HS 321 PRACTICE EXAM QUESTIONS WITH
CORRECT ANSWERS.
1 of 50
Term
A well-known sculptor donated one of her original bronze creations
to a local charity, which auctioned the piece for $3,000. The artist's
costs were as follows:• Bronze: $425• Other materials: $150• Pro rata
overhead: $125• Furnace/casting fees: $200• Artistic contribution:
$2,100
Assuming this is the only charitable contribution and based on an
annual income of $150,000, what is the maximum amount of
charitable income tax deduction available to the artist?
A. $3,000
B.$2,100
, C. $775
D. $900
Give this one a try later!
The correct answer is (D).Statements (A) through (C) are all correct. Statement
(D) is incorrect because depreciation recapture applies to all assets regardless
of when the asset is sold and regardless of whether or not depreciation
was
previously claimed.
The correct answer is (D).His income includes the wages and interest. The
alimony paid is not deductible for AGI if the divorce decree is post 12/31/2018.
Therefore his AGI is $61,000.$60,000 + $1,000 = $61,000
The correct answer is (D). Charlotte's adjusted gross income can be calculated as
follows:
0.85*$6000
Her Social Security benefits are 85 percent taxable because of her modified AGI.
The correct answer is (C).Only materials and expenses are deductible, not
artistic contribution or time. No deduction is allowed for use of property;
therefore the pro rata overhead would likely not be allowed.
Don't know?
2 of 50
Definition
The correct answer is (B).Katie will not be allowed to take any loss
for the current year. Of the $200,000 loss from Stronghold,
$125,000 will be suspended because of the at-risk rules (she only
has $75,000 at risk) and $75,000 will be suspended because of the
passive-
,activity loss rules. (She does not have any passive income to offset
the loss since she materially participates in Enchanted Creations.)
Give this one a try later!
Ralph is not married and does not have any children. However, Ralph is a very
good son and provides more than half of the cost of maintaining a very
nice apartment for his mother and more than half of her support since her only
income is a small amount from Social Security. Which of the following filing
statuses should Ralph use, and why?
A. Single, because Ralph is not married
B.Single, because Ralph does not have any qualifying children
C. Head of household, because Ralph's mother is his dependent
D.Head of household, because Ralph's mother is a qualifying child
Two years ago, Diane purchased 100 shares of the Colbert Corporation for
$15,000. On January 1 of this year, Diane reviews her investment portfolio and
finds out that she has had a very profitable year. To offset some of her gains,
Diane sells her shares of the Colbert Corporation for $10,000. On January 25 of
the same year, Diane reads a newspaper article indicating that the price of the
Colbert Corporation is expected to increase substantially. Second-guessing the
wisdom of selling her previous shares of Colbert stock, she purchases 100
shares of the Colbert Corporation for $8,000. What are the tax consequences for
Diane this year?
A. Diane will have a $5,000 realized, but not recognized, loss.
B.Diane will have an $8,000 realized and recognized loss.
C. Diane will have a $5,000 realized and recognized loss.
D.Diane will have a $7,000 realized, but not recognized, loss.
Katie is a 15 percent owner in Enchanted Creations, LLC, a very
successful web-developing business. She is also a 15 percent owner in
Stronghold, LLC, an internet-based virus protection service. She
materially participates in Enchanted Creations but does not materially
participate in Stronghold. She has an at-risk amount of $600,000 and an
income of $250,000 for
Enchanted Creations. For Stronghold, she has an at-risk amount of $75,000
and a loss of $200,000.
What amount of loss is suspended because of the passive-activity income
rules?
, A. $0
B.$75,000
C. $125,000
D.$200,000
Sue is a 10 percent owner in Doggy Companion, LLC, a day-care center for dogs.
She is also a 15 percent owner in Fashionista, LLC, a successful children's clothing
store. She does not materially participate in either business. Her at-risk amount
for Doggy Companion is $140,000, and she has a loss of $300,000 for the day
care. For Fashionista, she has an at-risk amount of $50,000 and an income of
$130,000. She also has wage income of $80,000 and capital-gain income of
$30,000.Which of the following statements is true?
A. The loss suspended because of the at-risk rules is $110,000, and the loss
suspended because of the passive-activity loss rules is $60,000.
B. The loss suspended because of the at-risk rules is $110,000, and the
loss suspended because of the passive-activity loss rules is $0.
C. The loss suspended because of the at-risk rules is $160,000, and the
loss suspended because of the passive-activity loss rule
Don't know?
3 of 50
Term
XYZ Inc. has the following net income before any application of net
operating losses (NOLs):
2018
-$20,000
Net
income
2019
$10,000
Net
income
2020
$6,000
Net income
CORRECT ANSWERS.
