ACCT 346 Regulations are arranged in the same sequence as the Internal
Question # 00358746
Posted By:
Updated on: 08/09/2016 03:03 AM Due on: 08/09/2016
ACCT 346
Summer 2016
NAME:
This test contains 31-questions:
Questions 1-15 are true/false.
Questions 16-28 are multiple-choice.
1-points each
Various points
each
Questions 29-31 are short essay involving a tax
simulation.
Total Points
15
49
16
Total
80
The following sequence must be adhered to:
1. Record your answers to questions in the appropriate places on this exam.
2. Submit your test document via Canvas (for grading the short- essay questions).
3. Record your answers on the appropriate input form on Canvas for grading.
If you do not follow these instructions for completing and submitting the exam, you will receive zero points
for the exam.
WARNING
This test is to be an individual effort, not a team effort. You can use any
resources you have except for help from other individuals. If the evidence
suggests collaboration, the guilty parties will receive an “F” for the course.
If you have questions, send me email.
True-False
QUESTION
ANSWER
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Multiple-Guess
QUESTION
ANSWER
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
pg. 1
ACCT 346
Summer 2016
TRUE/FALSE QUESTIONS
Indicate whether each of the following is true (T) or false (F). Record your answer in the appropriate location on the
answer packet.
Answers
Question
1.
Regulations are arranged in the same sequence as the Internal Revenue Code.
2. By minimizing taxes, a taxpayer will always maximize the net present value of his or her
after tax wealth.
3.
A revenue ruling is an judicial source of federal tax law.
4. It is possible for an individual taxpayer to use both the cash and the accrual methods when
computing taxable income on a Form 1040.
5.
If a taxpayer or the IRS seeks judicial remedy for a tax dispute, they start the process with
an appellate court.
6.
A taxpayer can recognize the gains from an installment sale in the year of the sale if he or
she attaches an election to do so to the income tax return for that year.
7. A taxpayer may avoid paying income tax on interest income that has accrued on an
investment in corporate bonds, by instructing the payee corporation to pay the interest to
another individual.
8.
The fact that the accounting method the taxpayer uses to measure income is consistent
with GAAP does not assure that the method will be acceptable for tax purposes.
9.
The amount of loss for partial destruction of business property is its adjusted basis.
10. For personal property placed in service in 2016, the §179 maximum deduction is limited
to $2,000,000.
11. In years when both are available, the deduction under §179 is determined before taking
the deduction under §168(k).
12. The nonrecognition of gains and losses under §1031 is mandatory for gains and losses.
13. The Code contains two major depreciation recapture provisions—§§1245 and 1250.
14. If there is a net §1231 gain, it is treated as a long-term capital gain.
15. The exchange of unimproved real property located in Topeka (KS) for improved real
property located in Atlanta (GA) qualifies as a like-kind exchange.
pg. 2
ACCT 346
Summer 2016
MULTIPLE CHOICE QUESTIONS
Select the single best answer for each of the questions below. Record your answer in the appropriate location on the
answer packet.
Pts
3
Floyd, a cash basis taxpayer, sold land in which he had a basis of $10,000, for $100,000
cash. He received $25,000 on January 1 of the year of the sale. On December 31 of the
16.
year after the sale he received a payment of $75,000 plus interest on that amount at 8%
per year. How much after-tax cash will Floyd have in the first year if the property was a
capital asset and his MTR on ordinary income was 10%?
a $22,500.
b $25,000
c $79,980.
d $102,480
4
For questions 17 and 18, refer to the case,
Wal-Mart Stores, Inc. and Subsidiaries v. CIR (TC Memo 1997-1).
17. For the 1983 and 1986 tax years combined, what was the total change to the tax base per
the CIR?
a $18,144,507.
b <$18,144,507.>
c $25,473,039.
d <$25,473,039.>
4
18. For the 1983 and 1986 tax years combined, what was the total change to the tax liability
per the CIR?
a $18,144,507.
b <$18,144,507.>
c $25,473,039.
d <$25,473,039.>
4
19.
