Question

James and Edna Smith are a childless married couple who lived apart for all of 2016. On December 31, 2016, they were legally separated under a decree of separate maintenance. Which of the following is the only filing status choice available to them for 2016?

1) Married filing joint return.
2) Married filing separate return.
3) Head of household.
4) Single.

Question 2
Percy Peterson received a grant from the Department of Education for a special research project on education. He received $500 per month for the period May 1 to December 31. Percy is not a candidate for a degree. The amount of the fellowship he may exclude from income for the tax year is:
Question 2 options:

1) $0

2) $1,600

3) $2,400

4) $3,000

5)

$4,000
Question 3
With regard to stock dividends, all of the following statements are correct except:

1) Stock dividends are distributions made by a corporation of its own stock.

2) In computing basis for new stock received as a result of a non-taxable dividend, it is immaterial whether the stock received is identical or not to the old stock.

3) If a stock dividend is taxable, the basis of the old stock does not change.

4) If a stock dividend is not taxable, a division must be made in the basis between the old and new stock.

Question 4
Harry purchased one share of common stock in a computer company for $90. Shortly after he purchased it, the corporation distributed two new shares of common stock for each share held. What is his basis for each of the three shares of common stock?

1) $90
2) $180
3) $30
4) $0

Question 5
Under the terms of their divorce agreement executed in October 2016, Keith transferred Corporation M stock to his former wife, Karen, as a property settlement. At the time of the transfer, the stock had a basis to Keith of $20,000 and a fair market value of $50,000. What is the tax consequence of this transaction to Keith, and what is Karen's basis in the Corporation M stock?

1) Keith has a gain of $30,000; Karen's basis is $20,000.
2) Keith has a gain of $30,000; Karen's basis is $50,000.
3) Keith has no gain or loss; Karen's basis is $20,000.
4) Keith has no gain or loss; Karen's basis is $50,000.

Question 6
If both alimony and child support payments are required by the divorce decree or agreement and less than the required amount is paid, the payments apply first to child support and then to alimony.
   1) True
   2) False

Question 7
Holly and Harp Oaks were divorced in 2013. The divorce decree was silent regarding the exemption for their 12-year-old daughter, June. Holly has legal custody of her daughter and did not sign a statement releasing the exemption. Holly earned $8,000 and Frank earned $80,000. June had a paper route and earned $3,000. June lived with Harp 4 months of the year and with Holly 8 months. Who may claim the exemption for June in 2016?

1) June may, since she had gross income over $3,000 and files her own return.
2) Since June lived with both Holly and Harp during the year, they both may claim her as an exemption.
3) Holly may, since she has legal custody and physical custody for more than half the year.
4) Harp may, since he earned more than Holly and, therefore, is presumed to have provided more than 50% of June's support.

Question 8
Nature Corporation declared and distributed a stock dividend of 1 share for each 10 shares held by stockholders. Donna had 100 shares ($5.50 per share basis) and received 10 additional shares with a fair market value of $6.00 per share. Which of the following is most applicable to the stock dividen?

1) 100 shares at $5.50 per share basis and 10 shares at zero basis per share.
2) 110 shares at $5 per share basis and $55 taxable income.
3) 110 shares at $5 per share.
4) 100 shares at $5 per share basis and 10 shares at $6 per share basis.

Question 9
Each of the following would be one of the requirements for a payment to be alimony under instruments executed after 1984 except:

1) Payments are required by a divorce or separation instrument.
2) Payments can be a noncash property settlement.
3) Payments are not designated in the instrument as not alimony.
4) Payments are not required after death of the recipient spouse.

Question 10
Jody Juniper owns five shares of stock in Treeside Corporation. The corporation declared a five percent stock dividend. It also set up a plan wherein fractional shares were sold and the cash proceeds were distributed to the stockholders. Jody should treat the amount received for the fractional share stock dividend as an ordinary taxable dividend.
   1) True
   2) False

Question 11
Roger Burrows, age 19, is a full-time student at Marshall College and a candidate for a bachelor's degree. During 2016, he received the following payments:

State scholarship for tuition   $3,600
Loan from college financial aid office   1,500
Cash support from parents   3,000
Cash dividends on qualified investments   700
Cash prize award in contest   500
$9,300

What is Burrows's adjusted gross income for 2016?

1) $1,100
2) $1,200
3) $4,800
4) $9,300

Question 12
Which of the following is true regarding a nonbusiness bad debt?

1) It is deductible as a short-term capital loss.
2) It is not deductible.
3) It is deductible only if you itemize.
4) It is deductible as a long-term capital loss.

Question 13
Richard and Alice Kelley lived apart during 2016 and did not file a joint tax return for the year. Under the terms of the written separation agreement they signed on July 1, 2014, Richard was required to pay Alice $1,500 per month of which $600 was designated as child support. He made 12 such payments in 2016. Assuming that Alice has no other income, her tax return for 2016 should show gross income of:

1) $0
2) $5,400
3) $10,800
4) $12,600

Question 14
In 2016, Rick Rambler was divorced from his wife, who has custody of their child. The divorce decree provides that Rick must pay his former wife $1,000 per month toward the child's support, which he did throughout the entire calendar year of 2019. In 2019, Rick can claim an "adjustment" to income of $12,000.
   1) True
   2) False

Question 15
Which one of the following distributions is nontaxable?

