Taxation questions



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Ch. 5 TF

Question 1 1
/ 1 point

Amber Machinery Company purchased a building from Ted for
$250,000 cash and a mortgage of $750,000. One year after the transaction, the
mortgage had been reduced to $725,000 by principal payments by Amber, but it
was apparent that Amber would not be able to continue to make the monthly
payments on the mortgage. Ted reduced the amount owed by Amber to $600,000.
This reduced the monthly payments to a level that Amber could pay. Amber must
recognize $125,000 income from the reduction in the debt by Ted.



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Question 2 1
/ 1 point

If a scholarship does not satisfy the requirements for a
gift, the scholarship must be included in gross income.



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Question 3 0
/ 1 point

A U.S. citizen who works in France from February 1, 2013
until January 31, 2014 is eligible for the foreign earned income exclusion in
2013 and 2014.



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Question 4 1
/ 1 point

Roger is in the 35% marginal tax bracket. Roger’s employer has created a flexible
spending account for medical and dental expenses that are not covered by the
company’s health insurance plan. Roger had his salary reduced by $1,200 during
the year for contributions to the flexible spending plan. However, Roger
incurred only $1,100 in actual expenses for which he was reimbursed. Under the
plan, he must forfeit the $100 unused amount. His after-tax cost of overfunding
the plan is $65.



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Question 5 0
/ 1 point

Gary cashed in an insurance policy on his life. He needed the funds to pay for his terminally
ill wife’s medical expenses. He had paid $12,000 in premiums and he collected
$30,000 from the insurance company. Gary is not required to include the gain of
$18,000 ($30,000 – $12,000) in gross income.



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Ch. 5 MC

Question 6 0
/ 1 point

Barney is a full-time graduate student at State University.
He serves as a teaching assistant for which he is paid $700 per month for 9
months and his $5,000 tuition is waived. The university waives tuition for all
of its employees. In addition, he
receives a $1,500 research grant to pursue his own research and studies.
Barney’s gross income from the above is:





None of the above.

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Question 7 1
/ 1 point

Under the Swan Company’s cafeteria plan, all full-time
employees are allowed to select any combination of the benefits below, but the
total received by the employee cannot exceed $8,000 a year.

I. Group
medical and hospitalization insurance for the employee, $3,600 a year.

II. Group
medical and hospitalization insurance for the employee’s spouse and children,
$1,200 a year.

III. Child-care
payments, actual cost but not more than $4,800 a year.

IV. Cash
required to bring the total of benefits and cash to $8,000.

Which of the following statements is true?

Sam, a full-time employee, selects choices II and III and
$2,000 cash. His gross income must include the $2,000.

Paul, a full-time employee, elects to receive $8,000 cash
because his wife’s employer provided these same insurance benefits for him.
Paul is required to include the $8,000 in gross income.

Sue, a full-time employee, elects to receive choices I, II
and $3,200 for III. Sue is required to include $3,200 in gross income.

All of the above.

None of the above.

Question 8 1
/ 1 point

A scholarship recipient at State University may exclude from
gross income the scholarship proceeds used to pay for:

Only tuition.

Tuition, books, and supplies.

Tuition, books, supplies, meals, and lodging.

Meals and lodging.

None of the above.

Question 9 1
/ 1 point

On January 1, 2003, Cardinal Corporation issued 5% 25-year
bonds at par and used the $12,000,000 proceeds to finance the construction of a
new plant. On January 1, 2013, the company acquired the bonds on the open
market for $11,500,000. Assuming that Cardinal Corporation is neither bankrupt
nor insolvent, the acquisition and retirement of the bonds results in which of
the following:

The company must recognize a $500,000 gain.

The company can make an election to recognize a $500,000
gain or reduce the company’s basis in the plant by $500,000.

The company must recognize a $500,000 gain and increase the
company’s basis in the plant by $500,000.

The company can amortize the $500,000 gain, recognizing
income over the remaining life of the bonds.

None of the above.

Question 10 1
/ 1 point

In the case of interest income from state and Federal bonds:

Interest on United States government bonds received by a
state resident can be subject to that state’s income tax.

Interest on United States government bonds is subject to
Federal income tax.

Interest on bonds issued by State A received by a resident
of State B cannot be subject to income tax in State B.

All of the above are correct.

None of the above are correct.

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Ch. 5 TF

Question 1 1
/ 1 point

Employees of a CPA firm located in Virginia may exclude from
gross income the meals and lodging provided by the employer while they were on
an audit in Texas.