What is the main tax concept (not the metaphor) that we discussed in class, with respect
to the “sole question for decision” in the case of Guy T. Helvering v. Paul R. G. Horst
(40-2 USTC ¶9787).
a Fruit and the tree.
b Tax-free recovery of basis.
c Assignment of income.
d Wherewithal to pay.
pg. 3
ACCT 346
5
Summer 2016
20. According to the Court in Rodriguez v. CIR (TC Memo 2012-286), which section of the
IRC supersedes the general rule of the Cohan case (8 AFTR 10552)?
a §280F.
b §274(d).
c §1.274-5T(a).
d §162.
4
21. As reported in the Tax Court Memorandum case of Cynthia M. Carlson, how much did
the Grand Jury determine that the taxpayer owed for additional tax?
a $-0b $5,284.
c $7,007.
d $19,583.
3
22.
Ivory, Inc., has taxable income of $600,000 and qualified production activities income
(QPAI) of $700,000 in the current year. Ivory’s domestic production activities deduction
is:
a $36,000.
b $42,000.
c $54,000.
d $63,000.
4
Lily exchanges a small storage shed she uses in her rental business for an assortment of
23. vehicles and tools owned by Kendall, which she will use in her rental business. The
adjusted basis of Lily’s building is $120,000 and the fair market value is $170,000.
Which of the following statements is correct?
a
Lily’s recognized gain is $50,000 and her basis for the vehicles and tools received is
$120,000.
b
Lily’s recognized gain is $50,000 and her basis for the vehicles and tools received is
$170,000.
c
Lily’s recognized gain is $0 and her basis for the vehicles and tools received is
$120,000.
d
Lily’s recognized gain is $0 and her basis for the vehicles and tools received is
$170,000.
pg. 4
ACCT 346
4
Summer 2016
Joyce’s office building was completely destroyed in a fire (adjusted basis of $350,000;
fair market value of $400,000). Of the insurance proceeds of $360,000 she receives,
24. Joyce uses $310,000 to purchase a new building and invests the remaining $50,000 in
short-term certificates of deposit. She received only $360,000 because of a co-insurance
clause in her insurance policy. What is Joyce’s recognized gain or loss and her basis in
the new building?
a $0 and $350,000.
b $10,000 loss and $350,000.
c $10,000 gain and $310,000.
d $40,000 gain and $310,000.
4
25.
Seamus had $16,000 of net short-term capital loss in 2015. In 2016, Seamus has $17,000 of
long-term capital loss and $26,000 of long-term capital gain. Which of the following statements
is correct?
a Seamus had a $13,000 short-term capital loss carryover to 2016.
b Seamus has a $9,000 2016 net long-term capital gain.
c Seamus has a $4,000 2016 net short-term capital loss.
d a. and b.
e a. and c.
5
White Company acquires a new machine (seven-year property) on January 10, 2016, at
a cost of $600,000. White makes the election to expense the maximum amount under §
26.
179. No election is made to use the straight-line method. White does take additional
first-year depreciation. Determine the total deductions in calculating taxable income
related to the machine for 2016 assuming White has taxable income of $800,000.
a $557,145.
b $390,868.
c $128,610.
d $71,593.
pg. 5
ACCT 346
4
Summer 2016
White Company acquires a new machine for $35,000 and uses it in White’s
manufacturing operations. A few months after White places the machine in service, it
discovers that the machine is not suitable for White’s business. White had fully
27.
expensed the machine in the year of acquisition using §179. White sells the machine for
$5,000 in the tax year after it was acquired, but held the machine only for a total of 13
months. What was the tax status of the machine when it was disposed of and the
amount of the gain or loss?
a A capital asset and $5,000 gain.
b An ordinary asset and $5,000 gain.
c A §1231 asset and $5,000 gain.
d A §1231 asset and $5,000 loss.