1 of 50
Term
A well-known sculptor donated one of her original bronze creations
to a local charity, which auctioned the piece for $3,000. The artist's
costs were as follows:• Bronze: $425• Other materials: $150• Pro rata
overhead: $125• Furnace/casting fees: $200• Artistic contribution:
$2,100
Assuming this is the only charitable contribution and based on an
annual income of $150,000, what is the maximum amount of
charitable income tax deduction available to the artist?
A. $3,000
B.$2,100
, C. $775
D. $900
Give this one a try later!
The correct answer is (D).Statements (A) through (C) are all correct. Statement
(D) is incorrect because depreciation recapture applies to all assets regardless
of when the asset is sold and regardless of whether or not depreciation
was
previously claimed.
The correct answer is (D).His income includes the wages and interest. The
alimony paid is not deductible for AGI if the divorce decree is post 12/31/2018.
Therefore his AGI is $61,000.$60,000 + $1,000 = $61,000
The correct answer is (D). Charlotte's adjusted gross income can be calculated as
follows:
0.85*$6000
Her Social Security benefits are 85 percent taxable because of her modified AGI.
The correct answer is (C).Only materials and expenses are deductible, not
artistic contribution or time. No deduction is allowed for use of property;
therefore the pro rata overhead would likely not be allowed.
Don't know?
2 of 50
Definition
The correct answer is (B).Katie will not be allowed to take any loss
for the current year. Of the $200,000 loss from Stronghold,
$125,000 will be suspended because of the at-risk rules (she only
has $75,000 at risk) and $75,000 will be suspended because of the
passive-
,activity loss rules. (She does not have any passive income to offset
the loss since she materially participates in Enchanted Creations.)
Give this one a try later!
Ralph is not married and does not have any children. However, Ralph is a very
good son and provides more than half of the cost of maintaining a very
nice apartment for his mother and more than half of her support since her only
income is a small amount from Social Security. Which of the following filing
statuses should Ralph use, and why?
A. Single, because Ralph is not married
B.Single, because Ralph does not have any qualifying children
C. Head of household, because Ralph's mother is his dependent
D.Head of household, because Ralph's mother is a qualifying child
Two years ago, Diane purchased 100 shares of the Colbert Corporation for
$15,000. On January 1 of this year, Diane reviews her investment portfolio and
finds out that she has had a very profitable year. To offset some of her gains,
Diane sells her shares of the Colbert Corporation for $10,000. On January 25 of
the same year, Diane reads a newspaper article indicating that the price of the
Colbert Corporation is expected to increase substantially. Second-guessing the
wisdom of selling her previous shares of Colbert stock, she purchases 100
shares of the Colbert Corporation for $8,000. What are the tax consequences for
Diane this year?
A. Diane will have a $5,000 realized, but not recognized, loss.
B.Diane will have an $8,000 realized and recognized loss.
C. Diane will have a $5,000 realized and recognized loss.
D.Diane will have a $7,000 realized, but not recognized, loss.
Katie is a 15 percent owner in Enchanted Creations, LLC, a very
successful web-developing business. She is also a 15 percent owner in
Stronghold, LLC, an internet-based virus protection service. She
materially participates in Enchanted Creations but does not materially
participate in Stronghold. She has an at-risk amount of $600,000 and an
income of $250,000 for
Enchanted Creations. For Stronghold, she has an at-risk amount of $75,000
and a loss of $200,000.
What amount of loss is suspended because of the passive-activity income
rules?
, A. $0
B.$75,000
C. $125,000
D.$200,000
Sue is a 10 percent owner in Doggy Companion, LLC, a day-care center for dogs.
She is also a 15 percent owner in Fashionista, LLC, a successful children's clothing
store. She does not materially participate in either business. Her at-risk amount
for Doggy Companion is $140,000, and she has a loss of $300,000 for the day
care. For Fashionista, she has an at-risk amount of $50,000 and an income of
$130,000. She also has wage income of $80,000 and capital-gain income of
$30,000.Which of the following statements is true?
A. The loss suspended because of the at-risk rules is $110,000, and the loss
suspended because of the passive-activity loss rules is $60,000.
B. The loss suspended because of the at-risk rules is $110,000, and the
loss suspended because of the passive-activity loss rules is $0.
C. The loss suspended because of the at-risk rules is $160,000, and the
loss suspended because of the passive-activity loss rule
Don't know?
3 of 50
Term
XYZ Inc. has the following net income before any application of net
operating losses (NOLs):
2018
-$20,000
Net
income
2019
$10,000
Net
income
2020
$6,000
Net income
