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43. Which of the following statements about investment property is false?

A.

The term securities includes corporate stock, certificates of deposit, notes, bonds, and other debt

instruments.

B. Interest and dividends are taxed at the same rate as long-term capital gain.

C.

Interest on private activity bonds issued by a state or local government is excluded from ordinary

income.

D.

A mutual fund is a diversified portfolio of securities owned and managed by a regulated investment

company.

44. In 2009, Mr. Lewis paid $40,000 for a newly issued corporate bond with a $50,000 stated redemption

value. This year, he sold the bond for $43,900. Through date of sale, Mr. Lewis recognized $940 of the

original issue discount (OID) as accrued interest income. Compute his gain or loss on sale.

A. $3,900 long-term capital gain

B. $3,900 ordinary income

C. $2,960 ordinary income

D. $2,960 long-term capital gain

45. In 2009, Mr. Young paid $40,000 to buy a publicly traded corporate bond through his broker. The bond's

stated redemption value was $45,000. This year, Mr. Young sold the bond for $47,100. Compute his gain

or loss on sale.

A. $2,100 long-term capital gain.

B. $7,100 ordinary income.

C. $5,000 ordinary income and $2,100 long-term capital gain.

D. $7,100 long-term capital gain.

46. Jane, a cash basis individual, purchased a publicly traded bond at a $6,000 market discount. Which of the

following statements is true?

A. Jane must accrue the market discount as interest income over the life of the bond.

B. If Jane holds the bond to maturity, she will recognize a $6,000 capital gain.

C. If Jane holds the bond to maturity, she will recognize $6,000 ordinary income.

D. None of the statements is true.

47. At the beginning of the year, Calvin paid $5,000 for 60 shares of Eddington stock. In June, he received a

$300 cash distribution with respect to the stock. His Form 1099-DIV reported that $170 was an ordinary

dividend and $130 was nontaxable. Compute Calvin's tax basis in his 60 shares at year-end.

A. $4,870

B. $4,700

C. $4,830

D. $5,000

48. At the beginning of the year, Ms. Faro paid $15,000 for 750 shares of Gravois stock. She instructed her

broker to reinvest any dividends in additional Gravois shares. Her Form 1099-DIV reported that she

earned $820 dividend income which purchased 39 additional shares. Which of the following statements is

true?

A. Ms. Faro recognizes no dividend income and has a $15,000 basis in her 789 shares.

B. Ms. Faro recognizes no dividend income and has a $15,820 basis in her 789 shares.

C. Ms. Faro recognizes $820 dividend income and has a $15,820 basis in her 789 shares.

D. None of the above statements is true.

49. Mr. Gordon, a resident of Pennsylvania, paid $20,000 for a bond issued by Delaware. This year, he

received $800 of interest on the bond. His marginal state tax rate is 7%, and under Pennsylvania law,

interest on debt obligations issued by another state is taxable. Mr. Gordon can deduct state income tax on

his federal return, and his marginal federal tax rate is 35%. Computer his after-tax rate of return on the

bond.

A. 4%

B. 3.82%

C. 3.72%

D. 2.42%

50. Mr. and Mrs. Golding own 13,850 shares in PTJ mutual fund. This year, they received a $6,390 cash

distribution from PTJ. Which of the following statements is false?

A. Some or all of the distribution may be a capital gain distribution.

B. Some or all of the distribution may be a qualifying dividend.

C. Some or all of the distribution may be ordinary income.

D. None of the above is false.

51. Twenty years ago, Mr. Wallace purchased a $250,000 insurance policy on his own life and named his

daughter as sole beneficiary. He has paid $14,250 total premiums to keep this policy in force. This year,

he liquidates the policy for its $20,000 cash surrender value. Which of the following statements is true?

A. Mr. Wallace recognizes $5,750 ordinary income on the liquidation.

B. Mr. Wallace recognizes $20,000 ordinary income on the liquidation.

C. Mr. Wallace recognizes no gain on the liquidation.

D. Mr. Wallace recognizes $5,750 capital gain on the liquidation.

52. Sixteen years ago, Ms. Herbert purchased an annuity for $96,000. Beginning in September 2011, the

annuity began paying Ms. Herbert $4,000 per month for the rest of her life. Based on her age, Ms.

Herbert's expected return is $300,000. How much of the $16,000 that she received in 2011 is included in

taxable income?