4
28.
Copper Corporation sold machinery for $27,000 on December 31, 2015. The machinery
had been purchased on January 2, 2012, for $30,000 and had an adjusted basis of
$21,000 at the date of the sale. For 2015, what should Copper Corporation report?
a Ordinary income of $6,000.
b A §1231 gain of $3,000 and $3,000 of ordinary income.
c A §1231 gain of $6,000.
d A §1231 gain of $6,000 and $3,000 of ordinary income.
pg. 6
ACCT 346
Summer 2016
Tax Planning Simulation, Questions 29-31
Facts
Justin is a single taxpayer who owns IMC, Inc. (a C corporation). Both entities use the calendar year and
cash basis for tax reporting purposes. Based on current year-end tax planning, the corporation expects to
earn taxable income (before paying Justin's salary) of $300,000. The corporation plans to pay 60% of that
amount as compensation to Justin, in some combination of salary and dividend. Justin has ordinary
taxable income from other sources of $50,000.
Issue
How should Justin's “compensation package” be allocated between salary and dividend? The only
alternatives to be considered are:
Salary
Dividends
#1
0%
100%
#2
50%
50%
#3
100%
0%
Authorities
IRC §1 imposes a tax on an individual's taxable income while IRC §11 imposes a tax on a corporation's
taxable income. In addition, §§3101 and 3111 impose taxes under the Federal Insurance Contributions Act
on employees and employers, respectively.
For both individuals and corporations, IRC §63 defines taxable income to mean gross income (which
generally includes all income from whatever source derived, per §61) minus allowable deductions and
excluding items specifically identified in §§101-140. Section 162 authorizes deductions for the ordinary
and necessary expenditures incurred in the conduct of a trade or business. More specifically, §162(a)(1)
allows a deduction for "reasonable allowance for salaries or other compensation."
pg. 7
ACCT 346
Summer 2016
Analysis
ASSUMPTIONS:
Corporate Taxable Income before
Officer Compensation
$
300,000
Percentage of Corporate TI for Officer
Compensation
60%
Alternative #1
Percentage of Payment to be Paid as
Salary
Alternative #2
Alternative #3
0%
50%
100%
300,000
300,000
300,000
Officer's Salary
0
(90,000)
(180,000)
FICA Tax on Officer's Salary
0
(6,885)
(9,232)
300,000
203,115
110,768
Corporate Income Tax
(100,250)
(62,465)
(26,450)
Corporate Dividends Paid
(180,000)
(90,000)
19,750
50,650
84,318
50,000
50,000
50,000
0
90,000
180,000
Officer's Dividends
180,000
90,000
0
Officer's Taxable Income
230,000
230,000
230,000
(8,688)
(32,920)
(61,043)
(27,000)
(13,500)
0
0
(6,885)
(9,232)
194,313
176,695
159,726
CORPORATION
Corporate Income before Deducting
Officer's Salary
Corporate Taxable Income
Corporation's After Tax Wealth
OWNER/OFFICER
Officer'sTaxable Income before
Corporate Compensation
Officer's Salary
Officer's Income Tax (ordinary)
Officer's Income Tax (dividends)
FICA Tax on Corporate Salary
Officer's After Tax Wealth
pg. 8
ACCT 346
Summer 2016
Instructions
Answer the questions below in the text boxes provided (they will expand to accommodate your answers).
29. Briefly identify the general tax planning concepts that you must consider when deciding which
option any taxpayer should use when practicing effective tax planning. This should be a general
answer that applies to any taxpayer and any tax and any tax planning.
(6-pts)
Enter your answer here ?(Note: There is no partial credit for this answer. It is either correct, in its entirety, or it is
incorrect.):
30. Based on the analysis, briefly explain which alternative you would advise the client to take.
(4-points)
Enter your answer here ?:
31. Briefly explain the difference between the outcomes in the alternatives.
(6-points)
Enter your answer here ?:
pg. 9
Summer 2016
NAME:
This test contains 31-questions:
Questions 1-15 are true/false.
