receives a monthly travel allowance from
Textbook to cover his travel costs (transportation, food, lodging, entertainment, etc.). If Lynn is not required to
account to Textbook for the use of the travel advance
Lynn will not have to show any aspect of the travel reimbursement or expenses incurred if
I. he spends all of the reimbursement on valid travel expenses.
To the extent Lynn is reimbursed for his costs he will get a deduction for AGI.
II.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
85. Ester is a sales representative for a pharmaceutical company. She receives a monthly travel allowance from the
company to cover her travel costs (transportation, food, lodging, entertainment, etc.). If Ester is not required to
account to the company for the use of the travel advance
Ester will only have gross income to the extent her travel allowance exceeds her actual
I. costs.
Ester must include the travel allowance in her gross income. Her actual costs are deductible
II. from AGI, subject to all applicable limits on such deductions.
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
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86. Natasha is an employee of The Johnson Company. She incurs a total of $7,500 in business expenses as follows:
Lodging $ 2,500
Transportation (no commuting) 3,500
Dues and subscriptions 1,500
Natasha receives reimbursement of $5,600 after an adequate accounting to her employer. Natasha's itemized
deductions before any limitations would be:
a. $ - 0 -
b. $1,500
c. $1,900
d. $5,600
e. $7,500
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
87. Eloise is a sales representative for a video production company. While at an exposition, she incurs $2,000 in
entertainment expenses and $1,200 for meals. The expenses occur while she is discussing business and Eloise
makes an adequate accounting to her employer and is reimbursed $1,200. How much may Eloise deduct if her AGI
is $40,000?
a. $ - 0 -
b. $1,200 for AGI and $200 from AGI.
c. $1,200 for AGI and $2,000 from AGI.
d. $ - 0 - for AGI and $200 from AGI.
e. $ - 0 - for AGI and $1,000 from AGI.
ANSWER: b
POINTS: 1
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88. Brees Co. requires its employees to adequately account for all reimbursed business expenses. Tracy, an employee
of Brees Co. has AGI of $50,000 and submitted for reimbursement the following valid business expenses:
Transportation costs $1,000
Meals 700
Entertainment costs 500
Hotel costs 800
What are the tax consequences if Brees reimburses Tracy $2,400?

I. Tracy must report $2,400 of income.
II. Tracy can deduct $2,400 of the expenses for AGI and $-0- as miscellaneous itemized
deductions, after limitations.
ANSWER: c
POINTS: 1
89. Joline works as a sales manager for the Washington Manufacturing Company. Although the company has an
accountable reimbursement plan, as a cost containment measure the company will only reimburse its sales
personnel for 80% of their business expenses. During the year, Joline incurred the following business expenses:
Airfare $ 3,000
Hotels 3,700
Meals 1,200
Entertainment 1,000
If Joline's adjusted gross income is $62,000, what amount can Joline deduct as a miscellaneous itemized deduction?
a. $ 320
b. $ 540
c. $ 890
d. $1,560
e. $1,780
ANSWER: a
POINTS: 1
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90. Mathew works for Levitz Mortgage Company. The company has an accountable reimbursement plan. During the
year Levitz reimburses Mathew $5,400 for his business expenses. Mathew's adjusted gross income for the year is
$45,000. His business expenses are as follows:
Airfare $ 2,900
Hotel 1,900
Meals 1,400
Entertainment 1,000
What amount will Mathew be able to deduct as a miscellaneous itemized deduction?

