TAX 4001 Final Exam | Questions & Answers (100 %Score) Latest Updated 2024/2025
Comprehensive Questions A+ Graded Answers | With Expert Solutions
Which of the following amounts are not subject to self-employment tax? - Limited
partner's share of partnership income
Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax basis
$111,700) to M&W Incorporated in exchange for a 36% interest in M&W Partnership.
Determine Mrs. Brinkley's realized and recognized gain on the exchange and the tax
basis in her partnership interest. - No gain recognized; $111,700 basis in property
"Little Magician" is the name of a painting created by artist Lion-o Messy. The owner
recently recognized a $43,500 gain on sale of the figurine. Which of the following
statements is false? - If a commercial art gallery that had held Little Magician in its
inventory was the seller, the gain is ordinary.
If a private collector who purchased Little Magician from an art gallery was the seller,
the gain is capital gain.
None of these choices are false.
If Lion-o was the seller, the gain is ordinary.
Answer: none of these choices are false
Sandy, Sue, and Shane plan to open Friends, an upscale restaurant. They project that
the business will incur a $90,000 operating loss in Year 1, and $75,000 of profit in Year
2. Which of the following statements is true? - If the business is a C corporation, it will
owe income tax in Year 2.
Which of the following is a capital asset? - Supplies used in a business
None of these choices are correct
Business inventory
Land used in a business
Answer is none of these are correct
Fleet, Incorporated owns 85% of the stock of Pete, Incorporated and 35% of the stock
of Zete, Incorporated and 90% of the stock of Bete, Incorporated Bete owns 5% of the
stock of Pete and 5% of the stock of Zete. Zete owns 10% of the stock of Bete. The
remaining stock of Pete and Zete is owned by unrelated individuals. Which of the
following statements is correct? - Fleet, Pete, and Bete are an affiliated group.
Cactus Company is a calendar year S corporation with the following current year
information:
Operating loss$ (120,000)
Liabilities:
Notes payable, City Bank20,000
,Notes payable, Jake Crow20,000
On January 1, John James bought 50% of Cactus Company stock for $30,000. How
much of the operating loss may John deduct on his Form 1040? Assume the excess
business loss limitation does not apply. - $30,000
In its first taxable year, Platform, Incorporated generated a $100,000 net operating loss
and made a $10,000 cash donation to a local charity. In its second year, Platform
generated $350,000 operating income and made a $20,000 donation to the same
charity. Compute Platform's taxable income for its second year. Assume neither year is
2020. - $225,000
Cramer Corporation and Mr. Chips formed a partnership in which Cramer is the general
partner and Mr. Chips is a limited partner. Cramer contributed $500,000 cash, and Mr.
Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The
partnership immediately borrowed $700,000 of recourse debt. What is Cramer's tax
basis in its partnership interest? - $1,200,000
Mr. and Mrs. Anderson file a joint return. They provide more than 50% of the financial
support for their two children, Dana, age 26, and John, age 17. Both children live in the
Andersons' home. Dana earned $7,100 from a part-time job, while John earned no
income this year. Which of the following statements is true? - Dana is neither a
qualifying child nor a qualifying relative of the Andersons.
Kelly operates a sole proprietorship with qualified business income of $920,000. Her
business paid W-2 wages of $250,000 and owns depreciable tangible property with an
unadjusted basis of $410,000. Compute Kelly's allowable QBI deduction before the
taxable income limitation. - $125,000
Which of the following statements about the inclusion of boot in a nontaxable exchange
is false? - the receipt of the boot is triggers recognition of realized gain to the payer
Alice is an unmarried individual. She has $182,340 taxable income in 2021. Compute
Alice's regular tax liability if she files as a single taxpayer and if she files as a head of
household. - Single $39,175 HOH $37,725
Brace, Incorporated owns 90% of West common stock. This year, Brace generated
$50,000 operating income and received $10,000 dividends from West. Brace's taxable
income is: - $50,000
Which of the following statements concerning partnerships is false? - A partner is taxed
annually on only that portion of a partnership's taxable income that is actually
distributed.
B&I Incorporated sold a commercial office building used in the corporate business for
$862,000. B&I purchased the building in 2011 for a cost of $700,000 and had deducted
, $167,200 MACRS depreciation through date of sale. B&I should characterize the
$329,200 gain recognized on sale as: - Capital gain
None of these choices are correct
Section 1231 gain
$167,200 ordinary gain and $162,000 Section 1231 gain
Answer: None of these are correct
Perry Incorporated and Dally Company entered into an exchange of real property. Here
is the information for the properties to be exchanged.
PerryDallyFMV$ 500,000
$ 530,000
Adjusted tax basis410,000
283,000
Mortgage70,000
100,000
Pursuant to the exchange, Perry assumed the mortgage on the Dally property, and
Dally assumed the mortgage on the Perry property. Compute Perry's gain recognized
on the exchange and its tax basis in the property received from Dally. - No gain
recognized; $440,000 basis in the Dally property. (PERRY'S POV)
Irby Incorporated was incorporated in 2015 and adopted a calendar year. Here is a
schedule of Irby's net Section 1231 gains and (losses) reported on its tax returns
through 2020.
2015 2016 2017 2018 2019 2020 $(4,900)$(3,000)$(7,890)$45,600$-0-$1,300
In 2021, Irby recognized a $14,750 gain on the sale of business land. How is this gain
characterized on Irby's tax return? - $14,750 Section 1231 gain.
Three years ago, ChaGo Incorporated sold a business asset with a $39,400 adjusted
tax basis for $130,000. The purchaser paid $50,000 cash and gave ChaGo a note for
the $80,000 balance of the price. ChaGo is using the installment sale method to
recognize its gain on sale. This year, ChaGo sold the note to a financial institution for
the note's $55,000 face value (ChaGo had received a total of $25,000 principal
payments on the note.) Compute ChaGo's gain recognized on sale of the installment
note. - $38,332
Which of the following statements about the transfer of debt in a like-kind exchange is
false? - If both properties in the exchange are subject to debt, both parties will be
treated as receiving boot.
Mr. and Mrs. Johnson and their two children, Alice and Ben, are the four equal partners
in JAB Partnership. This year, JAB generated $40,000 of ordinary income. Compute the
tax cost associated with this income if Mr. and Mrs. Johnson's marginal tax rate is 35%,
Alice's marginal tax rate is 24%, and Ben's marginal tax rate is 32%. - $12,600