Questions 16-28 are multiple-choice.
1-points each
Various points
each
Questions 29-31 are short essay involving a tax
simulation.
Total Points
15
49
16
Total
80
The following sequence must be adhered to:
1. Record your answers to questions in the appropriate places on this exam.
2. Submit your test document via Canvas (for grading the short- essay questions).
3. Record your answers on the appropriate input form on Canvas for grading.
If you do not follow these instructions for completing and submitting the exam, you will receive zero points
for the exam.
WARNING
This test is to be an individual effort, not a team effort. You can use any
resources you have except for help from other individuals. If the evidence
suggests collaboration, the guilty parties will receive an “F” for the course.
If you have questions, send me email.
True-False
QUESTION
ANSWER
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Multiple-Guess
QUESTION
ANSWER
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
pg. 1
ACCT 346
Summer 2016
TRUE/FALSE QUESTIONS
Indicate whether each of the following is true (T) or false (F). Record your answer in the appropriate location on the
answer packet.
Answers
Question
1.
Regulations are arranged in the same sequence as the Internal Revenue Code.
2. By minimizing taxes, a taxpayer will always maximize the net present value of his or her
after tax wealth.
3.
A revenue ruling is an judicial source of federal tax law.
4. It is possible for an individual taxpayer to use both the cash and the accrual methods when
computing taxable income on a Form 1040.
5.
If a taxpayer or the IRS seeks judicial remedy for a tax dispute, they start the process with
an appellate court.
6.
A taxpayer can recognize the gains from an installment sale in the year of the sale if he or
she attaches an election to do so to the income tax return for that year.
7. A taxpayer may avoid paying income tax on interest income that has accrued on an
investment in corporate bonds, by instructing the payee corporation to pay the interest to
another individual.
8.
The fact that the accounting method the taxpayer uses to measure income is consistent
with GAAP does not assure that the method will be acceptable for tax purposes.
9.
The amount of loss for partial destruction of business property is its adjusted basis.
10. For personal property placed in service in 2016, the §179 maximum deduction is limited
to $2,000,000.
11. In years when both are available, the deduction under §179 is determined before taking
the deduction under §168(k).
12. The nonrecognition of gains and losses under §1031 is mandatory for gains and losses.
13. The Code contains two major depreciation recapture provisions—§§1245 and 1250.
14. If there is a net §1231 gain, it is treated as a long-term capital gain.
15. The exchange of unimproved real property located in Topeka (KS) for improved real
property located in Atlanta (GA) qualifies as a like-kind exchange.
pg. 2
ACCT 346
Summer 2016
MULTIPLE CHOICE QUESTIONS
Select the single best answer for each of the questions below. Record your answer in the appropriate location on the
answer packet.
Pts
3
Floyd, a cash basis taxpayer, sold land in which he had a basis of $10,000, for $100,000
cash. He received $25,000 on January 1 of the year of the sale. On December 31 of the
16.
year after the sale he received a payment of $75,000 plus interest on that amount at 8%
per year. How much after-tax cash will Floyd have in the first year if the property was a
capital asset and his MTR on ordinary income was 10%?
a $22,500.
b $25,000
c $79,980.
d $102,480
4
For questions 17 and 18, refer to the case,
Wal-Mart Stores, Inc. and Subsidiaries v. CIR (TC Memo 1997-1).
17. For the 1983 and 1986 tax years combined, what was the total change to the tax base per
the CIR?
a $18,144,507.
b <$18,144,507.>
c $25,473,039.
d <$25,473,039.>
4
18. For the 1983 and 1986 tax years combined, what was the total change to the tax liability
per the CIR?
a $18,144,507.
b <$18,144,507.>
c $25,473,039.
d <$25,473,039.>
4
19.
