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ACC 443 Fall 2020 Exam 1 Enter your name, underline the correct answer to each question, and upload the document to Canvas for grading by 6 p.m. Friday, October 16, 2020. _______________________________ Name 1. Which, if any, is not one of AICPA’s canons or principles of taxation? a. Economic growth and efficiency. b. Progressivity. c. Convenience. d. Simplicity. e. Equity. 2.Taxes that have never been imposed by the Federal government include: a. Tobacco products excise tax. b. Customs duties (tariffs on imports). c. Excise tax on alcohol. d. Gas guzzler tax. e. Real property taxes. 3.A taxpayer will not be eligible for an additional standard deduction amount for being age 65 or older for 2019: a. Unless his or her birthday was in 1954 or earlier, if he or she was still alive at the end of 2019. b. Unless his or her birthday was on or before January 1, 1955, if he or she was still alive at the end of 2019. c. Unless his or her 65th birthday was on or before the date of death, if he or she died during 2019. d. Unless his or her 65th birthday was on or before the day after the date of death, if he or she died during 2019. e. Both b and d are correct. Homework assignment 1. 4.Subtitle A of the Internal Revenue Code covers which of the following federal taxes? a.Income taxes b.Estate and gift taxes c.Excise taxes d.Employment taxes e.All of these federal taxes 5.Which of the following is an administrative source of tax law? a.Commerce Clearing House’s Master Tax Guide for 2019 b.RIA Checkpoint Explanation c.The Internal Revenue Code d.General Counsel Memorandum e.None of the above is an administrative source of tax law. 6.A taxpayer who loses in the U.S. District Court for the Northern District of California may appeal directly to the: a.U.S. Supreme Court. b.U.S. Tax Court. c.U.S. Seventh Circuit Court of Appeals. d.U.S. Federal Circuit Court of Appeals. e.U.S. Ninth Circuit Court of Appeals. 7.Regarding the rules applicable to filing of income tax returns, which, if any, of the following is an incorrect statement: a. Married individuals who file joint returns cannot later (after the due date of the return) substitute separate returns. b. Married individuals who file separate returns can later (after the due date of the return) substitute a joint return. c. The usual test as to whether a single individual must file a return is whether gross income is less than the total of the following: the basic standard deduction plus the additional standard deduction for taxpayers 65 and older. d. Special filing requirement rules exist for individuals who are claimed as dependents of another taxpayer. e. The usual test as to whether a single individual must file a return is whether gross income is less than the total of the following: the basic standard deduction plus any additional standard deductions the taxpayer may claim for being 65 and older or blind. 8.Wilma, age 60 and single, is claimed as a dependent on her daughter’s tax return. During 2019, she had interest income of $1,800 and $2,500 of earned income from babysitting. She has no other income, no deductions for adjusted gross income and no itemized deductions. Based on these facts alone, Wilma’s taxable income is: a. $600. b. $700. c. $1,450. d. $2,150. e. $2,250. 9.In which of the following situations may the individual never be claimed as a dependent of the taxpayer? a. A former spouse who lives with the taxpayer (divorce took place last year). b. A stepmother who does not live with the taxpayer. c. A married daughter who lives with the taxpayer. d. A half-brother who does not live with the taxpayer and is a citizen and resident of Great Britain. e. A parent who does not live with the taxpayer. 10.Ellen, age 12, lives in the same household with her father, grandfather, and uncle. The cost of maintaining the household is provided by her grandfather (40%) and her uncle (60%). Disregarding tie-breaker rules, Ellen is a qualifying child with respect to: a. Only her father. b. Only her grandfather and uncle. c. Only her uncle. d. Each of the parties involved (i.e., father, grandfather, and uncle). e. Only her father and grandfather. 11.Which, if any, of the following is a deduction from AGI? a. Distributions from a traditional Individual Retirement Account. b. Child support payments made by the taxpayer. c. Trade or business expenses. d.Loss on the sale of a personal residence. e.Medical expenses paid by the taxpayer. 12.Which, if any, of the following statements relating to the standard deduction is correct? a.If a taxpayer dies during the year, his (or her) standard deduction must be prorated. b.If a taxpayer may be claimed as a dependent of another, his (or her) additional standard deduction for being blind is allowed in full (i.e., no adjustment is necessary). c.If spouses file separate returns and one spouse itemizes his or her deductions, the other spouse must claim a reduced basic standard deduction amount. d.If a taxpayer is claimed as a dependent of another, no basic standard deduction amount is allowed to the taxpayer. e.If spouses file separate returns, both spouses must claim the standard deduction (rather than itemize their deductions from AGI). 