a. $ - 0 -
b. $ 600
c. $1,200
d. $1,500
e. $1,800
ANSWER: b
POINTS: 1
91. Brenda travels to Cleveland on business for her employer. She spends 4 days in meetings with a client. Brenda's
plane fare for the trip is $400. Meals cost $40 per day. Hotel and incidental costs amount to $150 per day. Brenda
receives no reimbursement for any expenses. Brenda's adjusted gross income for the year is $40,000. What is
Brenda's deduction for the trip?
a. $ - 0 -
b. $ 280
c. $1,080
d. $1,160
e. $2,320
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
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92. Charlie is single and operates his barber shop as a sole proprietorship. During the current year, Charlie paid $2,200
for his personal health insurance plan and $4,000 for health insurance for his employees. How much of these
premiums can be deducted for Charlie’s adjusted gross income?
a. $ - 0 -
b. $2.200
c. $4,000
d. $5,100
e. $6,200
ANSWER: e
POINTS: 1
DIFFICULTY: Medium
93. Margaret is single and is a self-employed proprietor of a convenience store near the mall. During the current year,
Margaret paid $4,000 for health insurance coverage for herself. She paid another $500 for coverage for her
unrelated employee, Corky. How should Margaret deduct the health insurance cost?
I. Margaret takes $500 as a business expense.
II. Margaret takes the $4,000 as a deduction for AGI.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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94. Kyle is married and a self-employed landscaper. During the current year, Kyle pays $3,000 for health insurance
coverage for himself. He pays another $400 for coverage for his employee, Tabatha. How should Kyle deduct the
health insurance cost?
I. Kyle deducts a total of $3,400 for AGI.
II. Kyle cannot deduct any portion of his premium of $3,000 for AGI if his spouse is covered
by a health plan through her employer.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
95. Oliver owns Wifit, an unincorporated sports store. In 2014 Wifit earned $100,000, before Oliver drew out a salary
of $60,000. What is Oliver’s 2014 deduction for self-employment taxes?
a. $ 2,826
b. $ 7,065
c. $ 7,650
d. $14,130
e. $15,300
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
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96. Concerning individual retirement accounts (IRAs),
A single taxpayer that is not an active participant in a qualified plan may deduct up to $6,000
I. of the annual contribution.
A taxpayer that is not working outside of the home may not deduct any amount if their
II. spouse is an active participant in a qualified plan, unless their AGI is below $60,000.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
97. Rhonda and Ralph are married. Rhonda earns $81,000 annually, and Ralph earns $5,000 annually working part-
time. Their AGI is $108,000. Rhonda participates in an employer-sponsored retirement plan. Ralph's company does
not have a pension plan. Rhonda and Ralph contribute the maximum amount allowable annually to their IRAs. What
is their allowable deduction for this year's contributions?
a. $ 0 -
b. $ 2,200
c. $ 7,700
d. $ 8,000
e. $11,000
ANSWER: c
POINTS: 1
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98. Chi is single and an employee of Federal Company. Chi's adjusted gross income for the current year is $63,000. Chi
would like to make the maximum contribution to his individual retirement account this year. Which of the following
statements about Chi's contribution and deduction amounts is (are) true?
He is not allowed to make an IRA contribution because his adjusted gross income is greater
I. than $60,000.
If Federal Company does not have a qualified pension plan; Chi can contribute and deduct a
II. maximum of $5,500 to his IRA account.
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
99. Chelsea is an employee of Avondale Company. Chelsea's adjusted gross income for the current year is $64,000.
Chelsea would like to make the maximum contribution to her individual retirement account this year. Which of the
following statements about Chelsea's contribution and deduction amounts is (are) true?
If Chelsea is single and is covered by a qualified pension plan, she is allowed to contribute
I. $5,500 to her IRA account, but she is allowed a deduction for only $3,300 of the contribution
because her adjusted gross income is greater than $60,000.
If Chelsea is married and covered by a qualified pension plan and her husband does not
II. work, they can contribute and deduct $5,500 to two separate IRA accounts (one for herself
and one for her husband).
ANSWER: c
POINTS: 1
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100. Darlene and Devin are married. Darlene earns $48,000 and Devin earns $41,000. Their adjusted gross income is
$97,000. Darlene's employer provides her with a qualified pension plan, Devin's does not. What are Darlene and
Devin's maximum combined IRA contribution and deduction amounts?
Contribution Deduction
a. $11,000 $ 5,000
b. $11,000 $ 6,000
c. $11,000 $ 8,000
d. $11,000 $10,725
e. $11,000 $11,000
ANSWER: d
POINTS: 1
101. Aaron is a 34-year-old head of household and a self-employed taxpayer. He contributed the maximum amount to
his IRA account during the current year, and his net earnings from his business totaled $29,000. How much can
Aaron deduct for AGI this year?
a. $ - 0 -
b. $3,200
c. $3,800
d. $5,000
e. $5,500
ANSWER: e
POINTS: 1
DIFFICULTY: Medium
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102. Hector is a 54-year-old head of household and a self-employed taxpayer. He contributed the maximum amount to
his IRA account during the current year, and his net earnings from his business totaled $36,000. How much can
Hector deduct for AGI this year?
a. $ - 0 -
b. $3,200
c. $5,500
d. $6,000
e. $6,500
ANSWER: e
POINTS: 1
DIFFICULTY: Medium
103. Arturo and Josephina are married with salaries of $47,000 and $48,000, respectively. Their combined AGI is
$101,000. Josephina is an active participant in her company's qualified pension plan while Arturo is not. Determine
Arturo and Josephina’s combined IRA contribution and deduction amounts?
Maximum Maximum
a. $ 5,500 $ 2,750
b. $ 11,000 $ 2,750
c. $ 11,000 $ 5,500
d. $ 11,000 $ 9,625
e. $ 11,000 $ 11,000
ANSWER: d
POINTS: 1
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104. Fred and Irma are married with salaries of $49,000 and $44,000, respectively. Their combined AGI is $106,000.
Both are active participant in their companies’ qualified pension plans. Determine their maximum combined IRA
contribution and deduction amounts?
Maximum Maximum
a. $ 5,500 $ 2,750
b. $ 11,000 $ 2,750
c. $ 11,000 $ 5,500
d. $ 11,000 $ 7,500
e. $ 11,000 $ 11,000
ANSWER: c
POINTS: 1
105. Marshall and Michelle are married with salaries of $80,000 and $64,000, respectively. Their combined AGI is
$181,000. Michelle is an active participant in her company's qualified pension plan while Marshall is not. Determine
the maximum combined IRA contribution and deduction amounts?
Maximum Maximum
a. $ 5,500 $ 2,750
b. $ 11,000 $ 5,500
c. $ 5,500 $ 5,500
d. $ 11,000 $ 7,500
e. $ 11,000 $ 11,000
ANSWER: b
POINTS: 1
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106. Mark and Cindy are married with salaries of $45,000 and $42,000, respectively. Adjusted gross income on their
jointly filed tax return is $97,000. Both individuals are active participants in employer provided qualified pension
plans. What is the maximum amount each person may deduct for AGI with regard to IRA contributions?
Mark Cindy
a. $ 1,000 $ 1,000
b. $ 5,225 $ 5,225
c. $ 3,200 $ 3,200
d. $ - 0 - $ -0-
e. $ 5,500 $ 5,500
ANSWER: b
POINTS: 1
107. Dan and Dawn are married and file a joint return. During the current year, Dan had a salary of $30,000 and Dawn
had a salary of $36,000. Both Dan and Dawn are covered by an employer-sponsored pension plan. Their adjusted
gross income for the year is $95,000. Determine the maximum IRA contribution and deduction amounts.
Maximum Maximum
a. $ 11,000 $ 11,000
b. $ 11,000 $ - 0 -
c. $ 11,000 $ 5,500
d. $ 5,500 $ -0-
e. $ 8,000 $ 8,000
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
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108. Carl, age 59, and Cindy, age 49, are married and file a joint return. During the current year, Carl had a salary of
$41,000 and Cindy had a salary of $35,000. Both Carl and Cindy are covered by an employer-sponsored pension
plan. Their adjusted gross income for the year is $94,000. Determine the maximum IRA contribution and deduction
amounts.
Maximum Maximum
a. $ 12,000 $ 12,000
b. $ 11,000 $ 11,000
c. $ 12,000 $ 11,000
d. $ 11,000 $ 9,000
e. $ 13,000 $ 13,000
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
109. Kevin, single, is an employee of the Colonial Company and is an active participant in its pension plan. Kevin's
adjusted gross income for the current year is $59,000. Kevin contributes $1,000 to his conventional individual
retirement account. Which of the following statements about Kevin contributions and deduction amounts is (are)
true?
I. He is allowed to deduct his $1,000 contribution to his conventional IRA.
II. Kevin can also contribute but not deduct $4,500 to his Roth IRA.
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
LEARNING OBJECTIVES:CIFT.MUHI.14.10 - 10
CIFT.MUHI.14.9 - 9
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110. Mollie is single and is an employee of the Royal Corporation. She is an active participant in the company's pension
plan. Mollie's adjusted gross income is $117,000 and she has never established an IRA account. How much can
Mollie contribute to a Roth IRA?
a. $ - 0 -
b. $1,000
c. $2,750
d. $4,400
e. $5,500
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
111. Margie is single and is an employee of the Stitch Corporation. She is an active participant in the company's pension
plan. Margie's adjusted gross income is $64,000 and she contributes the maximum amount allowable as a deduction
to her IRA account during the current year. How much can Margie contribute to her Roth IRA?
a. $ - 0 -
b. $1,000
c. $2,200
d. $4,000
e. $5,500
ANSWER: c
POINTS: 1
CIFT.MUHI.14.9 - 9
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112. Fred and Flossie are married and their adjusted gross income is $192,000. Both Fred and Flossie are active
participants in their company's qualified pension plan and have never established an Individual Retirement Account.
What is the maximum combined amount they can contribute to Roth IRAs?
a. $ - 0 -
b. $ 2,000
c. $ 5,500
d. $ 8,000
e. $11,000
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
113. Homer and Marge are married and have an adjusted gross income of $182,000. Currently, neither is covered by an
employer sponsored pension plan. They have never established an Individual Retirement Account until this year,
when they opened a Roth IRA. What is the maximum amount they can each contribute to Roth IRAs?
a. $1,000
b. $2,000
c. $2,750
d. $4,950
e. $5,500
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
114. Alex and Alicia are married and have two children ages 5 and 9. Their adjusted gross income for the year is
$86,000. During the year they establish a Coverdell Education Savings Account (CESA) for each child.
I. They can contribute $2,000 to each child's CESA.
II. They can deduct the CESA contributions for their adjusted gross income.
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
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115. Laura and Jason are married and have 3 children ages 2, 6, and 8. Their adjusted gross income for the year is
$95,000. The maximum they can contribute to their children's Coverdell Education Savings Accounts is
a. $ - 0 -
b. $ 667
c. $1,500
d. $2,000
e. $6,000
ANSWER: e
POINTS: 1
DIFFICULTY: Medium
116. James has three nieces, ages 11, 16, and 19 and is single. His adjusted gross income for the year is $100,000. The
maximum he can contribute to their Coverdell Education Savings Accounts is
Each Account Total Contribution

