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NJCU ACCT604 Ch 6 quiz

·

· Question 1

2 out of 2 points

Cory incurred and paid the following expenses:

Tax return preparation fee

$ 600

Moving expenses

2,000

Investment expenses

500

Expenses associated with rental property

1,500

Interest expense associated with loan to finance tax-exempt bonds

400

Calculate the amount that Cory can deduct (before any percentage limitations).

· Question 2

2 out of 2 points

Bob and April own a house at the beach. The house was rented to unrelated parties for 8 weeks during the year. April and the children used the house 12 days for their vacation during the year. After properly dividing the expenses between rental and personal use, it was determined that a loss was incurred as follows:

Gross rental income

$4,000

Less: Mortgage interest and property taxes

$3,500

Other allocated expenses

2,000

(5,500)

Net rental loss

($1,500)

What is the correct treatment of the rental income and expenses on Bob and April’s joint income tax return for the current year assuming the IRS approach is used if applicable?

· Question 3

2 out of 2 points

Terry and Jim are both involved in operating illegal businesses. Terry operates a gambling business and Jim operates a drug running business. Both businesses have gross revenues of $500,000. The businesses incur the following expenses.

Terry

Jim

Employee salaries

$200,000

$200,000

Bribes to police

25,000

25,000

Rent and utilities

50,000

50,000

Cost of goods sold

–0–

125,000

Which of the following statements is correct?

· Question 4

2 out of 2 points

Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

Selected Answer:

All of the above are relevant factors.

· Question 5

2 out of 2 points

Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year. The rental income is $6,000 and the expenses are as follows:

Mortgage interest

$9,000

Real estate taxes

3,000

Utilities

2,000

Maintenance

1,000

Insurance

500

Depreciation (rental part)

4,000

Using the IRS approach, total expenses that Robyn can deduct on her tax return associated with the beach house are:

Response Feedback:

Since the property is classified as personal/rental use, the general rule is that the deductible expenses cannot exceed the gross income. Thus, under the general rule, the deductible expenses would be limited to $6,000. However, this ceiling does not apply to expenses that otherwise would be deductible as itemized deductions. Consequently, all of the mortgage interest and real estate taxes can be deducted ($9,000 + $3,000 = $12,000).

· Question 6

2 out of 2 points

Which of the following statements is correct in connection with the investigation of a business?

· Question 7

2 out of 2 points

Which of the following is a deduction for AGI (itemized deduction)?

· Question 8

0 out of 2 points

Purchased goodwill must be capitalized, but can be amortized over a 60-month period.

· Question 9

2 out of 2 points

Mitch is in the 28% tax bracket. He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction from AGI than he will receive for a $1,000 expenditure that is classified as a deduction for AGI.

· Question 10

2 out of 2 points

The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).

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