13.On January 1, 2018, Tim purchased a bond paying interest at 6% for $30,000, its face amount. On March 31, 2018, when the bond had accrued interest of $450, he gave the bond to his daughter, Jane. The bond pays $1,800 interest on January 1 each year. Tim and Jane are cash basis taxpayers, and Jane collects and keeps the interest paid in January of 2019: a. Tim must report $1,800 interest income for 2018. b. Jane must report $1,800 interest income for 2019. c. Jane reports $1,350 of interest income in 2019, and Tim reports $450 of interest income in 2018. d. Jane reports $1,350 of interest income in 2019, and Tim reports $450 of interest income in 2019. e. Jane reports $450 of interest income in 2018, and Tim reports $1,350 of interest income in 2019. 14.Which of (a) through (d) is not a requirement for an alimony deduction for 2018? a. The payments must be in cash. b. The payments must cease upon the death of the recipient. c. The payments must extend over at least three years. d. The payor and recipient must not live in the same household at the time of the payments. e. All of these are requirements for an alimony deduction. 15.The effects of a below-market loan for $1,000,000 made by a corporation to its chief executive officer as an enticement to get him to remain with the company are: a. The corporation has imputed interest income and the officer is deemed to have received a gift. b. The corporation has imputed interest income and the officer has imputed dividends received income. c. The officer has no income unless the funds are invested and produce investment income for the year. d. The officer has imputed compensation income and the corporation has imputed interest income, and is not allowed a deduction for the imputed compensation expense. e. The officer has imputed compensation income and the corporation has imputed interest income, but is allowed a deduction for the imputed compensation expense. 16.For purposes of determining gross income, which of the following is true? a.A mechanic completed repairs on an automobile during the year and collects money from the customer. The customer was not satisfied with the repairs and sued the mechanic for a refund. The mechanic must recognize the income in the year of payment even though the suit has not been resolved by the end of the year. b.A taxpayer who finds a wallet full of money and keeps it is required to recognize income even though someone may eventually ask for the return of the money. c.Embezzlement proceeds are included in the embezzler’s gross income even though the embezzler has no legal right to keep the proceeds and will be required to repay them if caught. d.(a), (b) and (c) are all false. e.(a), (b) and (c) are all true. 17.Turner, a successful executive, is negotiating a compensation plan with his potential employer. The employer has offered to pay Turner a $600,000 annual salary, payable at the rate of $50,000 per month for 5 years. Turner counteroffers to receive a monthly salary of $40,000 ($480,000 annually) for 5 years and a $180,000 bonus for each year he works. The bonus will be paid after Turner retires. Turner is a cash basis taxpayer. Under the constructive receipt doctrine, if the employer accepts Turner’s counteroffer: a.Turner will recognize $40,000 income each month for each year and will recognize the bonus when it is paid. b.Turner will recognize as annual gross income $55,000 per month [($480,000 + $180,000)/12] for each year. c.Turner will recognize $50,000 income each month for each year and will recognize any of the bonus he has not already included in income when it is paid. d.Turner must recognize all of the income when the contract is signed. e.Turner will recognize $40,000 per month for each year and will recognize the entire bonus at the time the offer is accepted. 18.Early in the year, Marion was in an automobile accident during the course of his employment. As a result of the physical injuries he sustained, he received the following payments during the year of the accident: Insurance from a policy paid for by his employer in reimbursement of medical expenses originally paid by Marion$10,000 Damages awarded by the court to replace his lost salary25,000 Pain and suffering damages awarded12,500 Punitive damages awarded15,000 What is the amount that Marion must include in gross income for the current year? a. $25,000. b. $15,000. c. $12,500. d. $10,000. e. $0. 19.All employees of United Company are covered by a group hospitalization insurance plan, but the employees must pay the premiums ($8,000 for each employee). None of the employees has sufficient medical expenses to deduct the premiums. Instead of giving raises next year, United is considering paying the employees’ hospitalization insurance premiums for them without deducting the premiums from their compensation. If the change is made, the employees’ taxable compensation will: a. Decrease by the same amount for all employees. b. Increase more for the lower