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Question 2 1
/ 1 point

Mother participated in a qualified state tuition program for
the benefit of her son. She contributed $15,000. When the son entered college,
the balance in the fund satisfied the tuition charge of $20,000. When the funds
were withdrawn to pay the college tuition for her son, neither Mother nor son
must include $5,000 ($20,000 – $15,000) in gross income.



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Question 3 1
/ 1 point

Workers’ compensation benefits are included in gross income
if the employer also pays the employee while the employee is recovering from his
or her injury.



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Question 4 1
/ 1 point

Mauve Company permits employees to occasionally use the
copying machine for personal purposes. The copying machine is located in the
office where the higher paid executives work, so they occasionally use the
machine. However, the machine is not convenient for use by the lower paid
warehouse employees and, thus, they never use the copier. The use of the copy
machine may not be excluded from gross income because the benefit is discriminatory.



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Question 5 1
/ 1 point

Mel was the beneficiary of a $45,000 group term life
insurance policy on his wife. His wife’s
employer paid all of the premiums on the policy. Mel used the life insurance
proceeds to purchase a United States Government bond, which paid him $2,500
interest during the current year. Mel’s
Federal gross income from the above is $2,500.



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Ch. 5 MC

Question 6 1
/ 1 point

Hazel, a solvent individual but a recovering alcoholic,
embezzled $6,000 from her employer. In the same year that she embezzled the
funds, her employer discovered the theft. Her employer did not fire her and
told her she did not have to repay the $6,000 if she would attend Alcoholics
Anonymous. Hazel met the conditions and her employer canceled the debt.

Hazel did not realize any income because her employer made a
gift to her.

Hazel must include $6,000 in gross income from discharge of

Hazel must include $6,000 in gross income under the tax
benefit rule.

Hazel may exclude the $6,000 from gross income because the
debt never existed.

None of the above.

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Question 7 1
/ 1 point

The employees of Mauve Accounting Services are permitted to
use the copy machine for personal purposes, provided the privilege is not
abused. Ed is the president of a civic
organization and uses the copier to make several copies of the organization’s
agenda for its meetings. The copies made
during the year would have cost $150 at a local office supply.

Ed must include $150 in his gross income.

Ed may exclude the cost of the copies as a no-additional
cost fringe benefit.

Ed may exclude the cost of the copies only if the
organization is a client of Mauve.

Ed may exclude the cost of the copies as a de minimis fringe

None of the above.

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Question 8 1
/ 1 point

Peggy is an executive for the Tan Furniture Manufacturing
Company. Peggy purchased furniture from the company for $9,500, the price Tan
ordinarily would charge a wholesaler for the same items. The retail price of
the furniture was $12,500, and Tan’s cost was $9,000. The company also paid for
Peggy’s parking space in a garage near the office. The parking fee was $600 for
the year. All employees are allowed to buy furniture at a discounted price
comparable to that charged to Peggy. However, the company does not pay other
employees’ parking fees. Peggy’s gross income from the above is:





None of the above.

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Question 9 1
/ 1 point

Matilda works for a company with 1,000 employees. The
company has a hospitalization insurance plan that covers all employees.
However, the employee must pay the first $3,000 of his or her medical expenses
each year. Each year, the employer contributes $1,500 to each employee’s health
savings account (HSA). Matilda’s employer made the contributions in 2012 and
2013, and the account earned $100 interest in 2013. At the end of 2013, Matilda
withdrew $3,100 from the account to pay the deductible portion of her medical
expenses for the year and other medical expenses not covered by the
hospitalization insurance policy. As a result, Matilda must include in her 2013
gross income:





None of the above.

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Question 10 1
/ 1 point

Adam repairs power lines for the Egret Utilities Company. He
is generally working on a power line during the lunch hour. He must eat when
and where he can and still get his work done. He usually purchases something at
a convenience store and eats in his truck. Egret reimburses Adam for the cost
of his meals.

Adam must include the reimbursement in his gross income.

Adam can exclude the reimbursement from his gross income
since the meals are provided for the convenience of the employer.

Adam can exclude the reimbursement from his gross income
because he eats the meals on the employer’s business premises (the truck).

Adam may exclude from his gross income the difference
between what he paid for the meals and what it would have cost him to eat at home.

None of the above.


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Taxation questions



Please complete the below problems and submit your answers in the Week 4 Drop Box. See “Syllabus/Due Dates for Assignments & Exams” for due date information.

1. Nancy gave her grandson, Sean, twenty acres of land. Her tax basis in the land was $25,000. Nancy’s marginal tax rate for the current year is 45%; her grandson’s is 25%.Its fair market value was $575,000 at the date of the transfer. If the gift tax rate is 40% and she has never made a gift in excess of $10,000 before this, what amount of gift tax will she pay? What is their net tax savings percentage as a family unit if Sean sells the land?