1) Mutual fund distributions from its net realized long-term capital gains in the amount of $1,000. You have an adjusted basis of $10,000 in the mutual fund.

2) Return of capital distribution from a utility company in the amount of $2,000. You have a zero basis in this stock.

3) Dividend on insurance policy in the amount of $1,000. As of the date of this dividend your net premiums exceed the total dividends by $3,500.

4) Your share of an ordinary dividend received by an S corporation in the amount of $25,000.

Answer 1

Q:1.

James and Edna Smith are a childless married couple who lived apart for all of 2016. On December 31, 2016, they were legally separated under a decree of separate maintenance. Which of the following is the only filing status choice available to them for 2016?

Answer 4) Single.

Question 2
Percy Peterson received a grant from the Department of Education for a special research project on education. He received $500 per month for the period May 1 to December 31. Percy is not a candidate for a degree. The amount of the fellowship he may exclude from income for the tax year is:

Answer: 5) $4,000

Question 3
With regard to stock dividends, all of the following statements are correct except:

Answer: 2) In computing basis for new stock received as a result of a non-taxable dividend, it is immaterial whether the stock received is identical or not to the old stock.

Question 4
Harry purchased one share of common stock in a computer company for $90. Shortly after he purchased it, the corporation distributed two new shares of common stock for each share held. What is his basis for each of the three shares of common stock?

Answer: 3) $30

Question 5
Under the terms of their divorce agreement executed in October 2016, Keith transferred Corporation M stock to his former wife, Karen, as a property settlement. At the time of the transfer, the stock had a basis to Keith of $20,000 and a fair market value of $50,000. What is the tax consequence of this transaction to Keith, and what is Karen's basis in the Corporation M stock?

Answer: 3) Keith has no gain or loss; Karen's basis is $20,000.

Question 6
If both alimony and child support payments are required by the divorce decree or agreement and less than the required amount is paid, the payments apply first to child support and then to alimony.
Answer ; 1) True
  
Question 7
Holly and Harp Oaks were divorced in 2013. The divorce decree was silent regarding the exemption for their 12-year-old daughter, June. Holly has legal custody of her daughter and did not sign a statement releasing the exemption. Holly earned $8,000 and Frank earned $80,000. June had a paper route and earned $3,000. June lived with Harp 4 months of the year and with Holly 8 months. Who may claim the exemption for June in 2016?

Answer: 1) June may, since she had gross income over $3,000 and files her own return.

Question 8
Nature Corporation declared and distributed a stock dividend of 1 share for each 10 shares held by stockholders. Donna had 100 shares ($5.50 per share basis) and received 10 additional shares with a fair market value of $6.00 per share. Which of the following is most applicable to the stock dividen?

Answer: 3) 110 shares at $5 per share.

Question 9
Each of the following would be one of the requirements for a payment to be alimony under instruments executed after 1984 except:

Answer: 4) Payments are not required after death of the recipient spouse.

Question 10
Jody Juniper owns five shares of stock in Treeside Corporation. The corporation declared a five percent stock dividend. It also set up a plan wherein fractional shares were sold and the cash proceeds were distributed to the stockholders. Jody should treat the amount received for the fractional share stock dividend as an ordinary taxable dividend.
Answer:   2) False

Question 11
Roger Burrows, age 19, is a full-time student at Marshall College and a candidate for a bachelor's degree. During 2016, he received the following payments:

State scholarship for tuition   $3,600
Loan from college financial aid office   1,500
Cash support from parents   3,000
Cash dividends on qualified investments   700
Cash prize award in contest   500
$9,300

What is Burrows's adjusted gross income for 2016?

Answer: 2) $1,200

Question 12
Which of the following is true regarding a nonbusiness bad debt?

Answer: 1) It is deductible as a short-term capital loss.

Question 13
Richard and Alice Kelley lived apart during 2016 and did not file a joint tax return for the year. Under the terms of the written separation agreement they signed on July 1, 2014, Richard was required to pay Alice $1,500 per month of which $600 was designated as child support. He made 12 such payments in 2016. Assuming that Alice has no other income, her tax return for 2016 should show gross income of:

Answer: 3) $10,800

Question 14
In 2016, Rick Rambler was divorced from his wife, who has custody of their child. The divorce decree provides that Rick must pay his former wife $1,000 per month toward the child's support, which he did throughout the entire calendar year of 2019. In 2019, Rick can claim an "adjustment" to income of $12,000.
Answer:   2) False

Question 15
Which one of the following distributions is nontaxable?

Answer: 1) Mutual fund distributions from its net realized long-term capital gains in the amount of $1,000. You have an adjusted basis of $10,000 in the mutual fund.