a. $1,333 $ 2,667
b. $1,333 $ 4,000
c. $2,000 $ 4,000
d. $2,000 $ 6,000
e. $6,000 $ 6,000
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
117. Phil and Faye are married and have 3 children ages 11, 14, and 17. Phil and Faye’s adjusted gross income for the
year is $200,000. The maximum they can contribute to their children's Coverdell Education Savings accounts is
Each Account Total Contribution
a. $ - 0 - $ -0-
b. $1,333 $ 4,000
c. $2,000 $ 4,000
d. $2,000 $ 6,000
e. $6,000 $ 6,000
ANSWER: b
POINTS: 1
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118. Carlos is single and has a 7 year-old child. Carlos' adjusted gross income for the year is $101,000. The maximum
amount he can contribute to his child's Coverdell Education Savings Account is
a. $ - 0 -
b. $ 800
c. $1,200
d. $2,000
e. $4,000
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
119. Karen is single and graduated from Marring University in May of 2013. In January of 2014, she begins repaying her
student loans and in 2014 pays $2,800 of interest on the loans. Her adjusted gross income is $51,000.
I. Karen can deduct $2,500 of interest as a deduction for adjusted gross income.
II. Karen can deduct $2,800 of interest as a deduction from adjusted gross income.
ANSWER: a
POINTS: 1
DIFFICULTY: Medium
120. Victor is single and graduated from Wabash College in May of 2013. In January of 2014, he begins to repay his
student loans. During the year he pays $1,500 of interest on the loans. His adjusted gross income for the year is
$65,000. Victor can deduct student loan interest of
a. $ - 0 -
b. $ 800
c. $1,000
d. $1,200
e. $1,500
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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121. Martha is single and graduated from Ivy Tech in May of 2013. In January of 2014, she begins repaying her student
loans and pays interest on the loans of $2,600 in 2014 and $1,200 in 2015. Her adjusted gross income in 2014 is
$63,000 and is $80,000 in 2015. Martha can deduct student loan interest of
2014 2015
a. $ - 0 - $ -0-
b. $2,000 $ 1,200
c. $2,500 $ 1,200
d. $2,000 $ -0-
e. $2,500 $ -0-
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
122. Which of the following is (are) correct concerning the time test for deducting moving expenses?
I. Self-employed individuals must work in the new location for 39 weeks during a 2-year period.
II. A transfer of the employee by the employer waives the time requirement.
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
123. Thomas changes jobs during the year and moves from Philadelphia to El Paso. Which of the following expenses
relating to the move can Thomas deduct?
I. Prior to the move, Thomas flies to El Paso to find an apartment.
II. The cost of meals while driving his household goods to El Paso.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
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124. Carla changes jobs during the year and moves from Oklahoma City to Orlando. Which of the following expenses
relating to the move can Carla deduct?
I. Upon arriving in Orlando, her apartment is not ready so she spends 2 nights in a local hotel.
II. Gas and tolls during the move to Orlando.
ANSWER: b
POINTS: 1
DIFFICULTY: Medium
125. Jay obtains a new job in Boston and moves from Reno during the current year. He incurs the following moving
expenses:
Transportation of household goods $5,700
House-hunting trips to Boston 600
Cost of transporting Jay's family 2,300
Meals incurred while moving the family 200
Temporary living expenses while waiting for the new residence to be ready 1,000
What is Jay's moving expense deduction?

