Question

21. On February 12, 2015, Jon purchased stock in Pik Corporation (the stock is not small business stock) for $2,000. On May 12, 2016, the stock became worthless. During 2016, John also had an $9,000 loss on § 1244 small business stock purchased two years ago, a $10,000 loss on a nonbusiness bad debt, and a $6,000 long-term capital gain. How should Jon treat these items on his 2016 tax return?

a. $4,000 long-term capital loss and $9,000 short-term capital loss.

b. $4,000 long-term capital loss and $3,000 short-term capital loss.

c. $9,000 ordinary loss and $5,000 short-term capital loss.

d. $9,000 ordinary loss and $3,000 short-term capital loss.

e. None of the above

____ 22. Joahn’s car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2016. The car’s adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insurance policy. John did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is John’s deductible loss?

a. $0.

b. $100.

c. $500.

d. $9,500.

e. None of the above.

____ 23. Rec Corporation incurred the following expenses in connection with the development of a new product:

Salaries $102,000

Utilities 28,000

Materials 12,000

Advertising 5,000

Market survey 3,000

Depreciation on machine 8,000

Rec expects to begin selling the product in December of this year. If Rec elects to amortize research and experimental expenditures over 60 months, determine the amount of the deduction for research and experimental expenditures for the current year.

a. $0.

b. $150,000.

c. $2,500.

d. $2,533.

e. $152,000.

____ 24. Eony, Inc., has taxable income of $600,000 and QPAI of $700,000 in 2016. Eony’s domestic production activities deduction is:

a. $36,000.

b. $42,000.

c. $54,000.

d. $63,000.

e. None of the above.

____ 25. Will, who is single, has the following items for 2016:

Salary $25,000

Interest income 3,000

Itemized deductions ($26,000 attributable to casualty loss) (32,000)

What is Will’s NOL for 2016?

a. $0.

b. $2,000.

c. $1,000.

d. $26,000.

e. None of the above.

____ 26. Sam purchased a new business asset (three-year personalty) on July 21, 2016, at a cost of $80,000. Sam takes additional first-year depreciation Determine the cost recovery deduction for 2016.

a. $26,664.

b. $53,332.

c. $39,999.

d. $40,000.

e. None of the above.

____ 27. Cal purchased a hotel building on May 20, 2016, for $7,000,000, of which $2,000,000 was for land. Determine the cost recovery deduction for 2016.

a. $128,200.

b. $102,560.

c. $153,840.

d. $76,920.

e. None of the above.

____ 28. On August 1, 2016, Geen Corp purchased an existing business. With respect to the acquired assets of the business, Geen allocated $300,000 of the purchase price to a patent. The patent will expire in 17 years. Determine the total amount that Geen may amortize for 2016 for the patent.

a. $12,500.

b. $6,667.

c. $8,333.

d. $7352.

e. None of the above.

____ 29. During the year, Hon travels from Raleigh to Addis Ababa, Ethiopia on business. His time was spent as follows: 2 days travel (one day each way), 2 days business, and 2 days personal. His expenses for the trip were as follows (meals and lodging reflect only the business portion):

Air fare $4,000

Lodging 3,000

Meals and entertainment 1,000

Presuming no reimbursement, Hon’s deductible expenses are:

a. $4,000.

b. $5,500.

c. $7,500.

d. $8,000.

e. None of the above.

____ 30. Brad entertains several of his key clients on 4 March of the current year. Expenses paid by Brad are as follows:

Cab fare $ 90

Cover charge at supper club 80

Dinner at club 400

Two Falcons play off tickets (face value $200) 600

Tips to waiter 100

Presuming proper substantiation, Brad’s deduction is:

a. $1,270.

b. $580.

c. $640.

d. $480.

e. None of the above.

____ 31. One of the tax advantages of being self-employed (rather than being an employee) is:

a. The self-employment tax is lower than the Social Security tax.

b. The cutback adjustment does not apply.

c. Job-related expenses are deductions for AGI.

d. The actual cost method for deducting the business use of an automobile can be selected.

e. A deduction for an office in the home is available.

Answer 1

Solution - (d) Ordinary loss $9000 and Short term capital loss $3000

1) - Ordinary Capital Loss = $9000

2) - Long Term Capital Gain = $6000

Long term capital loss = $3000

Net Long term Capital Gain = ($6000 - $3000) = $3000

Short term Capital Loss = $10000 (non business bad debt)

Net Short Term Capital loss = ($10000 - $3000) = $7000

Short Term loss limited to = $3000