What is the main tax concept (not the metaphor) that we discussed in class, with respect
to the “sole question for decision” in the case of Guy T. Helvering v. Paul R. G. Horst
(40-2 USTC ¶9787).
a Fruit and the tree.
b Tax-free recovery of basis.
c Assignment of income.
d Wherewithal to pay.
pg. 3
ACCT 346
5
Summer 2016
20. According to the Court in Rodriguez v. CIR (TC Memo 2012-286), which section of the
IRC supersedes the general rule of the Cohan case (8 AFTR 10552)?
a §280F.
b §274(d).
c §1.274-5T(a).
d §162.
4
21. As reported in the Tax Court Memorandum case of Cynthia M. Carlson, how much did
the Grand Jury determine that the taxpayer owed for additional tax?
a $-0b $5,284.
c $7,007.
d $19,583.
3
22.
Ivory, Inc., has taxable income of $600,000 and qualified production activities income
(QPAI) of $700,000 in the current year. Ivory’s domestic production activities deduction
is:
a $36,000.
b $42,000.
c $54,000.
d $63,000.
4
Lily exchanges a small storage shed she uses in her rental business for an assortment of
23. vehicles and tools owned by Kendall, which she will use in her rental business. The
adjusted basis of Lily’s building is $120,000 and the fair market value is $170,000.
Which of the following statements is correct?
a
Lily’s recognized gain is $50,000 and her basis for the vehicles and tools received is
$120,000.
b
Lily’s recognized gain is $50,000 and her basis for the vehicles and tools received is
$170,000.
c
Lily’s recognized gain is $0 and her basis for the vehicles and tools received is
$120,000.
d
Lily’s recognized gain is $0 and her basis for the vehicles and tools received is
$170,000.
pg. 4
ACCT 346
4
Summer 2016
Joyce’s office building was completely destroyed in a fire (adjusted basis of $350,000;
fair market value of $400,000). Of the insurance proceeds of $360,000 she receives,
24. Joyce uses $310,000 to purchase a new building and invests the remaining $50,000 in
short-term certificates of deposit. She received only $360,000 because of a co-insurance
clause in her insurance policy. What is Joyce’s recognized gain or loss and her basis in
the new building?
a $0 and $350,000.
b $10,000 loss and $350,000.
c $10,000 gain and $310,000.
d $40,000 gain and $310,000.
4
25.
Seamus had $16,000 of net short-term capital loss in 2015. In 2016, Seamus has $17,000 of
long-term capital loss and $26,000 of long-term capital gain. Which of the following statements
is correct?
a Seamus had a $13,000 short-term capital loss carryover to 2016.
b Seamus has a $9,000 2016 net long-term capital gain.
c Seamus has a $4,000 2016 net short-term capital loss.
d a. and b.
e a. and c.
5
White Company acquires a new machine (seven-year property) on January 10, 2016, at
a cost of $600,000. White makes the election to expense the maximum amount under §
26.
179. No election is made to use the straight-line method. White does take additional
first-year depreciation. Determine the total deductions in calculating taxable income
related to the machine for 2016 assuming White has taxable income of $800,000.
a $557,145.
b $390,868.
c $128,610.
d $71,593.
pg. 5
ACCT 346
4
Summer 2016
White Company acquires a new machine for $35,000 and uses it in White’s
manufacturing operations. A few months after White places the machine in service, it
discovers that the machine is not suitable for White’s business. White had fully
27.
expensed the machine in the year of acquisition using §179. White sells the machine for
$5,000 in the tax year after it was acquired, but held the machine only for a total of 13
months. What was the tax status of the machine when it was disposed of and the
amount of the gain or loss?
a A capital asset and $5,000 gain.
b An ordinary asset and $5,000 gain.
c A §1231 asset and $5,000 gain.
d A §1231 asset and $5,000 loss.
4
28.