a. $ - 0 -
b. $ 5,700
c. $ 8,000
d. $ 9,700
e. $ 9,800
ANSWER: c
POINTS: 1
DIFFICULTY: Medium
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126. Julian and Deloris move during the current year from their home in Houston to Santa Fe. Julian was a rocket
scientist with NASA in Houston and has accepted a new job with the Los Alamos research lab near Santa Fe.
Moving expenses and reimbursement information are presented below.
Direct costs of moving themselves, furnishings and other personal belongings to Santa Fe total
• $8,000.
A house-hunting trip before their move to Santa Fe resulted in the total costs of $2,500.
•
Julian and Deloris incurred commissions and legal costs in the amount of $12,000 in conjunction
• with the sale of their Houston residence.
Los Alamos research laboratories reimbursed Julian and Deloris for $5,000 of their moving
• costs.
What is their Moving Expense deduction?

a. $17,500 deduction from AGI.
b. $8,000 deduction for AGI.
c. $10,500 deduction from AGI.
d. $3,000 deduction for AGI.
e. $22,500 decution from AGI.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
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127. For each of the following situations, determine whether the item is deductible, how it would be deducted on the
taxpayer's return (if there are alternatives possible, discuss the conditions which would determine the treatment)
and any limitations that might be placed on the deduction.
a. Monica took a client out to dinner to discuss the tax aspects of the client's proposed
acquisition of a rival company. After dinner, Monica took the client to see a play.
1. Assume Monica is self-employed

2. Assume Monica is an employee of GHQ Corporation. GHQ does not reimburse its
employees for entertaining clients.
Sergio owes Edward $5,000. During the current year, Sergio files for bankruptcy.
b. Sergio's attorney indicates that due to Sergio's poor financial condition his creditors will
be lucky to get $.80 on the dollar for their debts.
1. Assume Sergio is a customer of Edward's (an accrual basis taxpayer) and the $5,000
debt is from an account receivable related to Edward's business.
2. Assume Sergio is a business associate of Edward's. Edward loans Sergio the $5,000 to
pay off some gambling debts. Edward owns a meat packing plant.
ANSWER: a.
The cost of the dinner is a directly related meal because Monica and the client
actually discussed business. The cost of the play is an associated with
1. entertainment expense because it directly followed a bona-fide business
discussion. Monica can deduct 50% of the cost of the meal and the play as a
deduction for adjusted gross income because it is a trade or business expense.
As in (1), the meal and the play are deductible business expenses and 50% of the
cost is allowed as an employee business expense. However, employee business
2. expenses are deductible as miscellaneous itemized deductions that are subject to
a 2% of adjusted gross income limitation. Therefore, to receive a deduction for
the cost, Monica must itemize her deductions and Monica's total allowable
miscellaneous itemized deductions must exceed 2% of adjusted gross income.
b.
The debt is related to Edward's trade or business. Business bad debts are
deductible in the year of partial worthlessness as an ordinary business expense.
1.
Edward can deduct $1,000 [$5,000 × (1 - .80)] as an estimate of the ultimate bad
debt expense.
The debt is not related to Edward's trade or business. Nonbusiness bad debts are
deducted as short-term capital losses in year of actual worthlessness. Therefore,
2.
Edward cannot deduct any of the bad debts until the actual amount of
worthlessness is known.
POINTS: 1
CIFT.MUHI.14.5 - 5
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128. Phong is a life insurance salesman for Swan Insurance and spends 4 days a month in the office. His office is 12
miles from home. He also has a part-time job as a salesman in a clothing store. Typically, he works 2 nights during
the week and 1 day on the weekend. The clothing store where he works is 6 miles from his office and 7 miles from
his home. What portion(s) of Phong's travel is (are) considered business?
ANSWER: Phong can deduct the cost of traveling from home to his business clients and back.
He also can deduct the cost of traveling from his office to his clients and back to his
office. The cost of traveling to his office and then home, as he does 4 days a month, is
considered commuting and is nondeductible. However, the cost of traveling from
either his office or clients to his second job is deductible. The cost of traveling home
from his part-time job and to-and-from the job on the weekend is not deductible
because the travel is considered commuting. Finally, any out-of-town traveling Phong
incurs is fully deductible.
POINTS: 1
DIFFICULTY: Medium
129. Jerry recently graduates with an MBA degree from a leading university and will be going to work as an employee
of a major stock brokerage firm. Jerry is unsure of the circumstances under which he can legitimately deduct the
costs of entertaining and dining with clients and prospective clients. Jerry will spend approximately $5,000 a year on
such activities for which he will not be reimbursed. It is important that he be able to derive tax benefit for these
costs. Advise Jerry of the general rules in this area of the tax law. Include a brief discussion of substantiation
requirements for such business expenses.
ANSWER: To be deductible, meal and entertainment expenses must be either directly related to
or associated with the active conduct of an activity for which the taxpayer has a
business purpose. The directly related test requires that the entertainment expense
meet four tests, one of which is that a bonafide business activity takes place during
the entertainment. For the entertainment to qualify under the associated with test, two
requirements must be met. First, there must exist a clear business purpose, other than
goodwill, for the entertainment. The second test requires that the entertainment occur
either preceding or following a substantial business discussion. For substantiation, the
tax law requires the taxpayer to keep records that will show the amount of the
expense; the time and place of travel or entertainment, or date and description of a
gift; the business purpose of the travel, entertainment or gift; and the business
relationship to the person entertained or receiving the gift. Finally, Jerry needs to
know that he can only deduct 50% of these expenses.
POINTS: 1
DIFFICULTY: Medium
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taxpayer's return (if there are alternatives possible, discuss the conditions which would determine the treatment)
and any limitations which might be placed on the deduction.
Cassie sells insurance and other financial products for Bison Assurance Company. During the
a. current year, she gives each client who has been with her for three years 2 tickets to a Willie
Nelson concert. The tickets have a face value of $75 each, but Cassie has to pay $100 per
ticket to obtain a block of 100 tickets. Cassie was out of town and did not attend the concert.
Randolph was the CEO and chairman of the board of directors of Vison Inc., until his
retirement 5 years ago. Although he still owns 5% of Vison's stock, he has no other active
involvement in the company. While playing golf one day he learns that 4 of the company's
biggest customers are coming to town to close a big deal. Randolph had been responsible for
b. bringing 3 of the customers to the business 30 years earlier when he started working for the
company. Because he has developed a solid business relationship with them through the years
and to help the company out, he holds a reception for the 4 customers and top executives of the
company at his country club. The cost of the reception is $2,000. Randolph did not ask for, nor
did Vison offer, a reimbursement for the reception.
Ai-leng is an engineer employed by Boiler Corporation. While having lunch with one of Boiler's
c. clients, she learns of a new relaxation technique that the client felt had greatly reduced his job-
related stress. Ai-leng enrolls in a night course at the local community college to learn the new
relaxation technique. The cost of the course is $200.
The tickets do not meet the criteria for deductibility as an entertainment expense.
However, you are allowed to deduct business gifts up to a maximum of $25 per
donee. Deductions for tickets are limited to the face value of the ticket.
a. Therefore, Cassie can deduct $25 per client. Her total deduction is $2,500 ($25 ×
100 clients). Because she is an employee, she must take the deduction as a
miscellaneous itemized deduction, which is subject to a 2% of adjusted gross
ANSWER: income limitation.
No deduction is allowed. Deductions are allowed for meals and entertainment

