TAX 4001 Final Exam Questions and Answers Solved Correctly
Which of the following amounts are not subject to self-employment tax? - Answers Limited partner's
share of partnership income
Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700) to M&W
Incorporated in exchange for a 36% interest in M&W Partnership. Determine Mrs. Brinkley's realized
and recognized gain on the exchange and the tax basis in her partnership interest. - Answers No gain
recognized; $111,700 basis in property
"Little Magician" is the name of a painting created by artist Lion-o Messy. The owner recently recognized
a $43,500 gain on sale of the figurine. Which of the following statements is false? - Answers If a
commercial art gallery that had held Little Magician in its inventory was the seller, the gain is ordinary.
If a private collector who purchased Little Magician from an art gallery was the seller, the gain is capital
gain.
None of these choices are false.
If Lion-o was the seller, the gain is ordinary.
Answer: none of these choices are false
Sandy, Sue, and Shane plan to open Friends, an upscale restaurant. They project that the business will
incur a $90,000 operating loss in Year 1, and $75,000 of profit in Year 2. Which of the following
statements is true? - Answers If the business is a C corporation, it will owe income tax in Year 2.
Which of the following is a capital asset? - Answers Supplies used in a business
None of these choices are correct
Business inventory
Land used in a business
Answer is none of these are correct
Fleet, Incorporated owns 85% of the stock of Pete, Incorporated and 35% of the stock of Zete,
Incorporated and 90% of the stock of Bete, Incorporated Bete owns 5% of the stock of Pete and 5% of
the stock of Zete. Zete owns 10% of the stock of Bete. The remaining stock of Pete and Zete is owned by
unrelated individuals. Which of the following statements is correct? - Answers Fleet, Pete, and Bete are
an affiliated group.
Cactus Company is a calendar year S corporation with the following current year information:
,Operating loss$ (120,000)
Liabilities:
Notes payable, City Bank20,000
Notes payable, Jake Crow20,000
On January 1, John James bought 50% of Cactus Company stock for $30,000. How much of the operating
loss may John deduct on his Form 1040? Assume the excess business loss limitation does not apply. -
Answers $30,000
In its first taxable year, Platform, Incorporated generated a $100,000 net operating loss and made a
$10,000 cash donation to a local charity. In its second year, Platform generated $350,000 operating
income and made a $20,000 donation to the same charity. Compute Platform's taxable income for its
second year. Assume neither year is 2020. - Answers $225,000
Cramer Corporation and Mr. Chips formed a partnership in which Cramer is the general partner and Mr.
Chips is a limited partner. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with
a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse
debt. What is Cramer's tax basis in its partnership interest? - Answers $1,200,000
Mr. and Mrs. Anderson file a joint return. They provide more than 50% of the financial support for their
two children, Dana, age 26, and John, age 17. Both children live in the Andersons' home. Dana earned
$7,100 from a part-time job, while John earned no income this year. Which of the following statements
is true? - Answers Dana is neither a qualifying child nor a qualifying relative of the Andersons.
Kelly operates a sole proprietorship with qualified business income of $920,000. Her business paid W-2
wages of $250,000 and owns depreciable tangible property with an unadjusted basis of $410,000.
Compute Kelly's allowable QBI deduction before the taxable income limitation. - Answers $125,000
Which of the following statements about the inclusion of boot in a nontaxable exchange is false? -
Answers the receipt of the boot is triggers recognition of realized gain to the payer
Alice is an unmarried individual. She has $182,340 taxable income in 2021. Compute Alice's regular tax
liability if she files as a single taxpayer and if she files as a head of household. - Answers Single $39,175
HOH $37,725
Brace, Incorporated owns 90% of West common stock. This year, Brace generated $50,000 operating
income and received $10,000 dividends from West. Brace's taxable income is: - Answers $50,000
Which of the following statements concerning partnerships is false? - Answers A partner is taxed
annually on only that portion of a partnership's taxable income that is actually distributed.
, B&I Incorporated sold a commercial office building used in the corporate business for $862,000. B&I
purchased the building in 2011 for a cost of $700,000 and had deducted $167,200 MACRS depreciation
through date of sale. B&I should characterize the $329,200 gain recognized on sale as: - Answers Capital
gain
None of these choices are correct
Section 1231 gain
$167,200 ordinary gain and $162,000 Section 1231 gain
Answer: None of these are correct
Perry Incorporated and Dally Company entered into an exchange of real property. Here is the
information for the properties to be exchanged.
PerryDallyFMV$ 500,000
$ 530,000
Adjusted tax basis410,000
283,000
Mortgage70,000
100,000
Pursuant to the exchange, Perry assumed the mortgage on the Dally property, and Dally assumed the
mortgage on the Perry property. Compute Perry's gain recognized on the exchange and its tax basis in
the property received from Dally. - Answers No gain recognized; $440,000 basis in the Dally property.
(PERRY'S POV)
Irby Incorporated was incorporated in 2015 and adopted a calendar year. Here is a schedule of Irby's net
Section 1231 gains and (losses) reported on its tax returns through 2020.
2015 2016 2017 2018 2019 2020 $(4,900)$(3,000)$(7,890)$45,600$-0-$1,300
In 2021, Irby recognized a $14,750 gain on the sale of business land. How is this gain characterized on
Irby's tax return? - Answers $14,750 Section 1231 gain.
