ACCT/553 Federal Taxes and Management Decisions Final Exam


  1. (TCO E) Zelda Zayer has been a widow for over 3 years and files a return as a single taxpayer. Items of income received by Zelda in 2011 were as follows.

Interest on savings account with Bank of America: $50
Interest on state income tax refund: $25
Gambling winnings: $2,400
Dividends from mutual life insurance company on life insurance policy: $500
Dividends from Better Auto Co. received on January 2, 2011: $875
The total dividends received on the life insurance policy do not exceed the aggregate of the premiums paid to the company.

(a) How much should Zelda include in her 2011 taxable income as interest?
(b) How much should Zelda report as dividend income for 2011?
(c) How much should Zelda include in taxable “Other Income” for her state lottery winnings?

  1. (TCO E) Distinguish between realized gains and losses and recognized gains and losses.(Points : 17)
  2. (TCO F) Describe the current tax law for sale of residence.(Points : 17)
  3. (TCO G) Briefly describe what ‘material participation’ is. Why is the determination of whether a taxpayer materially participates important?(Points : 17)
  4. (TCO I) Amos, a single individual with a salary of $50,000, incurred and paid the following expenses during the year.

Medical expenses: $5,000
Alimony: $14,000
Casualty loss (after $100 floor): $1,000
State income taxes: $4,000
Moving expenses: $1,500
Contribution to a traditional IRA: $2,000
Student loan interest: $1,200

Analyze the above expenses and determine which ones are deductible for AGI. Please support your position.(Points : 17)

  1. (TCO I) A review of Bearing’s Year 2 records disclosed the following tax information:
Wages $ 20,000
Taxable interest and qualifying dividends 4,000
Schedule C trucking business net income 32,000
Rental (loss) from residential property (35,000)
Limited partnership (loss) (5,000)

Bearing actively participated in the rental property and was a limited partner in the partnership. Bearing had sufficient amounts at risk for the rental property and the partnership. What is Bearing’s Year 2 adjusted gross income?

  1. (TCO F) (Becker CPA Review Course, Reg. 1) Smith has an adjusted gross income (AGI) of $140,000 without taking into consideration $40,000 of losses from rental real estate activities. Smith actively participates in the rental real estate activities. What amount of the rental losses may Smith deduct in determining taxable income?(Points : 17)
  2. (TCO B) (Becker CPA Review Course Reg. 3) For the year ended December 31, Year 6, Taylor Corp. had a net operating loss of $200,000. Taxable income for the earlier years of corporate existence, computed without reference to the net operating loss, was as follows:

Taxable Income:

Year 1 $ 5,000
Year 2 10,000
Year 3 20,000
Year 4 50,000
Year 5 50,000

What amount of net operating loss will be available to Taylor for the year ended December 31, Year 7?(Points : 17)

  1. (TCO F) (Becker CPA Review Exam Reg. 1) Randolph is a single individual who always claims the standard deduction. Randolph received the following in the current year:
Wages $ 22,000
Unemployment compensation 6,000
Pension distribution (100% taxable) 4,000
A state tax refund from the previous year 425

What is Randolph’s gross income?(Points : 17)

  1. (TCO H) Alex Smith purchased 30 shares of XYZ stock on April 30, 2010 for $210, and on September 1, 2010, he purchased 90 additional shares for $900. On November 8, 2010, he sold 48 shares, which could not be specifically identified, for $528, and on December 15, 2010, he sold another 25 shares for $50. What is his recognized gain or loss?(Points : 17)