costs that are related to a trade or business. Since the company no longer
b. employs Randolph, he is not in a trade or business and cannot deduct any of the
$2,000. In addition, the expenditure is not ordinary (investors normally do not
entertain clients of the company they own), or necessary (a prudent businessman
would not make such an expenditure).
The cost of the course is not deductible. To deduct education expenses, the
course must either maintain or improve job skills or be required by law or by her
c.
employer. The course in relaxation techniques does not relate to Ai-Leng's job as
an engineer and was not required by her employer or by law.
POINTS: 1
CIFT.MUHI.14.4 - 4
131. For each of the following situations explain why the expenditure is or is not deductible and any limitations that may
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be placed on the amount of the deduction.
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a. Akira is self-employed as a personal financial planner. He went out-of-town for two
days to visit three of his best clients and incurs the following expenses:
Airfare $350
Rental car 160
Lodging 240
Incidentals 90
Meals 220
Entertainment 130
Woodrow is President and CEO of ISPEP, a closely held corporation with assets of
$20,000,000. Woodrow, who owns 60% of the company, decides to hire his twin
b. daughters who have just completed their freshman year at Aztec State to work in the
promotions department of the company. His daughters will be paid $5,000 each for the
summer. Other college students who are hired for the summer to perform similar tasks
will be paid $4,000.
c. Felix is a Realtor. To show his appreciation, he gives each client who buys a home from
him a $75 wall clock. During the year Felix gives 64 clocks to his clients.
Sandy sues Harrison for divorce. Originally, Sandy asks for one-half of all their assets,
d. including 50% of Harrison's car dealership. Harrison's lawyer has worked out a
compromise with Sandy and her attorney that allows Harrison to retain 100% ownership
of the dealership. Harrison pays his lawyer $10,000 in legal fees.
Akira can deduct the full cost of the airfare ($350), rental car ($160), lodging
($240), and incidentals ($90). The meals and entertainment expenses must be
a. reduced by 50%. The deduction for the meals and entertainment is $175 [$220 +
$130) × 50%]. Akira can deduct for adjusted gross income $1,015 ($350 + $160 +
ANSWER: $240 + $90 + $175) for his trip.
Because his daughters are related parties, the compensation paid by Woodrow to
them is subject to scrutiny. The normal compensation for the work his daughters
will perform is $4,000. Therefore, the additional compensation of $1,000 ($5,000 -
b. $4,000) paid to each daughter is not deductible because it lacks a business
purpose. Under the substance over form doctrine, the $2,000 ($1,000 × 2) is
treated as a dividend to Woodrow and a $2,000 gift ($1,000 each) from Woodrow
to his daughters. The gift to his daughters is excluded from income and is not
deductible by Woodrow.
c. Felix can deduct up to $25 per year for each clock he has given to a client. For
the year, he can deduct $1,600 ($25 × 64) as business gifts.
Harrison may not deduct any portion of the legal fees because the legal dispute
d. originates from a personal matter. The fact that his wife sues for 50% control of
his car dealership, which is a business asset, does not affect the tax treatment.
POINTS: 1
CIFT.MUHI.14.4 - 4
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132. For each of the following situations explain why the expenditure is or is not deductible and any limitations that may
be placed on the amount of the deduction.
Ellis is a part-time bookkeeper for Gilmore Company. The owner of Gilmore told Ellis that if
a. he earns an accounting degree and passes the CPA exam, he would hire him as Gilmore’s
accountant. Ellis spends $5,600 taking classes towards an accounting degree at City College.
Harry owns Circus City Condiments, a wholesaler of circus food. In 2008 he loaned his
friend Joanna $8,000 at 6% annual interest with the balance due in 5 years. Joanna used the
b. loan to open a beauty salon. In December 2014, Joanna tells Harry that she has filed for
bankruptcy and that he will be lucky to get $2,000 of his money back. The bankruptcy
proceedings had not been completed at the end of 2014.
Audrey is a self-employed computer consultant. Harvey calls Audrey and asks her for
information on installing a new Lan-based workstation system in his business. Audrey meets
c. Harvey at Franco's Chop House. They have dinner while Audrey explains how such a
system will work and what it will cost. Audrey pays for the dinner, which costs $100.
Harvey calls Audrey the next day and tells her that he has decided that the system costs too
much and that he will not need her services.
To be deductible, education expenses must be either required by law (employer)