A. $0

B. $5,120

C. $10,880

D. None of the above

53. Emil Nelson paid $174,500 for an annuity that will pay him $1,300 per month for life. Based on Emil's

age, his expected return is $405,813. In 2011, Emil received 12 payments totaling $15,600. How much of

this total is taxable income?

A. $0

B. $5,300

C. $6,708

D. None of the above.

54. Fifteen years ago, Lenny purchased an insurance policy on his own life. The policy provides a $3 million

death benefit. Lenny has paid $682,000 of premiums, and the cash surrender value of the policy is

$725,000. He plans to liquidate the policy to generate cash for his business. If Lenny's marginal tax rate is

35%, how much after-tax cash will the liquidation generate?

A. $725,000

B. $734,950

C. $682,000

D. $471,250

55. Which of the following statements about annuity contracts is true?

A. Annuity contracts provide a fixed income stream.

B. Payments received from an annuity contract are tax-exempt.

C. Payments received from an annuity contract are fully taxable as ordinary income.

D. Payments received from an annuity contract are fully taxable as capital gain.

56. Twenty years ago, Mrs. Cole purchased an insurance policy on her own life. Mrs. Cole died this year,

and the policy paid the $300,000 death benefit to her son Jeffrey. During her life, Mrs. Cole paid total

premiums of $71,200 on the policy. Which of the following statements is true?

A. Jeffrey must recognize the $300,000 payment as ordinary income.

B. Jeffrey must recognize $228,800 of the $300,000 payment as capital gain.

C. Jeffrey can exclude the $300,000 payment from gross income.

D. Jeffrey must recognize $228,800 of the $300,000 payment as ordinary income.

57. Mr. Ricardo exchanged 75 shares of Haslet common stock for 516 shares of Newland common stock

pursuant to a reorganization of the two corporations. His basis in the Haslet stock was $49,200, and

the fair market value of the Newland stock was $138,000. Which of the following statements about the

exchange is true?

A. Mr. Ricardo recognizes no gain and takes a $138,000 basis in the Newland stock.

B. Mr. Ricardo recognizes an $88,800 gain and takes a $138,000 basis in the Newland stock.

C. Mr. Ricardo recognizes no gain and takes a zero basis in the Newland stock.

D. Mr. Ricardo recognizes no gain and takes a $49,200 basis in the Newland stock.

58. Mrs. Lindt exchanged 212 shares of Nipher common stock for 773 shares of Newland common stock.

Her basis in the Nipher stock was $49,200, and the fair market value of the Newland stock was $138,000.

Which of the following statements about the exchange is true?

A. Mrs. Lindt's basis in her Newland stock is $138,000.

B. Mrs. Lindt recognizes no gain on the exchange because she did not receive any cash.

C. If the exchange is pursuant to a reorganization of Nipher and Newland, Mrs. Lindt recognizes no gain.

D. None of the above is true.

59. Ten years ago, Elaine paid $10 per share for 2,000 shares of Lazlo common stock. This year, Elaine

learned that Lazlo is in bankruptcy and can pay only 40% of its outstanding debt. What are the tax

consequences to Elaine of Lazlo's bankruptcy?

A. $20,000 long-term capital loss

B. $12,000 long-term capital loss

C. $20,000 ordinary loss

D. No gain or loss

60. Six years ago, Mr. Ahmed loaned $10,000 to a neighbor in exchange for an interest-bearing debt

obligation. This year, the neighbor informed Mr. Ahmed that he was defaulting on the debt. What are the

tax consequences to Mr. Ahmed of this bad debt?

A. $10,000 ordinary loss

B. $10,000 short-term capital loss

C. $10,000 long-term capital loss

D. No loss recognized

61. In 2009, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest dividends in

additional shares. In 2009 and 2010, she received Form 1099s reporting the following.

If Mrs. Owens sells her 3,390 shares in 2011 for $22 per share, compute her recognized gain.

A. $24,580

B. $19,780

C. $16,630

D. $0

62. In 2009, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest dividends in

additional shares. In 2009 and 2010, she received Form 1099s reporting the following.

If Mrs. Owens sells 1,000 shares in 2011 for $22 per share and uses the average basis method, compute

her recognized gain.

A. $4,910

B. $5,333

C. $3,883

D. $0