2. Tom and Judy Bell, who file jointly, collected $6,000 of Social Security benefits, $18,000 in fully taxable pension payments and $10,000 of tax-exempt interest. How much of their Social Security is included in gross income? How would this change if they had received $20,000 in tax-exempt interest?


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Taxation questions



Question 1

Miriam, a smart and sharp MBA student, is on spring break flying home to see her family. At the airport, there is the usual delay. So, Miriam goes to the nearest airport bar to have a glass of wine. At a table near the bar are some nicely dressed business executives who clearly have had too much to drink and are talking very loudly and annoyingly – but about the merger of their company with a bigger company and how much of the big company’s stock they are going to receive in return for their shares for the purchase of their company. Miriam puts down her glass of wine and notes on the cocktail napkin the name of the companies. When she gets home, she immediately calls her broker and tells him to buy shares of stock in the executives’ company. The merger takes place and Miriam makes a great deal of money on the transaction. Miriam likely has acted:

Illegally since she traded on inside information.

Illegally since the business executives probably breached a duty of confidentiality.

Illegally since her stock purchase was not a fair one, and as a business student Miriam “should have known better.”

Legally since she was lucky, smart, and bold.

Question 2

Liquor company has an advertisement for its wine-coolers on television which shows several young-looking (though over 21) boys and girls having fun sailing a boat. The ad is a very sexy one, as the young people are very attractive and in bathing suits and are frolicking about the boat; but the ad does not show the young people actually drinking the product. Pursuant to the Federal Trade Commission’s deceptive advertising standards, this ad is best described as:

Legal since nothing is false about it and the actors are over 21 and naturally one would expect that they be good-looking, and thus the ad meets all FTC standards for advertising.

Legal so long as the FTC first approves it and the ad is not placed on any TV shows geared for children, such as Saturday morning cartoon shows.

Illegal since it could be misleading in the sense that young people could be misled into believing that drinking and boating can be mixed safely.

Illegal because all advertising is, in essence, lies, deceptions, and half-truths.

Question 3

Viola works for a small company. She is an employee at-will. She is discharged to make room for the owner’s “niece,” who is really his paramour. Viola most likely has been treated:

Legally under the employment at-will doctrine but likely immorally

Legally but only if she is given reasonable notice and a severance package.

Illegally since preferring one’s paramour is clearly sexual harassment.

Illegally since all office romance is prohibited by the Civil Rights Act.

Question 4

Barb owns Barb’s Salon, which owes back rent to Capital Properties, a landlord. Barb agrees to pay a percentage of her profit each month until the debt is paid. Capital Properties is

Barb’s creditor and partner.

Barb’s creditor only.

Barb’s partner only.

neither Barb’s creditor nor partner.

Question 5

Janet is hired as a driver for Speedy Delivery, Inc. as an employee at-will. Her boss tells her that she MUST speed on the roads to deliver packages in a timely manner just like all the other Speedy drivers do. Janet refuses since this is a dangerous, reckless, as well as illegal practice. Her boss fires her for not following orders. The boss also tells Janet that she cannot sue Speedy for wrongful discharge since she is only an employee at-will. Which of the following is the most accurate statement?

The boss is right as anyone can be fired for virtually anything if one is an employee at-will.

The boss is right since everyone speeds.

The boss is wrong if Janet is a lesbian.

The boss is wrong since being fired under these circumstances is likely a violation of the Public Policy doctrine.

Question 6

General Construction contracts to build a store for Home Stores for $1 million. In mid-project, Home repudiates the contract, and General stops working. General incurred costs of $600,000 and would have made a profit of $100,000. General’s measure of damages likely is

$1 million.




Question 7

Fast Freddy, a local DJ, tells Rhonda his used car is truly a great one for her, as the car is really “fast and sexy,” “just like me and you,” and that she will be very pleased with it. Based on these statements, Rhonda buys the car; but is not pleased with the car at all since it “hesitates” and at times stalls out. She takes it to a dealer who says the sensors and the computers have to be fixed for a cost of almost $1000. Rhonda is incensed and sues Fast Freddy for fraudulent misrepresentation (deceit). What problems will Rhonda have in her lawsuit?

Fast Freddy’s comments could be deemed to be merely “puffing” or sales talk and not as statements of fact.

Rhonda may not be able to get evidence of Fast Freddy’s intent to deceive.

Rhonda may not be able to convince a jury that she reasonably relied on Fast Freddy’s statements.

All of the above are problems for Rhonda.