or maintain or improve the job skills of the taxpayer. Education expenses that
meet the minimum job requirements or which qualify the taxpayer for a new trade
a. or business are not deductible. Because he is not currently an auditor with
Gilmore Company, Ellis's education expenses are to meet the minimum
educational requirements of the job (and qualify him for a new trade or business)
ANSWER: and are not deductible.
The loan is not related to Harry's trade or business and must be accounted for as
a non-business bad debt. Non-business bad debts are deductible as short-term
b. capital losses in the year in which the actual amount of worthlessness is
determined. Because the actual amount of the bad debt has not been determined
as of the end of 2013, Harry is not entitled to any deduction related to the loan in
2013.
The meal is a directly related business expense. The meal had a clear business
purpose and there was a reasonable expectation of Audrey obtaining Harvey's
c. business as a result of their discussion. The fact that she does not ultimately
receive Harvey's business is not relevant. She can deduct $50 ($100 × 50%) of
the meal cost as a trade or business expense.
POINTS: 1
CIFT.MUHI.14.4 - 4
CIFT.MUHI.14.5 - 5
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133. Roscoe is a religion professor. During the summer, he spends 3 months in Israel touring historical landmarks. The
cost of the summer trip includes $1,300 for airfare, $2,750 for lodging, $1,175 for meals, and $850 for incidental
expenses. The following semester he incorporates many of the items he collected and the knowledge he gained
from his experiences into his lectures. How much of the travel costs can Roscoe deduct? Explain.
ANSWER: None of the costs that Roscoe incurred are deductible travel expenses. Travel, as a
form of education, is specifically not deductible. The expenses are personal.
POINTS: 1
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134. For each of the following situations, determine whether the expenses are deductible as an education expense.
Explain.
Marvin owns a real estate development firm and his adjusted gross income is $60,000. He
enrolls as a part-time student at Northern College. His primary motivation for taking the
a. classes is to obtain a greater understanding of the accounting issues associated with his real
estate development business. He also believes that he can save 25% of the amount he pays in
accounting expenses. The cost of the 2 courses he enrolls in is $900.
Nancy is employed as a computer manager for a data processing company and her adjusted
b. gross income is $90,000. She enrolls in a night course ($225) at the local college. The course
is not required by her employer, but does improve her job skills.
Janine is a recent graduate of Western University and has been hired by a local accounting
c. firm. The firm expects Janine to pass the CPA exam on her initial attempt. To help her
prepare for the CPA exam, she takes the Booker CPA Review Course that costs $1,500.
Cam runs a licensed day-care center. To maintain his license he is required to attend a
d. minimum of 30 hours a year of continuing education. During the year, Cam attends 40 hours
of continuing education seminars at a cost of $1,500.
The education expenses will help Marvin in his business by improving his job
a.
ANSWER: skills. Therefore, the $1,400 expense is deductible as a trade or business expense.
Although her employer does not require the course, the cost of the night course is
deductible because it improves her job skills. Nancy can deduct the $225 as an
b. unreimbursed employee business expense. It is deducted as a miscellaneous
itemized deduction from AGI.
Even though Janine is an accounting graduate and is working in a local CPA law
firm, she is not a CPA. The course she takes to pass the CPA exam is not
deductible because the CPA review course is an education expense that will help
c.
her qualify for a new trade or business. Being a CPA is considered a separate
trade or business from being an accountant. The expense is personal.
Cam can deduct the $1,500 cost of the seminars. The fact that Cam attended
more than the required number of continuing education hours does not limit the
d. amount he can deduct. The first 30 hours of continuing education are deductible
because state law requires them. The remaining 10 hours are deductible because
the courses maintain or improve the skills required in his trade or business.
POINTS: 1
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135. Sally and Kelly are both enrolled in a graduate accounting course at Deacon University. Discuss how it is possible
that Sally can deduct the cost of her tuition as an education expense while Kelly's tuition is not deductible.
ANSWER: An education expense is deductible when the expense is either required by the
taxpayer's employer (or by law) to maintain the job or maintains or improves the
taxpayer's skills. That same education expense incurred by another taxpayer could be
considered an expense, which qualifies the taxpayer for a new trade or business, or is
needed to meet the minimum educational requirements required for the taxpayer's job.
Therefore, if Sally already has a degree in accounting or is working in the field of

