ACCT 323 ACCT323 Final Exam Answers (UMUC)

ACCT 323 ACCT323 Final Exam Answers (UMUC)

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ACCT323 Final Exam (UMUC)

  1. Which of the following business expense deductions is most likely to be unreasonable in amount? 
  2. The IRS would most likely apply the arm's length transaction test to determine which of the following? 
     
  3. Which of the following is NOT likely to be allowed as a current deduction for a landscaping and nursery business? 
     

  4. According to the Internal Revenue Code §162, deductible business expenses must be one of the following? 
     

  5. Individual proprietors report their business income and deductions on: 
     

  6. Which is not a basic tax planning strategy? 
     

  7. Which of the following strategies is based on the present value of money? 
     
  8. A partnership can elect to amortize organization and start up costs, however, syndication costs are not deductible
  9. The income shifting and timing strategies are examples of: 
     

  10. A taxpayer earning income in "cash" and not reporting it as taxable income is an example of: 
     

  11. The deduction for medical expenses is limited to the amount of unreimbursed qualifying medical expenses paid during the year reduced by five percent of the taxpayer's AGI. 
  12. The itemized deduction for taxes includes all types of state, local, and foreign taxes. 
  13. In 2014, taxpayers may elect to deduct state and local sales taxes instead of deducting state and local income taxes. 
  14. Taxpayers are allowed to deduct mortgage interest on up to $1,000,000 of acquisition debt for their qualified residence and on up to $500,000 of home-equity debt.
  15. The deduction for investment interest in excess of the net investment income carries forward to the subsequent year
  16. Which of the following legal entities file documents with the state to be formally recognized by the state? 
  17. If an individual forms a sole proprietorship, which nontax factor will be of greatest benefit to the sole proprietor? 
  18. Which legal entity is correctly paired with the party that bears the ultimate responsibility for paying the legal entity's liabilities? 
  19. Which legal entity provides the least flexible legal arrangement for owners? 
  20. Which legal entity is generally best suited for going public? 

SHORT PROBLEMS

During all of 2014, Mr. and Mrs. Johnson lived with their four children (all are under the age of 17). They provided over one-half of the support for each child. Mr. and Mrs. Johnson file jointly for 2014. Neither is blind, and both are under age 65. They reported the following tax-related information for the year

Short Problem 2: (Taxable Income and NOL)

Janet and Michael are married with 2 dependent children and provides you with the following information from his dental business

Revenues                                $292,500

Michael’ Salary                       $81,000

Interest income from savings $5,400

Insurance Expense                  $220,500

Business supplies                    $46,500

Janitorial Expense                   $30,000

Electricity expense                  $20,700

Rent Expense                         $73,800

Depreciation Expense             $81,450

Total itemized deductions       $8,250

Short Problem 3 (Depreciation and IRC Section 179)

Damian Lewis owns a convenient store in Bowie MD and place in service business equipment during 2014. Equipment #1 and # 2, which are 7 and 5 year property respectively.  Equipment #1 was purchased for $100,000 and Equipment #2 was purchased for $65,000.

 

 Instruction:

 

  1. a.          What is the depreciation amount for 2014 if Sec 179 is not elected

What is the amount of depreciation allowed in 2014 if Sec 179 was elected

Short Problem 4 (Capital Gains and Losses)

Determine the taxable income for ABC Corporation in the following independent situations:

 

Scenario                      Income from Operations  STCG (NSTCL)                NLTCG (NLTCL)

1                                 $165,000                                $45,000                      $66,000

2                                 $150,000                                ($75,000)                    $97,500

3                                 $120,000                                ($55,500)                    $45,000

4                                 $135,000                                ($22,500)                    ($13,500)

Note

  1. a.          STCG = Short Term Capital Gain; and (NSTCL) = Net Short Term Capital Loss

NLTCG = Net Long Term Capital Gain; and  (NLTCL) = Net Long Term Capital Loss

Short Problem 5 (Long-Term Construction Contract)

 

XYZ Corporation received a construction contract from the city of New York to build a bridge which is to be completed in 3 years. The corporation received $12,600,000 and the company estimate that it will incur $11,250,000 of costs before the contract is completed. The corporation incurred total cost of $2,250,000 during the first year.

 

Instruction:

 

  1. a.          What is the amount of income to be reported by XYZ Corporation for the first year?
  2. b.         If   XYZ incurred additional $5,625,000 in cost during the second year. What is the amount of income to be reported during the second year?

If XYZ incurs additional $3,375,000 in the third year of the contract. What is the amount of income to be reported in the third year?

Short Problem 6: (Self-Employment Tax)

Elizabeth Hurley is single and self employed in 2014. Her net business profit on her schedule C (self-employment) for the year is $300,000.

  1. a.          What is her self- employment tax liability for 2014?
  2. b.         What is her self- employment tax deduction for 2014?

Note: You must show your computation to receive credit for your answer

BONUS QUESTION: (Asset Cost Basis and Depreciation Expense)

 

Rosemary purchased a building to store inventory for her business.  The purchase price was $760,000 which includes the cost of the land of $100,000.  Beyond this, Rosemary incurred the following necessary expenses to get the building ready for use: $30,000 to repair the roof (the roof repair is a major repair that prolonged the life of the building), $5,000 to make the interior suitable for her finished goods, $2,500 paid to contractors to move furniture’s and equipments from the storage to business location and $300 in accounting fees.  Rosemary expects to depreciate the building for 30 years


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