Question 8

Digital Products Company agrees to sell to Eagle Manufacturing, Inc., a customized software system. If Eagle materially breaches the contract, the remedies available to Digital include the right

to cancel the contract only.

to recover damages only.

to cancel the contract and recover damages.

none of the above.

Question 9

American Sales Company and B2C Corporation enter into a contract over the Internet. The contract says nothing about the UETA. The UETA applies to

none of the contract.

only the part of the contract that does not involve computer information.

only the part of the contract that involves computer information.

the entire contract.

Question 10

Owen and Pat are partners in Quality Investments, a partnership. Owen convinces Roy, a customer to invest in a nonexistent gold mine. Owen absconds with Roy’s money. If Roy sues Pat, Roy will:

lose, because partners are not jointly and severally liable.

lose, because only partnership assets are available to pay the judgment

win, because partners are jointly and severally liable

win, because partnership assets are available to pay the judgment

Question 11

Yard Work, Inc., makes and sells garden tools. Under the strict liability doctrine, a tool could be unreasonably dangerous and defective

only if, in making the tool, Yard Work failed to use a less dangerous but economically feasible alternative.

only if the tool is dangerous beyond the ordinary consumer’s expectation.

if, in making the tool, Yard Work failed to use a less dangerous but economically and practically feasible alternative.

none of the above.

Question 12

Greg enters into a contract with Holly that indirectly benefits Ira, although neither Greg nor Holly intended the result. Ira is

a delegatee.

an assignee.

an incidental beneficiary.

an intended beneficiary.

Question 13

Fast Eddie, a minor, who looks older, buys a used car on credit when he is 16 for “cruisin'” and “girl pick-up” purposes. He pays a small down payment and agrees to pay a monthly payment. When he turns 18 he continues to use the car and to make payments to the used car dealership. He does this for several months after turning 18 years of age. However, he then attempts to “drag race” with a friend to impress a girl, but crashes the car. He is not badly injured, but the car is seriously damaged. Fast Eddie then has the car towed back to the used car dealership, and says: “Yo, I was only 16 when I bought this car. I was a minor and I want all my money back. You can have what’s left of the car. Yo!” What is the likely legal result of this situation?

Fast Eddie can disaffirm the contract with the car dealership since he was a minor when he purchased it.

Fast Eddie cannot disaffirm the contract since the car was a “necessity.”

Fast Eddie cannot disaffirm since he impliedly ratified the contract he made when he was a minor.

Fast Eddie can disaffirm since the used car dealer should have asked Fast Eddie his age regardless of his appearance.

Question 14

Shareholders of X Investment Corporation believe their corporation was harmed when the directors followed the advice of certain financial “experts” who advised them to have the corporation invest in mortgage backed securities. The shareholders want the directors to bring suit in the corporation’s name against these so-called experts; but the directors refuse to do so saying the lawsuit would be costly and a difficult one to win. Nonetheless, the shareholders want the corporation to sue. The shareholder’s best approach would be to institute:

A pooling agreement.

A voting trust

A shareholder derivative lawsuit

Cumulative voting.

Question 15

Frankie attempts to incorporate his company as Frankie’s Pizza Co., Inc. However, when he sends the articles of incorporation to the state for approval, he carelessly forgets to list the name and address of the registered agent for the corporation, which is a statutory requirement to incorporation. The articles of incorporation otherwise is fine, but the state rejects the document due to the missing information, and tells Frankie to submit the document again. However, in the meantime, Frankie, mistakenly thinking that he had a corporation formed, had been doing business as Frankie’s Pizza Co., Inc, and, unfortunately, one of Frankie’s delivery persons, while making a pizza delivery, negligently caused an automobile accident, injuring a third party. The third party sues Frankie personally for damages for the injuries sustained in the accident, contending that his corporation does not exist. Frankie’s best defense to such a lawsuit in most states would be:

The “piercing the corporate veil” doctrine

The de facto corporation doctrine

The de jure corporation doctrine

The corporation by estoppel doctrine.

Question 16

Tomas is a business student with a very good business idea for academia. Tomas, with the help of his school’s entrepreneurship center, then develops a detailed business plan for an academic online course registration system. The faculty at the entrepreneurship center thinks that Tomas’ concept and plan have economic potential and thus are quite marketable. Tomas places on his business plan a Confidentiality statement, and also when he “shops” his plan to potential investors and school administrators he asks them to sign a Non-Disclosure Agreement. Based on the aforementioned facts, which statement is likely TRUE?

Tomas has protected his business plan by means of federal patent law.

Tomas has protected his business plan by means of federal copyright law.

Tomas has failed to protect his business plan by trade secret law since a plan, concept, or idea is too “soft” information, as opposed to a “hard” formula or device, for legal trade secret protection.