accounting, the cost of her tuition is deductible because the course would improve or
maintain her accounting skills. On the other hand, if Kelly is not working in the field of
accounting, or has never worked in accounting but is just continuing her accounting
education, the expense is not deductible because the education will qualify her for a
new trade or business or help her meet the minimum educational requirements of
being an accountant.
POINTS: 1
DIFFICULTY: Medium
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136. Amanda is the president and 60% owner of ANR, a closely held corporation. During the year, she is paid a salary
of $650,000. Her salary is 40% higher than that for executives of comparably sized companies in the industry. ANR
has experienced 4 straight years of increased sales growth, at 3% per year, while other companies in the industry
have experienced decreasing or level sales. Discuss what factors are used to determine whether Amanda's salary
represents reasonable compensation.
ANSWER: In determining whether Amanda's salary is reasonable, the IRS will focus on several
factors including the following:
• Her duties, responsibilities, and pay history.
• Her ability and accomplishments.
• The relationship of her compensation to the gross and net income of the business
and dividends paid to the shareholders.
• The amount of her salary related to other executives at similarly situated
companies in the industry.
• The salary policy of the company over the past several years.
• The size of the company and the economic environment.
For her salary to be considered reasonable, the amount paid to her should be based on
the number of hours she works, and her responsibilities and duties. In addition,
Amanda's salary history should also be consistent with her accomplishments as
president of the corporation. That is, her salary should be reflective of the financial
performance and growth of the corporation.
A factor in Amanda's favor is that she has guided her company to four straight years
of increased growth while other companies in the industry have experienced
decreasing or level sales. Amanda's position will be further strengthened if other key
financial variables (e.g., gross margin percentage, net income as a percentage of
sales, return on assets) are significantly better than similar company's in the industry.
Because Amanda's salary is significantly greater than other presidents in the industry,
the IRS might challenge whether Amanda's performance justifies a 40% differential.
In challenging Amanda's salary, the IRS will assert that the corporation is attempting
to disguise a dividend payment to Amanda in the form of excessive salary.
POINTS: 1
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137. Sita loans her next-door neighbor, Ivan, $800 to pay his rent and cover his utilities for last month. Ivan promises Sita
he will repay her at the end of next month when he receives his next payroll check. Two weeks after loaning Ivan
the money, Sita discovers Ivan had left town. No one knows his whereabouts. Sita is told that Ivan also hasn't paid
his rent or utility bills. Discuss whether Sita can deduct the $800. Completely explain your reasoning.
ANSWER: To receive a nonbusiness bad debt deduction, Sita will have to prove that her intent
was not to make an $800 gift to Ivan. To have a nonbusiness bad debt, a bonafide
loan must have existed. That is, a note to show evidence of the debt, a provision for
interest on the loan, possible collateral for the loan, a payment due date, and collection
efforts by Sita need to be present in all or part. If evidence could be found to show
this situation is a bonafide loan, a nonbusiness bad debt deduction would be reported
as a short-term capital loss.
POINTS: 1
DIFFICULTY: Medium
138. Walter is a cash basis taxpayer with a drapery cleaning business. In the current year he determines he will never
receive payment from Davis for cleaning services provided to Davis. Can Walter record a deduction for the bad
debt? Explain.
ANSWER: Allowing a bad debt deduction for a cash basis taxpayer would amount to a double
deduction. The expenses of the services rendered are deducted when payments are
made to vendors. Also, no income is recorded at the time services are performed.
Income is recorded when payments are received. In the present case, no income has
been recorded. Therefore, Walter does not have a basis in the bad debts and no
expense can be recorded to offset the income.
POINTS: 1
DIFFICULTY: Medium
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taxpayer's return (if there are alternatives possible, discuss the conditions that would determine the treatment) and
any limitations, which might be placed on the deduction.
a. Allison is self-employed. She pays the following taxes during the current
year:
State income tax $1,200

Federal income tax 4,000
Self-employment tax 3,200
Property tax on residence 700
Tax on business equipment 200
A customer who owed Leon $5,000 declared bankruptcy last year. At

that time, the customer's accountant estimated that only 40% of the
b.
customer's debts would be paid. In the current year, Leon receives
$1,000 from the bankruptcy court as final payment on the $5,000 debt.
Allison can deduct the state income tax and the property tax on her residence as
an itemized deduction. One-half of the self-employment tax, $1,600, is deductible
a.
for adjusted gross income. The tax on business equipment is capitalized as part of
ANSWER: the cost of the equipment. Federal income taxes are not deductible.
If Leon is a cash basis taxpayer, no deduction is allowed. He will include the

$1,000 he receives in the current year in his gross income. If Leon is an accrual
b. basis taxpayer, he would deduct $3,000 ($5,000 × 60%) last year as a bad debt
expense. In the current year, he can deduct an additional $1,000 ($2,000 expected
payment - $1,000 actual payment) as a bad debt expense.
POINTS: 1
DIFFICULTY: Medium
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140. For each of the following IRA situations, determine the amount the taxpayer can deduct. Discuss any limitations,
which might be placed, on the deduction.
Marissa is single and is an active participant in a qualified employee pension plan. Determine
a. the maximum Roth IRA contribution that she can make if her adjusted gross income for the
year is $73,000.
David and Donna are married and file a joint return. Each is covered by an employee-sponsored
b. pension plan, and their adjusted gross income is $103,000. Determine their maximum IRA
contribution and deduction for the current year.
Pedro and Roxanne are married and have two children, ages 8 and 4. Their adjusted gross
c. income for the year is $196,000. What is maximum amount they can contribute to each child's
Coverdell Education Savings Account (CESA) for the year?
Assuming Marissa did not make any contributions to other IRA accounts during
the year, she is allowed to make a $5,500 contribution to a Roth IRA. Marissa
does not receive a deduction for the contribution. If Marissa's adjusted gross
a. income exceeds $112,000, the amount that can she can contribute to a Roth IRA
is phased out ratably until no contribution is allowed when her adjusted gross
income equals $127,000.
ANSWER:
They both can contribute $5,500 to IRA accounts because both are covered by an
employer-sponsored pension plans, the amount of the IRA deduction is reduced
when their adjusted gross income reaches $95,000. The deduction is fully phased
out when adjusted gross income exceeds $115,000. The maximum contribution
b. amount is not affected by this limitation, only the deductible amount of the
contribution. The $10,000 deduction must be reduced by 35% [($102,000 -
$95,000) ÷ $20,000]. This leaves an allowable deduction for adjusted gross
income of $7,150 [$11,000 - ($11,000 × 35%)].
All taxpayers can make a nondeductible contribution of up to $2,000 to CESA for

