ACCT 429 Week 4 Midterm Exam

Grading Summary
These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the “Details” section below. Date Taken: 3/9/2014
Time Spent: 51 min , 17 secs
Points Received: 160/ 160 (100%)

Question Type: # Of Questions: # Correct:
Essay 8 N/A

Grade Details – All Questions
1. Question : (TCOs 1 and 2) In terms of revenue neutrality, comment on the following:

I. A tax cut enacted by Congress that also contains revenue offsets

II. A tax cut enacted by Congress that is phased in over a period of years

III. A tax cut enacted by Congress that contains a sunset provision

IV. A tax cut enacted by Congress that includes a stealth tax feature

2. Question : (TCOs 1, 2, 3, and 5) Katherine is 60 years old and is bargaining with her employer over deferred compensation. In exchange for reducing her current year’s salary by $50,000, she can receive a lump-sum amount in 5 years, when she will retire. If she receives the $50,000 in the current year, she will invest in certificates of deposit that yield 5%. Katherine is in the 28% marginal tax bracket in all relevant years. What is the minimum amount Katherine should accept as a deferred pay option? [Hint: the compound interest factor is 1.1934.] Explain and/or show your work!

3. Question : (TCOs 4 and 5) Kitty runs a brothel (illegal under state law) and has the following items of income and expense. What is the amount that she must include in taxable income from her operation?
Income: $200,000
Expenses:
Rent $8,000
Utilities $2,000
Bribes to Police $10,000
Medical Expense $5,000
Legal Fees $20,000
Depreciation $14,000
Illegal Kickbacks $15,000

4. Question : (TCOs 4 and 5) In 2010, Kelly, who earns a salary of $200,000, invests $40,000 for a 20% interest in a partnership not subject to the passive loss rules. Through the use of $800,000 of nonrecourse financing, the partnership acquires assets worth $1 million. Depreciation, interest, and other deductions related to the activity produce a loss of $150,000, of which Kelly’s share is $30,000. In 2011, Kelly’s share of the loss from the partnership is $15,000. How much of the loss from the partnership can Kelly deduct?

5. Question : (TCO 7) Sid bought a new $700,000, seven-year class asset on August 2, 2011. On December 2, 2011, he purchased $160,000 of used five-year class assets. If Congress reenacts additional first-year depreciation for 2011, Sid elects not to take additional first-year depreciation. If Sid elects § 179, what is the maximum write-off for these purchases for 2011?

6. Question : (TCOs 6 and 7) Louis sold his farm during the current taxable year. At the date of the sale, the farm had an adjusted basis of $212,000 and was encumbered by a mortgage of $190,000. The buyer paid him $110,000 in cash, agreed to take the title subject to the $190,000 mortgage, and agreed to pay him $80,000 with interest at 9% one year from the date of sale. How much is Louis’ recognized gain on the sale?

7. Question : (TCOs 3, 4, and 6) Gene is single and for 2011 has AGI of $40,000. He is age 65 and has no dependents. For 2011, he has itemized deductions from AGI of $7,000. Determine Gene’s taxable income for 2011.

8. Question : (TCOs 3, 4, and 6) Rachel lives and works in Chicago. She is the regional sales manager for a national fast food chain. Due to unusual developments, she is compelled to work six straight weeks in the St. Louis area. Instead of spending the weekend there, she flies home every Friday night and returns early Monday morning. The cost of coming home for the weekend approximates $500. Had she stayed in St. Louis, deductible meals and lodging would have been $600. How much, if any, may Rachel deduct as to each weekend?

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