Tomas has protected his business plan by means of state trade secret law.

Question 17

Internet Services, Inc. (ISI), is an Internet service provider. ISI does not create, but disseminates, a defamatory statement by Jill, its customer, about Ron. Liability for the remark may be imposed on

ISI and Jill.

ISI or Jill, but not both.

ISI only.

Jill only.

Question 18

Frank, an officer of Gamma, Inc. learns that Gamma has developed a new source of energy. Frank tells Gail, an outsider. They each buy Gamma stock. When the development is announced, the stock price increases and they each immediately sell their stock. Subject to liability for insider trading is or are:

Frank and Gail.

Frank only.

Gail only.

neither Frank nor Gail.

Question 19

Juanita walks into Freddie’s Fast Food Restaurant one day and slips and falls on a wet floor that had just been mopped by one of Freddie’s employees, who neglected to put up a “Caution – Wet Floor” warning sign. The employee did not mean any harm; he just forgot to put up the sign. Juanita, however, is injured and sues Freddie. Her lawsuit is:

Breach of warranty-based.

Strict liability-based.

Intentional tort-based.


Question 20

Pursuant to the commercial speech doctrine under U.S. constitutional law:

commercial speech is not constitutionally protected since the motive is for business to make money

commercial speech is will not protect legal, adult-like activities and products like tobacco, alcohol, and gambling since they are regarded as “vices” and thus should be prohibited

commercial speech is not constitutionally protected since most commercials on television, especially around dinner-time, are loud, annoying, and gross

commercial speech must be true and non-deceptive and involve a legal product or service to gain constitutional protection.

Question 21

President Abraham Lincoln very succinctly explained his rationale for his condemnation of and opposition to slavery, to wit: “As I would not be a slave, so I shall not be a master.” Lincoln’s reasoning best exemplifies what ethical theory?

Legal Positivism of Thomas Hobbs
Ethical Relativism of the Sophists

The Categorical Imperative of Immanuel Kant

Utilitarianism of Bentham and Mills.

Question 22

Pursuant to Legal Positivism,

There is no such thing as a bad or unjust law.

The law is the basis for morality.

If one is acting legally, then one is acting morally.

All are true.

Question 23

Bribery, though commonly thought wrongful, arguably can be considered moral pursuant to:

Utilitarian ethics if the overall greater good is achieved by paying the bribe even though there are certain negative consequences for some stakeholders (such as the competition and the host society).

Ethical egoism from the vantage point of the company paying the bribe if they really need the contract with the foreign government and they have a policy of “letting the locals deal with the locals.”

Ethical relativism if making the “gifts” (that is, “bribe” payments”) to foreign government officials is considered to be an acceptable and appropriate practice and custom in the host county.

All of the above.

Question 24

The “golden rule,” “Do unto others as you would have them do unto you,” is most directly reflected in which moral theory?

Ethical relativism.


Ethical fundamentalism.

Kantian ethics.

Question 25

Which of the following is FALSE about Socrates?

He believed that there was universal, objective, and permanent truth to ethics and morality.

He believed along with the Sophists that virtue comes from having money and the best reputation that money can buy.

His Socratic Method contained an important element of inductive reasoning and argumentation.

He equated virtue with knowledge.

Question 26

Ethics is best described as:

The metaphysical study of ultimate reality.

The theoretical study of morality.

The constitutional analysis of equal protection and due process decisions

None of the above.

Question 27

Eve, an employee of First Federal Bank, takes an outcome-based or consequences or stakeholder approach to ethics. Eve likely believes that she must

achieve the greatest good for the most people.

avoid unethical behavior regardless of the consequences.

conform to society’s standards.

place her employer’s interest first.

Question 28

The British economist and philosopher XXXXX XXXXX would best say that:

Ethical egoism is bad since it encourages selfish behavior.

Satisfying one’s desires leads to sensuality and lust and therefore is evil.

The government will serve as the “invisible hand” to take care of people.

Satisfying one’s desires and achieving one’s goals are very laudable principles of action and morality.

Question 29

Roberto, the research manager for Agri-Products, Inc., applies Utilitarian ethics to determine that an action is morally correct when it produces

The greatest good for Roberto

The greatest good for the most people

The least good for the fewest people

The least good for the most people.

Question 30

According to Machiavelli,

People are generally selfish, greedy, treacherous, cowardly, irrational, gullible, short-sighted, and stupid.

Achieving power and success and ultimately fame and glory are the most important moral criteria for any person or enterprise.

A “virtuous” action is any one that can successfully achieve a desired end, even if the action has been traditionally designated as “bad” or “immoral.”


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