the benefit of an individual who is not 18 years of age. However, the total amount
contributed to an individual's CESA is limited to $2,000. For married taxpayers,
this amount is phased out ratably when their adjusted gross income exceeds
$190,000 and is fully phased-out when adjusted gross income exceeds $220,000.
c. Because their adjusted gross income exceeds $190,000, the amount that they can
contribute to each CESA is phased out ratably until no contribution is allowed
when adjusted gross income equals $220,000. Therefore, they must reduce the
total amount they contribute to each CESA by 20% [($196,000 - $190,000) ÷
$30,000] and they can contribute $1,600 [$2,000 - ($2,000 × 20%)] to each
CESA.
POINTS: 1
DIFFICULTY: Medium
CIFT.MUHI.14.9 - 9
taxpayer's return (if there are alternatives possible, discuss the conditions that would determine the treatment) and
any limitations, which might be placed on the deduction.
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Tony and Rika are married and file a joint return. Only Tony is
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a. covered by an employee-sponsored pension plan and their adjusted
gross income is $181,000. Determine their maximum IRA
contribution and deduction for the current year.
Elise graduated from Southern University in May of 2013 and

immediately started working as a financial analyst for Simone
b. Financial Group. To finance her college education, she borrowed
$30,000 from a local bank. In January of 2014, she begins paying
back her student loans and pays $2,400 of interest expense during
the year. Her adjusted gross income for the year is $63,000.
During the current year, Rowland accepts a job as a computer

programmer with Davenport Industries. He incurs the following
c. expenses in moving from East Brunswick, New Jersey to Durham,
North Carolina. Davenport Industries reimburses him $4,000 for his
move.
Transportation of household goods $2,800

Airfare 340
Temporary living:
Lodging 430
Meals 120
House-hunting trip:
Transportation 330
Lodging 280
Meals 110
Both Tony and Rika are allowed to contribute $5,500 to their IRA accounts.
Because Tony is covered by an employer-sponsored pension plan and their
adjusted gross income exceeds $115,000, he is not eligible to deduct his
contribution. However, because Rika is not covered by an employer-sponsored
a. pension plan, her contribution is fully deductible if their adjusted gross income is
less than or euqual to $178,000. Since their adjusted gross income equals
$178,000, the amount that she can deduct must be reduced by 0% [($178,000 -
$178,000) ÷ $10,000]. This leaves her with an allowable deduction for adjusted
ANSWER: gross income of $5,500 [$5,500 - ($5,500 × 0%)].
The maximum amount of student loan interest that can be deducted is phased-out
ratably over a $15,000 range when adjusted gross income exceeds $60,000. Since
her adjusted gross income is greater than $60,000 the amount that she can deduct
b. must be reduced by 20% [($63,000 - $60,000) ÷ $15,000]. This leaves her with an
allowable deduction for adjusted gross income of $1,920 [$2,400 - ($2,400 ×
20%)]. The remaining $480 ($2,400 - $1,920) of interest is personal and is not
deductible.
c. POINTS: 1
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Rowland must include the $4,000 in
gross income and he can deduct
$3,140 of moving expenses for
adjusted gross income. He can only
deduct his direct moving expenses.
Direct moving expenses include the
cost of moving household goods
($2,700) and personal effects to the
new residence, and airfare to his
new residence ($340). The housing
hunting expenses and temporary
living expenses are considered
personal in nature and are not
deductible.
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CIFT.MUHI.14.9 - 9
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Match each statement with the correct term below.
a. Not deductible.
b. Short-term capital loss.
c. Limited to $25 per person.
d. Deductible as an ordinary loss
e. Only 50% of the cost is deductible.
f. Must be away from tax home overnight to be deductible.
g. General area where a taxpayer conducts principal activity.
h. If the "directly-related" test fails; this test may allow the deduction.
DIFFICULTY: Easy
142. Associated with
ANSWER: h
POINTS: 1
143. Business meals
ANSWER: e
POINTS: 1
144. Business gift
ANSWER: c
POINTS: 1
145. Business bad debt expense
ANSWER: d
POINTS: 1
146. Child support
ANSWER: a
POINTS: 1
147. Nonbusiness bad debt
ANSWER: b
POINTS: 1
148. Tax home
ANSWER: g
POINTS: 1
149. Travel expenses
ANSWER: f
POINTS: 1
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Concepts in Federal Taxation 2015 22nd Edition Murphy Test Bank 1

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Concepts in Federal Taxation 2015 22nd Edition Murphy Test Bank 1

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Concepts in Federal Taxation

2015 22nd Edition Murphy

Test Bank: https://testbankpack.com/p/test-bank-for-concepts-in-

Solution Manual: https://testbankpack.com/p/solution-manual-for-

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