Which of the following amounts are not subject to self-employment tax? - Answers Limited partner's
share of partnership income
Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700) to M&W
Incorporated in exchange for a 36% interest in M&W Partnership. Determine Mrs. Brinkley's realized
and recognized gain on the exchange and the tax basis in her partnership interest. - Answers No gain
recognized; $111,700 basis in property
"Little Magician" is the name of a painting created by artist Lion-o Messy. The owner recently recognized
a $43,500 gain on sale of the figurine. Which of the following statements is false? - Answers If a
commercial art gallery that had held Little Magician in its inventory was the seller, the gain is ordinary.
If a private collector who purchased Little Magician from an art gallery was the seller, the gain is capital
gain.
None of these choices are false.
If Lion-o was the seller, the gain is ordinary.
Answer: none of these choices are false
Sandy, Sue, and Shane plan to open Friends, an upscale restaurant. They project that the business will
incur a $90,000 operating loss in Year 1, and $75,000 of profit in Year 2. Which of the following
statements is true? - Answers If the business is a C corporation, it will owe income tax in Year 2.
Which of the following is a capital asset? - Answers Supplies used in a business
None of these choices are correct
Business inventory
Land used in a business
Answer is none of these are correct
Fleet, Incorporated owns 85% of the stock of Pete, Incorporated and 35% of the stock of Zete,
Incorporated and 90% of the stock of Bete, Incorporated Bete owns 5% of the stock of Pete and 5% of
the stock of Zete. Zete owns 10% of the stock of Bete. The remaining stock of Pete and Zete is owned by
unrelated individuals. Which of the following statements is correct? - Answers Fleet, Pete, and Bete are
an affiliated group.
Cactus Company is a calendar year S corporation with the following current year information:
,Operating loss$ (120,000)
Liabilities:
Notes payable, City Bank20,000
Notes payable, Jake Crow20,000
On January 1, John James bought 50% of Cactus Company stock for $30,000. How much of the operating
loss may John deduct on his Form 1040? Assume the excess business loss limitation does not apply. -
Answers $30,000
In its first taxable year, Platform, Incorporated generated a $100,000 net operating loss and made a
$10,000 cash donation to a local charity. In its second year, Platform generated $350,000 operating
income and made a $20,000 donation to the same charity. Compute Platform's taxable income for its
second year. Assume neither year is 2020. - Answers $225,000
Cramer Corporation and Mr. Chips formed a partnership in which Cramer is the general partner and Mr.
Chips is a limited partner. Cramer contributed $500,000 cash, and Mr. Chips contributed a building with
a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse
debt. What is Cramer's tax basis in its partnership interest? - Answers $1,200,000
Mr. and Mrs. Anderson file a joint return. They provide more than 50% of the financial support for their
two children, Dana, age 26, and John, age 17. Both children live in the Andersons' home. Dana earned
$7,100 from a part-time job, while John earned no income this year. Which of the following statements
is true? - Answers Dana is neither a qualifying child nor a qualifying relative of the Andersons.
Kelly operates a sole proprietorship with qualified business income of $920,000. Her business paid W-2
wages of $250,000 and owns depreciable tangible property with an unadjusted basis of $410,000.
Compute Kelly's allowable QBI deduction before the taxable income limitation. - Answers $125,000
Which of the following statements about the inclusion of boot in a nontaxable exchange is false? -
Answers the receipt of the boot is triggers recognition of realized gain to the payer
Alice is an unmarried individual. She has $182,340 taxable income in 2021. Compute Alice's regular tax
liability if she files as a single taxpayer and if she files as a head of household. - Answers Single $39,175
HOH $37,725
Brace, Incorporated owns 90% of West common stock. This year, Brace generated $50,000 operating
income and received $10,000 dividends from West. Brace's taxable income is: - Answers $50,000
Which of the following statements concerning partnerships is false? - Answers A partner is taxed
annually on only that portion of a partnership's taxable income that is actually distributed.
, B&I Incorporated sold a commercial office building used in the corporate business for $862,000. B&I
purchased the building in 2011 for a cost of $700,000 and had deducted $167,200 MACRS depreciation
through date of sale. B&I should characterize the $329,200 gain recognized on sale as: - Answers Capital
gain
None of these choices are correct
Section 1231 gain
$167,200 ordinary gain and $162,000 Section 1231 gain
Answer: None of these are correct
Perry Incorporated and Dally Company entered into an exchange of real property. Here is the
information for the properties to be exchanged.
PerryDallyFMV$ 500,000
$ 530,000
Adjusted tax basis410,000
283,000
Mortgage70,000
100,000
Pursuant to the exchange, Perry assumed the mortgage on the Dally property, and Dally assumed the
mortgage on the Perry property. Compute Perry's gain recognized on the exchange and its tax basis in
the property received from Dally. - Answers No gain recognized; $440,000 basis in the Dally property.
(PERRY'S POV)
Irby Incorporated was incorporated in 2015 and adopted a calendar year. Here is a schedule of Irby's net
Section 1231 gains and (losses) reported on its tax returns through 2020.
2015 2016 2017 2018 2019 2020 $(4,900)$(3,000)$(7,890)$45,600$-0-$1,300
In 2021, Irby recognized a $14,750 gain on the sale of business land. How is this gain characterized on
Irby's tax return? - Answers $14,750 Section 1231 gain.