Copper Corporation sold machinery for $27,000 on December 31, 2015. The machinery
had been purchased on January 2, 2012, for $30,000 and had an adjusted basis of
$21,000 at the date of the sale. For 2015, what should Copper Corporation report?
a Ordinary income of $6,000.
b A §1231 gain of $3,000 and $3,000 of ordinary income.
c A §1231 gain of $6,000.
d A §1231 gain of $6,000 and $3,000 of ordinary income.
pg. 6
ACCT 346
Summer 2016
Tax Planning Simulation, Questions 29-31
Facts
Justin is a single taxpayer who owns IMC, Inc. (a C corporation). Both entities use the calendar year and
cash basis for tax reporting purposes. Based on current year-end tax planning, the corporation expects to
earn taxable income (before paying Justin's salary) of $300,000. The corporation plans to pay 60% of that
amount as compensation to Justin, in some combination of salary and dividend. Justin has ordinary
taxable income from other sources of $50,000.
Issue
How should Justin's “compensation package” be allocated between salary and dividend? The only
alternatives to be considered are:
Salary
Dividends
#1
0%
100%
#2
50%
50%
#3
100%
0%
Authorities
IRC §1 imposes a tax on an individual's taxable income while IRC §11 imposes a tax on a corporation's
taxable income. In addition, §§3101 and 3111 impose taxes under the Federal Insurance Contributions Act
on employees and employers, respectively.
For both individuals and corporations, IRC §63 defines taxable income to mean gross income (which
generally includes all income from whatever source derived, per §61) minus allowable deductions and
excluding items specifically identified in §§101-140. Section 162 authorizes deductions for the ordinary
and necessary expenditures incurred in the conduct of a trade or business. More specifically, §162(a)(1)
allows a deduction for "reasonable allowance for salaries or other compensation."
pg. 7
ACCT 346
Summer 2016
Analysis
ASSUMPTIONS:
Corporate Taxable Income before
Officer Compensation
$
300,000
Percentage of Corporate TI for Officer
Compensation
60%
Alternative #1
Percentage of Payment to be Paid as
Salary
Alternative #2
Alternative #3
0%
50%
100%
300,000
300,000
300,000
Officer's Salary
0
(90,000)
(180,000)
FICA Tax on Officer's Salary
0
(6,885)
(9,232)
300,000
203,115
110,768
Corporate Income Tax
(100,250)
(62,465)
(26,450)
Corporate Dividends Paid
(180,000)
(90,000)
19,750
50,650
84,318
50,000
50,000
50,000
0
90,000
180,000
Officer's Dividends
180,000
90,000
0
Officer's Taxable Income
230,000
230,000
230,000
(8,688)
(32,920)
(61,043)
(27,000)
(13,500)
0
0
(6,885)
(9,232)
194,313
176,695
159,726
CORPORATION
Corporate Income before Deducting
Officer's Salary
Corporate Taxable Income
Corporation's After Tax Wealth
OWNER/OFFICER
Officer'sTaxable Income before
Corporate Compensation
Officer's Salary
Officer's Income Tax (ordinary)
Officer's Income Tax (dividends)
FICA Tax on Corporate Salary
Officer's After Tax Wealth
pg. 8
ACCT 346
Summer 2016
Instructions
Answer the questions below in the text boxes provided (they will expand to accommodate your answers).
29. Briefly identify the general tax planning concepts that you must consider when deciding which
option any taxpayer should use when practicing effective tax planning. This should be a general
answer that applies to any taxpayer and any tax and any tax planning.
(6-pts)
Enter your answer here ?(Note: There is no partial credit for this answer. It is either correct, in its entirety, or it is
incorrect.):
30. Based on the analysis, briefly explain which alternative you would advise the client to take.
(4-points)
Enter your answer here ?:
31. Briefly explain the difference between the outcomes in the alternatives.
(6-points)
Enter your answer here ?:
pg. 9
-
Rating:
/5
Solution: ACCT 346 Regulations are arranged in the same sequence as the Internal( Q-29-31 not answered)